Plus Therapeutics Inc (PSTV) 2010 Q2 法說會逐字稿

Welcome to the second-quarter earnings call on the August 6, 2010. Throughout today's presentation all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator Instructions)

Before we begin we want to advise you that over the course of the call and question-and-answer session forward-looking statements will be made regarding events, trends, and business prospects which may affect Cytori's future operating results and financial position. Some of these risks and uncertainties are described under the risk factors in Cytori's Securities and Exchange Commission filing which Cytori advises you to review.

Cytori assumes no responsibility to update or revise any forward-looking statement to reflect events, trends, or circumstance over the date they are made. I will now hand the conference over to Christopher Calhoun. Please go ahead, sir.

Thank you, Michaela. Good morning, this is Chris Calhoun and welcome to Cytori Therapeutics second-quarter 2010 conference call.

Cytori continues to expand the base of systems in the field with an initial focus on cosmetic and reconstructive surgery, cell and tissue banking, and research. Today we offer a suite of products for these markets across Europe, Asia, and the US which generate revenues for the business.

To extend our platform into additional medical markets we are preparing to initiate our European approval heart attack trial. In the US, we are actively working towards the design and details of an IDE study for soft tissue defect repair.

In the second quarter of 2010 we received expanded indications for the Celution system in Europe. We have also achieved US and European approvals for PureGraft broadening our commercial opportunity. We divide our current commercial business into two markets, the global aesthetics market, which is predominantly based in the private clinics, and the reconstructive and wound markets, which are based in hospital theaters, operating theaters.

Until now our sales efforts have focused mostly on the aesthetic market. The expanded indications for use for the Celution system opens up the European hospital market where there are more than 5,000 hospitals in Western Europe.

Michaela, we would like to now open the call for questions.

(Operator Instructions) Steve Brozak.

Congratulations. Thanks for taking the call. I am struck by the first thing that comes up on the reorder side and I have got a question that leads into that. Can you give us some clarity, because the reorders are up and that is like nobody is going to basically put in any kind of order, reorder, just to put it on the shelf? So can you give us some clarity on that? And I just got have a quick follow-up after that.

Steve, not really sure what you are asking with respect to reorders. Can you clarify the question, please?

In terms of consumables on the reorder side. I am seeing an increase in terms of consumable reorders. So can you give us some clarity on that because that means that your devices are being used and you have got a reorder pattern growing?

Okay, I think I understand. No question one of the highlights of what we are seeing in the field from a sales perspective is the growth in reorder rates. As we sketched out this business a long time ago, we believed that if the technology worked the doctors would come and the reorder growth proves that.

These are physicians that once they buy the technology they tend to be a little bit conservative at first, but then when patients come back and they have happy patients, long-lasting results they reorder. And that is clearly reflected in that number.

Okay. The quick follow-up on that is can you give us any kind of visibility in what is happening in Q3 in terms of progression? And then I will hop back in the queue.

Well it's still early in Q3. I can tell you that we are off to a strong start. The sales funnel is as strong and as broad as it has ever been and we are bullish on the remainder of the year.

Okay. So you are looking at the same tempo and this razor blade/razor model that everyone always goes out there and advocates for is actually starting to kick in?

I would say two important knowns about the business. Known number one is the technical risk. In other words, the technology works so I think that risk is out of the business. And I think the second risk is that the business model works -- out of the business.

Great. And I will jump back in the queue. Thank you.

(inaudible), Rodman and Renshaw.

Good morning, gentlemen, and congratulations on the continued progress. So this is sort of a two-part question.

So we have seen the installed base rise steadily, 110 I believe in the previous quarter up to 122 and approximately 10 to 12 systems being sold per quarter, and then in conjunction with that we know the recent approval of Celution as well as PureGraft for the CE mark in Europe. So my question essentially revolves around how that designation will catalyze sales in Europe.

If you could discuss a little bit of the strategy to market solution given the CE mark in hospitals and clinics in Europe, and when we could see an inflection in the system sales based on that new designation.

The bottom line with respect to the expanded claims is it really throws open the door to the hospital operating room. It's not that that door was closed before, but it was -- had a slight crack in it.

In the background, as you know, we have been developing the breast reconstruction dataset and application in broadening the sale of the system in ORs. But it creates a tremendous wind at our back to be able to go in in an on-label way and market the technology not only to physicians, hospital administrators, and those groups that are responsible for the purchase of the capital equipment.

So one thing that is a -- hasn't really been said but it's important to know is that our Notified Body is a very high-quality Notified Body in the UK, the British Scientific Institute, and the expanded claims were based on clinical data and clinical success. So I think on an immediate basis we are beginning to shift our sales approach to one that is primarily focused on the aesthetic market to one that is more balanced including direct sales to hospitals. And in the end that there is no question that will result in revenue growth, hopefully in the short term.

Great. And if I may just have one follow-up. You mentioned the plans for the soft tissue defects study in the United States. Correct me if I am wrong, but were there plans to meet with the FDA to discuss the PMA pathway? And if there is a meeting, when is it scheduled and when may you see this trial initiate?

We have met with the FDA in a meeting called the pre-IDE meeting. Prior to that there were correspondences with the FDA and as follow-up to that meeting there have been correspondences with the FDA. We are in preparation at this point for our IDE for PMA approval for soft tissue defects.

The exact nature of the claims and study protocol, etc., is not finalized but our plan at this point is filing that IDE as soon as possible. Could be Q3, could be early Q4, not clear but we are on track to get that in. But I think in addition it doesn't preclude that we couldn't have other regulatory filings in the US as well. But that is the core focus right now.

Great, thank you very much.

Jan Wald, Noble Financial Group.

Thanks for taking my questions. One question I have is on the ADVANCE trial. I know that you were going forward with the cardiac trial in Europe. Could you talk a little bit about whatever planning you have done and what you see for that trial in terms of endpoints and potentially the timeline for it?

Sure. I will tell you what I can reveal to you today. Some of the details are still being nailed down; however, it looks like the study is going to be approximately 300 patients. The plan is to have three groups in that trial looking at two different doses -- 20 million cells, 30 million cells, plus a control. Like the previous study for acute myocardial infarction, APOLLO, it will be randomized, double-blind, prospective in nature.

The primary endpoint will be an improvement in myocardial infarction size. All the data that we have reviewed as well as the trend in the field in our view is the most important clinical endpoint is infarc size, because everything functionally is derived from the size of the infarc. The data from the APOLLO II study, the APOLLO study showed that we had a significant effect on infarc size. Not statistically, but an important improvement.

In terms of centers, probably 35 centers max. And from a timing perspective, right now we think it's possible to enroll the first patient in late 2010. We are interacting with Competent Authorities in the first trial site, but Competent Authority approval is really out of our control so that first patient enrollment could slip beyond 2010. But we are working on a very tight timeline towards that first patient being enrolled by the end of the year.

Thank you. I guess my follow-up is would you remind us how PureGraft fits into your overall product portfolio and how you are going to use it in the US and European markets to grow your business in plastic and reconstructive surgery?

PureGraft is an outstanding product for us for a lot of reasons. It gives us a product that we can basically sell around the world. To put this in perspective, people that use fat tissue for cosmetic purposes or even therapeutic purposes generally have to do three things and many of them are starting to want to do four things.

The three things are they need to pull the tissue out to harvest, they need to process the fat which is the processing step, and they need to deliver the fat tissue. And in some cases they want to bank the fat tissue. So PureGraft is a way to process the tissue. It doesn't give you the potent fat graft that you get when you use supplementation with stem cells, but without the supplementation on stem cells it's the next best way on the planet to process fat tissue.

It works by technology developed here at Cytori called lipodialysis. So from a strategic perspective anyone that wants to do any sort of fat processing for whatever reason should substitute whatever they are doing now, whether it's technology that is obtained from the kitchen store or something they do in a blender on the back table in the OR, they should substitute PureGraft because it's a sterile, closed, cost effective method to process the tissue.

So there is a real market that exists today for that product and in my view it's the leading product in the field. However, strategically it allows us to now target many physicians on-label, not just in Europe but in the US, to begin to talk to them, not only about our fat processing technology, PureGraft, but also our cell-related technology, StemSource or Celution. So it provides us a way then to talk about moving customers from one product up to a different level of product for the power user, if you will.

Thank you.

Operator, before you go on with the callers on the line we are also going to weave in some questions we are receiving over the Internet today, so we have received a couple here. Let me start with the first one.

Will the Celution One be submitted for any indications over and above those of Celution 800?

So the short answer is yes. Minimally the Celution One will have the claims of the current -- expanded claims for the Celution 800 that is currently on sale in Europe. We expect those claims over time to be expanded in a similar fashion that the recent claim expansion happened, and that will occur over time based on clinical results.

Thank you, Marc. The second question that has come in is I recently saw that a patent challenge was rejected by the PTO, ie. our patent was validated. Could you clarify the development and update us on any further developments in the IP strategy?

That question refers to our 484 patents. That patent is really our core device methodology patent filed many years ago that covers taking the adipose-derived regenerative sales from fat tissue. We call it the bedside, initial bedside patents.

The key point there is that key device and method patent has just been significantly strengthened as a result of this. Basically an anonymous group put the patent in to re-examine, a potential competitor no doubt, but it was summarily rejected.

It's the best of all potential outcomes, frankly, and really reaffirms our leadership position with respect to the IP in the field and validates our long-standing belief that because we have been in this field for the longest we have been out there aggressively filing patents that we have a strong portfolio and a competitive advantage.

Operator, we will turn it back to you for callers in the queue.

Brian Gagnon, Gagnon Securities.

Good morning, gentlemen. A few questions. Marc, you mentioned that there could be other regulatory filings in the US. Are these outside of the soft tissue trial? Can you give us any thoughts on what you are thinking there?

Well, I just -- I didn't want to -- I think it's important to understand our priority is to get our initial ID in and really get off to the races from a regulatory perspective in the US. However, we do have other plans for other regulatory filings in the US. It's a little too early to talk about those, but it's important to understand that that is not the only thing we are working on in the US.

Okay. Just a question, how many cases have been done so far?

Part of the difference in where we are today versus a few years ago is it's hard to know because so many things are going on in so many regions around the world. Every day we have sometimes several cases going on during the work week. In aggregate we estimate probably around 2,000 cases or so that have been done, but that is -- there is a lot of variability in that answer.

Wow, that is a lot of cases. How many reps do you guys have today and what are your plans for adding there?

In terms of dedicated representatives, sales representative resources, we have five in Europe, five in the US, and three in Japan. In addition to that we have individuals who wear multiple hats that are in fact primarily a marketing role or an engineering role but do have a sales support function. We have recently added several of those individuals, of the 17 I just mentioned in the US and in Europe, and we expect that to grow in a scaled fashion.

Okay. When have you seen the uptake in the US on PureGraft? I know this is a way for you to get in the doctor's office and talk to them about this prior to you getting everything moving with the Celution system. What has kind of been the reception to PureGraft in the US?

It can't be quantitated because it's still so early and we have probably got $100,000 right out of the gate of PureGraft orders, some going to distributors and some to direct customers. But I can tell you more qualitatively the feedback has been outstanding. It's one of those products that the physician can spend five minutes with, touch it, feel it, immediately recognize the value that it adds to their practice.

But at the same time the nurses, who are tired of the current ways in which fat is processed using centrifuges or gravy bowls or strainers, are incredibly happy to have this because it makes their cleanup and their workflow much more better around the case. So there is a strong motivation on the nursing side as well to bring this product into the hospital or the OR.

So it gives a lot more standardization to the way this is done?

It does, absolutely.

Last question, then I will get back in queue. On the European expanded claims -- first, congratulations on getting those. I gather this is now a hunting license for you to be able to go into the hospitals and have these claims, because you have been selling in the past without any claims.

I think we were all a little, pleasantly surprised, that the wound healing thing was in there. What does that mean for you and is this a big opportunity for you above and beyond just the soft tissue defect sell?

Brian, the claims are great news. We have been working on that a long time and ultimately it was data driven. And it was data driven not only in the breast, reconstruction, and aesthetic side, but it was data driven on the wound healing side.

Reading the claim specifically, they say to facilitate wound healing and then they talk about fistulas and that sort of thing. But it's facilitating wound healing. We have a growing database from a wound healing perspective that shows that the cells work great, particularly in radiated wounds.

So you are exactly right from a strategy perspective in that now we can go in the front door of the hospital with a piece of capital equipment and a consumable stream and make a much stronger argument to physicians in an on-label way that they should bring this technology in for any of the applications in the claims.

In addition, it makes the sale easier to the hospital administrator who in the past they could say, well, this is a cell processor it doesn't treat anything. Now we have claims from really the most prestigious Notified Body in Europe to be able to sell it on-label. So we have been planning for this and we are -- right out of the gate we are changing our sales processes accordingly to be able to maximally leverage this.

Were there hospitals that weren't able to buy because you didn't have any claims?

Yes.

Okay, good. Congrats. Keep up the good work.

Ed Tenthoff, Piper Jaffray.

Thank you. Can you hear me okay?

Yes, we hear you fine, Ed.

Great, thanks. So good updates, appreciate that. I am trying to get a sense what the IDE trial and what these cardiac trials may cost you in aggregate or individually?

This is Mark Saad. The study I would say we have a tighter understanding of would be the ADVANCE study, which as Marc talked, being about 300 patients.

Based on the experience we have had running two separate double-blind, placebo-controlled cardiac studies we did a pretty good job of assessing, predicting, and then achieving the cost goals. So I think we have a good understanding of what to expect here. Always some variability, but I expect it to be in about the $10 million to $15 million range over the sort of three-year aggregate life of the study.

If you look backwards on our historical R&D costs, this time last year we were effectively or shortly there before really enrolling three separate company-sponsored studies, clinical studies which have now all been fully enrolled. So we really see this as being as meaningful as it is to get an approval-based study doesn't necessarily change our overall clinical budget too much from what we have recently experienced. Because we are really shifting three previous trials' resources into a single-approval trial.

As for soft tissue IDE study, it depends certainly on final outcome of trial design, numbers of patients, endpoints of course. The opportunity in the soft tissue area is those clinical trials tend to be significantly less in cost per patients.

So whatever it is we expect there is a design, given the indication range that we are talking about, that would not likely be as expensive as the cardiac study. Potentially significantly less expensive, but it would be harder to really pin that down just yet. I think we want to make sure we have the final design in concurrence with the Agency.

Makes sense. Now kind of looking out a little bit, what level of sales do you guys forecast is going to be required to ultimately get you to a breakeven?

I will take that one again. It really depends. If we want to run the business purely for achieving breakeven, we can run it at a different level and at a level that -- with margins at scale in and around the 60%, 70% range. Could be better but I am just offering a range and a needed cash -- what is the real cash operating cost that is necessary to run a company at a goal for breakeven and near-term profitability?

You could be targeting numbers of like $30 million of sales, which based on claims and near-term sales deliverable we don't think is that far out in our future. Being able to invest into expanding our label, expanding our reimbursement, expanding indications which we do selectively in a careful way of what that has resulted in investments, both in R&D, particularly clinical, as well as marketing investments to broaden our footprint. We are making investments to grow the business at a faster rate and so you would move the breakeven point upwards.

It really depends on how much we want to reach and grab because the growth potential is clearly significant. How we run the business to manage cash versus manage growth is something we looked at very carefully and closely and continue to monitor. Fortunately, what we have been able to achieve on the resource side, what we believe the opportunities in the future hold we have been able to shift that focus towards managing for growth.

All right, thank you very much.

Chad Messer, Piper Jaffray.

Hi, guys. Thanks for taking my question. I read in the release or the shareholder letter guidance for a new strategic partnership or a goal of a new strategic partnership in the next 12 months. Can you comment on where you are getting the most interest from potential partners?

Is it around reconstruction or cardiac? Is it for something in Europe or US or --? Any kind of color on where you are seeing the most interest would be appreciated.

Hi, Chad. It's Mark Saad again. That disclosure is consistent with what we have said before, consistent with our expectations, consistent with an ongoing part of our business and efforts that involves a significant amount of management time. And, fortunately, we believe has been progressing overall.

I think the interest is coming from multiple, large multinational companies that we have growing relationships with and these are both US and international parties. I would say there is multiple therapeutic arenas including cardiac, including some other operating room type segment arenas that are of, I would say, core interest to, I would say, north of three active evaluations that are underway.

Timing is always variability in these things and what is critical is that we have been holding out for the right deal. We have turned down plenty of opportunities that we felt didn't have the right mix of conviction that we had in either the Company's ability or commitment or appropriate valuation for the opportunity.

So we have been pretty resolute to make sure we have the right combination of those factors to do the right deal and we feel good about that. There is a progression going on and, like always, timing is variable but we are making progress.

Great, thanks. Very helpful. Just a quick follow-up if I could --

David Musket, ProMed Management.

Congratulations on moving this platform forward. With respect to the US soft tissue trial, you have already had one meeting with the FDA; you are planning to submit perhaps as early as the end of Q3. Can you give us any further guidance as to what your thinking is there? Earlier you had mentioned maybe radiation injury as something that might be an expedited endpoint for you.

Similarly, can you tell us when you make this decision how will you communicate this to us? Will you be putting out a press release, a conference call? How will we know that this filing has gone in and what the details are?

I will take the last question first. It's Marc Hedrick.

We will let you know when the IDE is accepted; when the details of the trial are relatively fixed we could really provide you some information. Prior to then I don't think it's helpful to let you know anything other than we are continuing to work hard and it's a critical priority for us.

In terms of the nature of the trial, I think it makes sense to tell you what we do know rather than speculate about where we might end up with the FDA. We feel strongly that it should be something indication-wise around soft tissue defects and our conversations with the FDA are kind of bifurcated. On one hand what does this exact trial look like and then secondarily let's continue to educate them on the safety and the efficacy around the world on the system and the cellular output. So both of those discussions are going on at the same time.

There is some variability right now in terms of where those claims and the proposed claims and the nature of the trial will end up. And that is about as much data as I can give you at this point.

Okay, thank you. As a follow-up, I know we are still kind of in early days here and we shouldn't try to read too much into this, but with respect to the system sales you have made and the way the reorders are coming through is there any trend that you can see -- in other words, some of the territories where you have had people there the longest, some of the systems that have been in place the longest are those the ones that have been coming up with a steady and/or increasing reorder rate?

In other words, should we be looking for this quarter-over-quarter trend to be accelerating?

I would absolutely look for this trend to continue and you do see it -- it's kind of -- there are two aspects to growth. The first one is physicians typically bring the technology in, they are a little bit risk adverse, a little bit unsure, but they have made a sales commitment. They bring it in do a few cases, the patients come back over time, and in about three to six months they figure out, hey, this is better than anything that is on the market and it works. And then you see a growth in utilization.

But then there is a second inflection point that they get to where they get the sales and marketing part down, because remember this is -- the new technology physicians have to adapt their own internal practices to market the technology to their patients and sometimes that takes a little bit of time to develop. In fact, one of the initiatives we have in the Company is to better empower physicians to be able to ramp their own practice success with this technology more quickly.

And I think that will shorten that time for the physician getting the technology, believing in it, and then ramping their own utilization and therefore consumable reorders.

All right. Thanks, guys. I will get back in the queue.

Operator, it sounded like the prior call, Chad, was cut off. I don't know if you have got anything else.

Yes, Chad is next in the queue. Thank you.

Okay, thank you.

Oh, great. Thanks so much for the follow-up. I just real quickly wanted to confirm something on the GE Consortium loan facility you guys have. I believe some principal payments start back up next year and then I just wanted to confirm that that was included in your guidance, that your cash lasts into the first quarter of 2012. Thanks.

Hi, Chad. It's Mark Saad. Yes, beginning second quarter of next year we will begin making principal payments on it and, yes, that is factored into our statement.

Great, thanks.

[Joe Fishburne], JFP.

I was wondering if you could provide maybe a little bit more meat on the bone about the momentum into this quarter. And then secondly, I was hoping you might also provide a little bit more clarity on your partnership discussions. Are they across multiple verticals, are you really referring mainly to just cardiac, are some things ahead of others, etc.?

Hi, Joe. It's Mark Saad. So the two questions -- first was as I understood it current status by our read of the quarter. Typically, especially looking backwards and appreciating that we are in a phase of the commercialization where a lot of the revenues have been more largely dependent on system type sales, which are higher ticket items often and you have smaller unit numbers so there is a lot of variability based on when those systems sales come in.

Invariably those systems sales tend to come in in the latter parts of the quarter and that has just been the historical reality. Not always, but that is generally how it has been.

And then over time the consumable reorders tend to be more normalized, although for whatever reason those have historically tended to be latter quarter events as well. So typically we really don't see these coming together until the last third or so of the quarter.

With that being said, we have observed a faster start to this quarter than we typically see. Both on, I believe, systems and consumables, but it's hard to use that as too much of a predictor. We certainly are very pleased to see early starts to quarters so we seem to have gotten an early start.

So that is really the best I can offer on that. Also, on the -- I am sorry, the second question? Partnership.

I am just curious whether the partnership discussions are really just cardiac-centric or whether you see momentum in other verticals, that kind of thing?

I would say it's balanced. There is real cardiac interest from multiple parties, number one. And believe there is interest in the data and the business model and the product profile and the regulatory status that we think we are offering a potentially compelling scenario for those that want to be in these markets potentially near term for a modest investment, let's say, relative to a traditional blockbuster drug, which in theory could have a blockbuster opportunity.

And I think that is driving a real interest from multiple parties and we are working actively on those.

Outside of cardiac there is interest in a number of other therapeutic areas as well and so it would be hard to say what is the area that provides the right combination that I talked about of value, commitment, ability. Some days we think it's one and we wake up the next morning and it can change on you very quickly. But the overall news is that in balance it tends to be moving forward.

The more things we do opening up new markets, getting the regulatory expansions, potentially achieving reimbursements, the more data we perform -- all of that, in our view, increases the likelihood of the right combination of factors to bring a deal forward. So I would say if there is a balance between, yes, cardiac but also some other areas that are of strategic therapeutic interest.

Got it. And then I know Brian Gagnon mentioned something or asked something along this line so hopefully this isn't completely duplicative. From a sales and marketing perspective in Europe and I guess other countries that follow the EU approval process is there a backlog of prospects? Have you actually already seen momentum? I am sure it's a little early to include that in your bullish outlook.

And how should we think about the ramp accelerating? Not necessarily specifically in terms of timing but we know there is a lot more opportunity there. I am just curious what potential customers are -- where potential customers have been so far in the process and what you are hearing from them since you got the extended claims approval in PureGraft in Europe. What is the feedback through your sales pipeline?

Hi, Joe. It's Marc Hedrick. With respect to claims, we know from being in the field for two years and talking to lots of hospitals, physicians, and people in the buying decision-making process what is important to them. We know claims as well as reimbursement are an important part of those, and that is why for the last two years we have been working on expanding the claims and gaining reimbursement in Europe for the system for hospital sales.

And then positioning the Company in such a way that we can be really good at the capital equipment selling part of the business, as well as the driving consumable utilization. So those things have been ongoing investments that we have made internally in the Company that be positioned for this point.

With respect to PureGraft, a similar approach, which is we have been preselling the market in Europe for PureGraft. We have been attending the major meetings related to this field, in booths, on the podium, giving presentations. People that have used the PureGraft technology in kind of a trial session effectively, and beta testing in the field have been able to present some of their data and their feedback on the podium.

All that has been really building a groundswell of support for that product in Europe such that now in the core markets where we are going direct we are ready to hit the ground running. And in non-core markets we have established distribution relationships that are -- they have pulled the rubber band back and they are ready to now fire out with this product. The early e-mails and feedback and calls we have gotten has been universally positive about that product.

So is it -- anyway, last question. I am sorry I took way too much time. But is this the kind of thing where over the next few quarters there is kind of a chance of -- much better chance of kind of a hockey stick progression? Not necessarily, obviously, in the quarter we are in but is that -- are these combined approvals sort of -- is that what we are leading to?

The way I would say that is there is enough momentum from having a diverse product portfolio that goes well beyond Celution to selling in to multiple markets with expanded claims, with reimbursement progress that all add up and then multiplied by geographic expansion to put us in a position that we are preparing for growth.

Great. Okay, thanks.

Gabe Hoffman, Accipiter Capital Management.

Good morning, gentlemen. Thank you for taking my question. So I was just giving some thought about how you had described your cash balance as getting you through to the first quarter of 2012, which is great because that is a good amount of time. And just wanted to understand a little bit more about your assumptions behind that.

So specifically what I am thinking is, okay, there is six quarters taking the last two of 2010 and then four in 2011, so there is six quarters and you have got $38 million in cash now. If I just took your operating burn of $4.5 million in the past quarter and I multiplied that by six, I would get $27 million. So I think $38 million minus $27 million, well, that is $11 million.

But then on the other hand, we would think about the $15 million in debt that you have got to GE out of that and there is some repayments. And there is also a minimum cash balance that you have got to have. I am not sure what that exact number is, if you could fill me in that would be helpful.

And then I am also thinking, well, okay, you described that you are going to have some increased expenses with initiating the pivotal European heart attack trial. Now on the other hand, you could have some sales increases and that could weigh on the other side of the scale. So if you could just help flesh out just some ballpark assumptions on what you are weighing on what side of the scale that kind of gets you there that would be really helpful.

Hi, Gabe. It's Mark Saad. Going to the last part of what you said first, we do not expect the increased expenses that relate to the study between now and the time frame that we have talked about to be materially different than the past. In which case, as I mentioned before, we had three clinical studies running in aggregate; the costs of follow-up of those studies, which we have been incurring over the last nine months.

And so there has been a significant historical investment in clinical trials, like I said, that we are shifting into this one. So I don't see an immediate or within that time frame dramatic change in the expenses.

So first of the assumptions I would not recommend moving the expense need upwards to that degree. Secondly, you are right. If we had a $4.5 million operating, cash operating use in the quarter, I would also offer that that compares to about $6 million for the comparable quarter last year.

So there is an observable improvement and we think for good reason thanks to the experience in the field, the sales growth, the claims expansions. All the things that we have said we would do to improve our revenue picture and our margin picture, which has included taking back distributor rights and going direct, and I think you saw that with 140% growth in margin.

So you are right, if you were to take a static view and look at expenses and no material change in our growth over the next four to six quarters, then we are carefully entering 2012 assuming the appropriate debt repayment and maintenance of the covenants. And that is, frankly, a dramatic improvement over where this company has been over the last certainly six years since I have been here.

So we are in the strongest capital position that we have had certainly in my six years and that has been something that has been continuing. And you have some observable things that would suggest that that may further continue. So I think we have laid out a pretty strong picture for how we get there and what our needs are and how we can accomplish them.

(inaudible)

Just a quick follow-up on the AMI study in Europe. You mentioned some aspects of the trial design including doses of 20 million and 30 million cells in addition to a placebo. I am just wondering if you could talk a bit about the assumptions behind that dosing plan, perhaps why you wouldn't consider potentially higher doses above 30 million.

This is Marc Hedrick. The dosing rationale is based in part on the original APOLLO study which showed that that 20 million cell dosage was responsible for the positive changes that we saw in the study. So we feel pretty good about that dose.

The question is what is -- should you look at another dose and if you do what should that dose be? A careful read of the current state-of-the-art literature on cell therapy in the heart and discussion with former and potentially future principal investigators and leaders in the field around the world suggests that likely an increase in the cell dosage may provide added benefit or provide insurance that the trial indeed meets its primary endpoint.

Dosing with cells is a lot different than dosing with drugs, and so when we have a dose that we feel like work, which is the 20 million cells, and we have -- after a lot of discussion, it will take a lot more time than we have this morning to tell you about, believe that a moderately increased dose has the possibility of being equivalent or even better. Whereas if we go too much farther, let's say 10x or 100x, there is actually a lot of data to indicate that you might not get that same improvement or potentially could make the patient worse.

So there is a lot of careful calibration looking at our data and other data to come up with those two doses I can assure you.

Okay. So that is the final plan then, those two doses?

Correct.

Great. Thank you very much.

There appear to be no further questions. Please continue with any other points you wish to raise.

We have continued to build a positive momentum in the second quarter and believe that we will seek continued success throughout 2010. We are positioning for growth in both our aesthetic business and now the hospital-based reconstructive and wound business enhanced by solution claims and PureGraft approvals which support the Company's transformation from a primarily R&D organization to a multi-product, multi-market, sales-driven organization.

We look forward to updating you on all of our target goals and milestones and progress. Thank you for your time and continued interest in Cytori.

This concludes the second-quarter earnings call. Thank you for participating. You may now disconnect.