Plus Therapeutics Inc (PSTV) 2012 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, welcome to the Cytori Therapeutics business update and 2012 fourth quarter and full year results call. At this time all participants have been placed in a listen-only mode. And the floor will be open for your questions following the presentation.

(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 section in Cytori's Securities and Exchange Commission filings, which Cytori advises you to review. Cytori assumes no responsibility to update or revise any forward-looking statements to reflect events, trends or circumstances after the date they are made.

It is now my pleasure to turn the floor over to Chris Calhoun, Cytori's Chief Executive Officer. Sir, you may begin.

Thank you, Paula. Good afternoon and welcome to our 2012 year-end results and business update conference call. I'm joined today by Dr. Marc Hedrick, our President; Mark Saad, our Chief Financial Officer; and Clyde Shores, our Executive Vice President of Marketing and Sales.

Cytori is in a unique position. Our 6,000 patients treated, three completed and two active Company sponsored clinical trials and more than 40 investigator led clinical studies is irrefutable evidence our technology is safe, effective, and our business model is sound.

Operationally, the Company is effectively utilizing capital and driving toward profitable revenue growth. In 2013 we're focussed on delivering on four principle objectives, which when achieved will significantly increase shareholder value. These four principles are -- to advance our cardiovascular disease pipeline with emphasis on full enrollment in ATHENA, achieve proof of concept in our BARDA contract, drive profitable revenue growth in our commercial business, and meet our operational and financial performance goals.

Before we move into the question-and-answer session, I'd like to spend some time reviewing the highlights from the quarter and the year, as well as looking forward into 2013. Management has delivered strong results during the quarter and for the full year in each of our business areas, achieving the goals established for 2012 and setting the foundation for leadership and growth in the cell therapy field. Let's start with both our commercial and financial performance.

Cytori delivered record total revenues for both the fourth quarter and full year in 2012. Cash revenues, which include cash, generating product and contract revenue, more than doubled to $4.3 million compared to $2.1 million in the fourth quarter of 2011. We achieved our full-year revenue target with $9.1 million in cash revenue representing a 14% growth over prior year revenues of $8 million.

Gross profit was up 126% in the fourth quarter to $2.6 million compared to $1.1 million in the fourth quarter of 2011. Full-year gross profit was also up to $4.7 million compared to $4.1 million in the prior year.

We delivered on our promise to do more with less and honor our directive to move toward profitable sales growth. We achieved record revenue growth while at the same time sales and marketing expenses were reduced by 31% over the prior year. In the fourth quarter, gross profit exceeded sales and marketing costs providing our first quarterly positive contribution margin.

Research and development expenses came in slightly under budget for the year with the planned increases due to clinical trial activity to $13.6 million compared to $10.9 million in the prior year. Comparably, SG&A expenses were reduced to $25.2 million for the year compared to $28.3 million in 2011.

Turning to the balance sheet. We ended the year with $29.6 million in cash and accounts receivable. In January, the Company received an additional $2.8 million as a result of the full exercise of the over allotment provision from the December financing.

While the Company is making progress in reducing the quarterly cash operating loss in parallel with growing the commercial business, we still require additional capital to reach break even. The Company has a detailed capitalization plan that includes multiple elements and is prioritized towards maximizing our access to and use of capital while at the same time minimizing technology and/or shareholder dilution. We continue to pursue potential strategic partnerships but have nothing new to report as of this call.

Looking forward, consummating the right strategic partnership is a top priority of both the Management and the Board. Historically, Cytori has delivered more strategic partnerships than any company in our peer group and we continue to believe that we have the ability and opportunity to deliver on this. What we don't have is the ability to accurately predict which deal will come through and by when. In order to ensure that the Company remains in a strong financial position, the Company will continue to evaluate multiple financing options in parallel, and we will announce the consummation of a partnership at such time that our deal terms are met.

Looking forward on our commercial business, we are guiding to cash revenue of $15 million in 2013. Continuing our theme of doing more with less, we are intending to achieve this growth while holding SG&A costs flat year-over-year. Additionally for the full year, we expect to deliver a positive contribution margin from the commercial business, or said differently, as we are driving toward profitable revenue growth, our sales and marketing costs for the year are budgeted to be less than our annual gross profit. We do budget for a small increase in R&D expense directly related to the BARDA contract, which will be more than offset in contract revenue. Revenue growth will come from a combination of sources, but most importantly will come as a result of the Class I clearance received last year in Japan.

As it has historically, the majority of our product revenue will come from Japan in 2013. Due to the cultural and business practice differences, we will likely recognize much of the revenue from Japan upon payment of the accounts receivable, rather than upon receipt of the purchase order and shipment of the product. This will essentially cause a one-quarter lag of recognizing revenue in this market and our guidance is that revenue will be weighted toward the second half of the year.

In addition to the revenue growth in Japan, we anticipate revenue growth in both Europe as well as other new markets we anticipate opening later this year. The recent Intravase approval coupled with our previous certifications will permit on label sales of our technology for safe intra vascular use in tissue ischemia. We have a growing global sales funnel based on this approval.

We continue to see strong demand for investigator led studies of our ADRC based products. These studies are an important part of our commercial strategy. The first step has been to enable physicians to investigate the use of cell therapy towards specific areas of interest within their specialty and we are seeing demand for this growing. Currently there are 40 investigator-led clinical studies around the world, which are in development, in progress or already have been completed. This includes several multi-center trials.

The second step of the strategy is to leverage these investigator pilot studies to fund clinical trials leading to expanded labeling and reimbursement. In many cases, the funding is coming from external sources such as hospitals and governments. Last year our arrangement with BARDA was an example of this. Now we can announce that our early feasibility study on both men and women with urinary incontinence has been expanded to a larger multi-center trial funded by the Japanese government. Nagoya University has received a grant in the amount of JPY500 million or approximately $5 million to fund the clinical trial, amend the labeling for this indication and establish reimbursement. We intend to provide more detail on this trial throughout the year.

Beyond these two studies, many of these investigator led studies and research work are actively funded by numerous governments around the world. We anticipate this to be a growing aspect to our business strategy.

One area in which we have not had success in is in the process of obtaining NIC endorsement of our technology for breast reconstruction in the UK. Our files submitted last year and subsequently revised was returned to us for further data to better substantiate cost effectiveness. There were two important contributing factors in their decision. One was a significant reduction in the fat grafting payment to the NHS hospitals that negatively affected our cost effectiveness modeling. Overcoming this issue would require an additional comparative trial with prospective cost effectiveness data.

Secondly, since the vast majority of these patients are not reconstructed today our treatment could represent additional new costs to the NHS and in the current austerity mode of the NHS this would require additional quality of life data. And while we strongly believe in the effectiveness, patient quality of life benefit, and ultimate cost effectiveness of this treatment, we have not budgeted additional trial work in Europe for 2013. We will update you as the situation changes, but we will continue to sell globally for this indication under our existing claims.

Additionally we're pursuing approvals in several new markets including Australia and Canada, which we believe could come through later this year. While not specifically in our revenue growth plan, we expect this could represent more revenue upside this year.

Finally, our PureGraft product line continues to experience record year-over-year and quarterly growth. We expect this will continue into 2013 and we are planning on launching an important line extension targeting a significantly larger market that's planned for this fall.

Now let's turn to our cardiovascular pipeline. Our US ATHENA trial for refractory heart failure in patients with reversible ischemia is now actively screening and enrolling at all six US trial sites. As a result, we are currently on track to achieve full enrollment by midsummer as previously projected. To date, the study has demonstrated a healthy enrollment rate and no safety issues have been reported.

Achieving full enrollment in this trial and preparing for the follow-on trial is an important goal for this year. Currently, 9 of the anticipated 45 patients have been treated by the first two centers, Minneapolis Heart Institute, which initiated the trial last September, and Texas Heart Institute, which began treating patients in November. Today, with all six sites now screening patients and with good visibility into the list of patients currently scheduled for treatment, we have high confidence that the trial is on schedule for full enrollment by midsummer as we projected last year.

Moving on to the ADVANCE trial. In 2012 we amended our European ADVANCE pivotal trial for acute myocardial infarction. The goals of these trial amendments were to speed enrollment, better assess the apparent trend toward a reduction in adverse ventricular remodeling, and better meet the evolving regulatory standards in Europe.

Four sites in two countries are approved and enrollment is proceeding such that we are now at 15 total patients toward our interim analysis of 72 patients and 216 patient total enrollment. This pivotal reimbursement oriented trial is strategically important to Cytori for several reasons beyond the fact the STEMI market represents a potential $7 billion market in Europe alone.

Specifically, this trial has provided Cytori an opportunity over the preceding two years to identify key opinion leading physicians working through important regulatory objectives unique to each European country and beginning to train numerous centers throughout the EU in the benefits of Cytori technology for cardiovascular disease. This has been critical in laying the foundation for the current introduction of our technology in Europe based on the recent tissue ischemia claims and Intravase approval. At this point we have budgeted for enrollment for up to 25 patients in this trial in 2013. Additional funding into the Company during the year could be used, in part, to expand enrollment.

Our most notable achievement last year was the award of our BARDA contract for up to $106 million in development funding for Cytori's cell therapy as a treatment for thermal burns combined with radiation injury. It's an important accomplishment that serves as recognition of the value of our technology and leadership position, validates our investigator-initiated study strategy, expands and accelerates our US product pipeline and provides a very achievable path, substantial non dilutive funding. From a strategic perspective, this contract complements our ongoing efforts in soft tissue repair indications, specifically wound healing.

The first phase or the base period of the contract is $4.7 million and is actively under way. Approximately $400,000 of that was recognized in the fourth quarter of 2012.

Importantly, we are already making progress on the three specific milestones that trigger the next phase of the contract, which is valued up to $56 million. This next phase includes funding for a pilot US clinical trial in a soft-tissue indication. We expect to complete the base period and demonstrate proof of concept in approximately 12 months.

Our innovative and novel science, engineering and clinical developments are being translated in patents around the world, including 15 new patents granted in 2012, a 36% increase, bringing our total issued patents to 57 worldwide. We believe that we have strong patent and trade secret protection and have a dominant position related to ADRC cell therapy.

In closing, I would like to note that significant clinical regulatory commercial and corporate accomplishments continue to define our progress. We are committed to building shareholder value throughout 2013 and beyond.

Paula, now we'd like to open and take this opportunity to have any questions for me or my leadership team.

The floor is now open for questions.

(Operator Instructions)

Jason Kolbert, Maxim Group.

Really, thorough press release and a great overview. Congratulations on a great quarter. I'm going to have to revise my numbers up. I hadn't anticipated that you did $4 million in the quarter.

Can you help me understand a little bit, though, since you're already reporting a lag in Japan, how the numbers annualize? I think you we're talking about $15 million in revenues projected for 2013? Could that number actually -- first of all, I guess, how much of that number is based on Japan?

And, if I were to annualize the quarter, I'd actually come up a little bit higher. So, help me understand that?

Hi, Jason, it's Mark Saad. I think a couple of us could answer that from different points of view. From the finance point of view, we've looked carefully at the overall global commercial strategy and activities and funnel and we certainly have a high expectation for Japan as a proportion of the total commercial revenue for the year.

Specifically, if you were to look at the at least $15 million number, we do expect about $2.5 million to $3 million of that number is likely to be recognized contract revenue under the BARDA contract. As we are performing those activities, we're earning more and more revenue. We see that happening ratably throughout the year.

If you net that out, it gives you a picture of what we think the remaining part is likely to be, the at least part for the commercial side. Of that, I would fully expect 60% or so could very well end up being from Japan thanks to the significance of that approval.

Okay. That makes some sense. And I understand, too, what you're saying in terms of keeping the SG&A flat during the number and I could imagine how tough that is.

Can we talk a little bit now clinically, it seems like the focus is really on the CMI trial in the US. Congratulations having 6 sites up and running this quick is great. Having 9 patients enrolled as you're going to 45, sounds great.

Here we are in March, so we have April, May, June. So I guess the assumption is that among the remaining six sites that you're going to be able to get another 35 patients enrolled. So help me understand how those calculations play out?

Hi, Jason, it's Marc. Yes, you're right. The plan is by, as Chris said, by the summer, to have that study fully enrolled.

As Chris also said, we have a couple of sites that have been responsible for all the enrollment thus far. The remainder of those sites come on this month. They just -- it takes a variable amount of time depending upon contracting and IRB approvals, training, introduction of the Nogus System and so forth when it's not there.

So we're just simply saying that we think those remaining sites come on board and they will continue to enroll at the rate that we've seen thus far, which is a little bit over one patient per site per month. There's some variability there, best case-worst case, but that's sort of the medium case assumption.

Marc, is there though a bolus of patients that's -- I understand that at Texas and Minneapolis there were some patients pre-identified. How strong are these sites in terms of their ability, are there pre-identified patients ready to go?

Well, the physicians are super-enthusiastic about this trial. One reason they're so enthusiastic is you've got patients that have no other clinical options.

So you can imagine, as one physician told me the other day, that, they're tired going to clinic and basically having a social visit with patients that they can't do anything about. So, these centers are some of the US best cardiovascular centers, and they have a tremendous number of patients they would like to treat and, therefore, a long list of patients. You can imagine the sites, as they anticipate coming on board this month, have been looking for patients over the last few months.

A trial this size, we just don't anticipate difficulty in having access to patients. We do have to bring them through a relatively complex screening process and that accounts for some of the variability, but patients with this disease is not a limitation.

Thanks, Marc. And two more questions, one is MVO2. Remind me how often MVO2 will be measured? MVO2 is the primary end point of this trial. And is it correct in my understanding, then, since we already have nine patients that have been treated, you're going to have some MVO2 data six months from now?

Again, this is not a pivotal trial so there is no primary end point. There are safety end points and therapeutic end points. So, we do think that MVO2 at six months is -- which is one of our efficacy or feasibility end points, is a key end point for determining efficacy in this trial. So --

There's no such thing, though, like an interim analysis or there's no point at which you can adjust the numbers or the DSMB will have a look based on whether you're hitting your expectations on MVO2? And also, can you remind me, how is MVO2 measured? I found it compelling when we last talked about it.

MVO2 it is basically a quantitative, highly advanced, physiologic treadmill test, so that patients' oxygen consumption and carbon dioxide production are measured through gas exchange in the lungs. And that's basically a measure of overall cardiovascular fitness. You can imagine these patients who have failing hearts don't have the ability to keep up, and, therefore, don't have the ability to process the same amount of oxygen and work that a normal patient does and this measures that.

The good thing about this, and why we like it so much, is it's a clinically -- it is a measure that's used to assess fitness in these patients everyday by virtue of being on -- one of the factors that's used for listing patients on transplant. These patients are dying, over time their heart function continues to deteriorate. This is something that's actually used to stratify patients and put them on the transplant list. We think it's the best measure and it's the thing we really want to hang our hat on as we do our decision making in going to a pivotal trial.

Any idea of whether that would be an acceptable end point in a pivotal trial?

Well, I think we're under active discussions internally and also with FDA. So we think that will be part of the mix, but we really need to wait for the ATHENA data to be able to talk intelligently about what ultimately we decide with respect to end points.

Okay. Terrific. Thank you.

I'll come back in the queue to talk a little bit more about BARDA. Thanks.

Yale Jen, Roth Capital

Congrats gentlemen for a very good quarter and that you have delivered that.

Thank you.

Just a quick question in terms of the revenue guidance as well as some operations and those things in Japan. When you mentioned the $15 million you anticipate for this year, I should say 2013, is that in accrual or ex-accrual the BARDA revenue? That's the first question.

Hi, Yale, it's Mark Saad. Thanks for giving me the chance to clarify that. Yes, I mentioned that we would include -- really cash revenue is what we see, because there has been some historical non-cash development revenue. I think it's important to distinction the cash revenue because both the product revenue carries a very healthy margin and we actually infer a fairly substantial margin from the BARDA revenues as well.

So what I said was that about $2.5 million to $3 million, and it's based on the amount of contract activities that actually occur during the course of this year, that's our current scheduled accrual this year, would be attributed to the BARDA contract. Then, the remaining part of the $15 million would be attributed to the expected commercial product revenue, so in aggregate we're seeing at least $15 million of the combined.

Okay. Great. Thanks for that clarification.

The second one is that you mentioned that you intend to leverage the infrastructure and of going forward you might have the gross profit exceeds that of the marketing expenditure. And do you anticipate this to be a norm going forward, at least most of the time? Was that the expectation?

Yes. We need to look at it on a full-year basis, because a lot of our revenues still are effectively capital equipment weighted. Between that and just historical norms, and the comment that Chris made about how we expect to recognize a substantial portion of our Japan revenue. It's likely you're going to see the second half of the year carry a greater proportion of contribution of the number than the first half.

Your margins do fluctuate, particularly when you have a manufacturing infrastructure that you pay for irrespective of if you have $1 of revenue or $10 million in revenue. So, what you saw in Q4 was actually a very healthy step-up in gross margin. I think about 65%, which compares very favorably to the 52% we had in Q4 of 2011. That's largely attributed to the fact we doubled the revenue base and so your incremental fixed cost is very low.

Naturally, you see a very healthy jump in gross margin and we think that would continue as the overall year-over-years continues to trend. When we're approaching the overall statement of, we expect to be having more gross profit than sales and marketing costs this year, which is a very substantial progression over where we had historically been. I think we need to look at the full year and put the majority of that pickup on the second half knowing that between the capital equipment reality and just the historical norms. And the Japan factor, we think the first half, while we think it should compare well, is likely going to be weighted to the second half where you really see that coming together.

Okay. Great. That's very helpful.

Little bit more in the housekeeping side as well in terms of the fourth quarter revenue you say -- I mean, the revenue reported would be a lag a quarter. So is the fourth quarter revenue reflect a lot of things happening in the third quarter? And on that note, the first quarter revenue of this year, will be something actually already happened in the fourth quarter of last year? Was that the expectation or the thought there?

There will be some of that, yes. There was some of our revenues in Q4 were actually shipments that occurred late in Q3 that we did not recognize in Q3, so there was that factor. There were also substantial Q4 orders, as well.

I think as you go quarter to quarter, we would likely expect to see shipments exceed the reported revenue, the total shipments would likely exceed that, because we are growing. At the end of the quarter, we're likely to have shipments go out that will likely defer from a recognition point of view in the forward quarter. We fully expect you're going to see that incrementally, quarter to quarter, and that probably grows over time as the business grows.

Okay. Great. And the last question here is the clinical one, which is for the ATHENA study.

In terms of inclusion, exclusion criteria, was overall the patient will be more in, much more severe stage III-IV stage patient or the newer classified III-IV stage or patient little bit less severe? Or would that be little bit more all come around that sort of several bracket there?

The inclusion criteria in this study, regarding functional class, New York Heart Association, heart failure stage Class II or III and from a CCS anginal functional class it's II to IV

Okay. It is II to IV. Great, thanks a lot and congrats for a very good quarter and congrats on delivering promises. Thanks.

Steve Brozak, WBB Securities.

This question is actually for Marc Hedrick, if you don't mind. Congrats on the CE Mark that you guys received last week for Intravase. I actually want to know what this means for you commercially, clinically, on the approval in 2013 and going forward, as far as what you look at and how it opens up the market for you? And then I've got a question after that.

Hi, Steve. Let me answer that by first referring back to Chris's opening remarks about our core strategy.

One element of our core strategy has been, in this early commercial phase, to drive market development and sales by doing these investigator-initiated studies, or providing the devices so doctors can treat their biggest clinical problems with cell therapy. That's resulted in sales and continued incremental sales growth. That bucket of investigator-initiated studies, based on Intravase approval and our tissue ischemia claim a few months ago, effectively doubles the size of that bucket.

What do I mean? Well, while we had the ability to, under our CE Mark claims, to treat patients with Celution and Celase and so forth, we couldn't do it safely in terms of intra vascular delivery. So, Intravase and the tissue ischemia claim are critical to allowing doctors to do their own studies or their own therapies and including charging patients for those if they can find the right buckets of reimbursement for patients that have, broadly speaking, tissue ischemia. The idea is really to open up that universe of physicians and hospitals, and types of physicians, to be able to add on the intra-vascular use, which is a significant increase in our ability to target groups of patients.

So, in addition to 2013, this is basically then a jumping off point for you for the future as far as that goes for broader clinician applicability? You would say this would pretty much allow for them to leverage this. Is that an appropriate way of looking at it?

Exactly. So, they can leverage our technology now for intra-vascular delivery for tissue ischemia. What sorts of things are ischemic diseases, cardiovascular, stroke, renal, peripheral vascular disease, awful lot of diseases are at their core, ischemic diseases.

All right. Let me ask one last question, then I'll hop back into the queue.

On the commercial outline for the rest of sales, can you give us a breakdown on what you would look at in terms of the high points or highlights that you would expect in 2013 and thereafter? Because, obviously, the two lend hand-in-hand with each other.

Hi, Steve, it's Clyde Shores. So, yes, I think as you've heard already from Chris, really the big themes that we're going to focus on in 2013, the overlay is positive contribution margin. But it really is leveraging these three big changes in market access that we had last year.

It's the Japan Class I, so there'd be a big focus on driving that where we really have our greatest market access of all our countries, and have still continued to have largest contribution of revenue. The second is what Marc just described, which is taking advantage of the expanded claims we have and particularly the Intravase approval. Then, the third is really continued geographic expansion.

We expanded into 14 countries last year and this year will be about really pulling through the sales that we have and the distributor channel that we have in those major countries. As was mentioned earlier, we've got an extension in our PureGraft line, which PureGraft continues to grow at a tremendous rate around the world, and we'll leverage our distributor network that we are expanding to drive that.

So really I think it's about cost-effective market development on three levels. Strategically, it's establishing these clinical relationships. It's generating the data via the investigator-initiated studies.

Great. So this pretty much comes down to being the pivotal year for you in terms of going out there and meeting the clinical flesh into the commercial side. Is that about right? Hello?

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Steve, can you tell us -- Sorry, we got -- somehow got disconnected. Steve, can you tell us where we lost you guys?

That's a good question there. Let's see, I was basically reaching into -- so 2013 is the year that you guys would look to break out on the clinical to commercial transition. Is that pretty much a good wrap-up of what you would be looking to say the hallmark for 2013 will be? And I'll jump back in the queue after you answer that.

Steve, I'm not sure where we got cut off so I apologize for repeating my answer. But the big themes, it's really about cost effective market development on three levels, strategic, economic and patients.

Strategically, we're going to keep establishing our clinical relationships, generating data, meeting these investigator-initiated studies in Cytori trials and building access. That's really across a number of levels. It's regulatory approvals, we'll still have additional ones coming in this year, expanding claims, particularly the ones we just got last year with the CE Mark and the Intravase approval. It's generating more data and it's strengthening our channel. One of the things I'm not sure if you heard this, but even last year we expanded into 14 more countries where we established relationships with distributors and we'll continue to drive sales through that channel.

The second part is economic. It's really about profitable system and consumable revenue that supports our long-term commercial foundation in yielding positive contribution in the near term. Then, it's really about getting Cytori therapy to patients, particularly those who have no option like the chronic ischemic patients.

Those are really the themes. As we said earlier a couple of times, Japan Class I approval was significant for us, because that's the country where we have the greatest progression in market access, and so we'll put a big emphasis on that.

Great, I look forward to 2013. Thank you.

Kay Mckay, Ascendia Capital

Couple of questions. The first one is, can you give us the actual number of Q4 product sales that were shipped but not recognized in the quarter that will carry over into Q1?

Hi, Kay, it is Mark Saad. We're not disclosing that at this time because it's -- you not know for sure what you end up getting specifically in Q1 until you get all of that verified in Q1. So, it would be real premature to say to what extent.

I will say I would expect a meaningful number in any given quarter that's likely to be carried over into the forward quarter. It's likely not to be a one-time thing. It's likely to be an ongoing part of the business, where there's going to be -- we have rigorous, robust revenue recognition standards that are either met or they're not met. Then, the carryover sales will be a continuing theme quarter-to-quarter.

I don't think that's a one-time thing that needs to be dialled in, but we certainly will give directional signals on shipments in general, quarter-to-quarter, in terms of how our outlook changes up, down, or sideways, relative to what we say at the beginning of the year. We'll certainly provide you directional signals based on how we see the shipments going. Just given the complexity of rev rec, we don't want to make specific statements on what we think we should recognize in a given quarter before it's done.

Okay. Certainly, we can appreciate that, but understand what you're saying.

As it relates to ATHENA, can you give us a sense, qualitatively, once you've identified an appropriate candidate to be enrolled, logistically how long does it take to then go ahead and schedule a procedure and have that occur so the patient officially is in the study?

I'd say it takes a few weeks.

Okay. Thanks. With respect to the CE Mark, following the latest approval for the Intravase component, where do you now stand in terms of your effort to get a more a specific CE Mark for the no option chronic myocardial ischemic patients?

We're in active dialog with our notified body. The ATHENA data should help resolve that situation with our notified body, and that's our hope. However, from a commercial perspective, we think we have 90% of what we need to accomplish our commercial goals through the layering of regulatory approvals, starting with our Celution 800, our Celase approval, our tissue ischemia claim and our recent Intravase approval.

We think through a little bit more tortuous path, we got exactly what we wanted so we could get to the commercial point that we wanted to be. But we do think it's important to expand those claims and we think that ATHENA is the most likely way to do that.

Thanks for that. A final question. I know this isn't in your 2013 revenue guidance, but if you were to get approval in Australia or Canada, what types of applications do you see driving revenue in those countries? Is it a continuation of having investigator-led study be conducted in those countries or perhaps other commercial applications?

Hi, it's Clyde. I think it's a continuation of what we've talked about. Australia is very similar and Canada would be along the same route, where we'll drive investigator-led studies and we'll get us to support, use the approvals that we've got. Certainly no-option chronic ischemia is an indication that's important in every country with the unmet need there that's probably at the top of the list.

Okay. Thanks.

Marco Rodriguez, Stonegate Security.

This is Dan Trang sitting in for Marco Rodriguez. I wanted to see if you could provide some color on the next phases of the BARDA contract, just some of the things behind that? Congratulations on a good quarter, by the way.

Oh, thank you. So we are -- as Chris indicated from his opening comments, that we are fully engaged, I assure you, in trying to meet these milestones of BARDA as soon as possible.

There are basically three milestones that relate to device development to showing that we can get viable sales from burn patients. And then developing pre clinical model in which to validate, frankly, what we've already done in the clinical situation. We feel good about all of the milestones. There are some risks in terms of model development in the pigs that we're using, but we think we can solve those.

The milestone value, as Chris said, about $56 million, if we can hit these first three triggers that I discussed, are really a focus of our effort right now. That's a -- to put that in perspective, that puts Cytori within 12 months of really a pretty transformational corporate event with the US government. So, it has enormous value to us, and we're fully putting our resources into achieving those milestones as quickly as we can.

Okay. Thank you.

Jason Kolbert, Maxim Group.

Hi, guys, thank you, and that was my question. It was BARDA, but I'd like to stop back and talk a little bit about ADVANCE.

My understanding from the press release is that you're going to continue to enroll patients in ADVANCE with an expectation of 25 patients in 2013. Help me understand how you reach an interim analysis at 72 patients? What I hear you saying is that the priority right now is to move ATHENA forward in CMI, and while ADVANCE continues to build infrastructure throughout Europe and kind of gradually pave the way. But, I'm just a little bit confused about how we move from 15 patients enrolled to getting up another 25 and how we ultimately end up at 72?

Thanks, Jason. I think it's good to circle back with our top corporate priorities, because it just helps keep ADVANCE in perspective.

The top corporate priorities, as Chris said, are getting ATHENA enrolled as quickly as we can, growing revenue, and as I just mentioned, plowing through those BARDA milestones. That's the key. ADVANCE is a secondary priority, but really right now relates to that first goal -- I think the first goal I just mentioned, but it's really profitable growth. It is a strategic importance in terms of linking to our Intravase approval and helping to drive incremental revenue in 2013. So, just keep that in mind.

However, from a budgeting perspective, we can't do everything we want to do all at once. So, we've made an internal decision that we will take our clinical resources, make sure ADVANCE is -- excuse me, ATHENA is fully funded. We can authorize about 25 patients under our current budget projections in ADVANCE over the year. Then, at such time when our balance sheet improves, the apparatus is all in place to significantly increase ADVANCE enrollment, and then drive to that 72 patients, which is the first goal, and then beyond that to the 60.

If we're -- statistical significance in the 72, that's important for us. But then, the part of the goal of the study is to get reimbursement for this indication. And those reimbursement-related time points are farther out.

Marc, I really appreciate that and I think shareholders will, too. What I hear you saying is that you're prioritizing resources in sequence with how you expect the data to come. Thank you very much.

David Muscat, Prime Med.

Hey, guys, I was just looking for a little clarity about whether you were going to be supporting any of the EU sites with registry work? I would guess that some of these sites, even without the specific no-option approval, are raring to go with some of these types of patients?

David, a plane flew over in the middle of your question. Could you just summarize it real quick again for me.

Sure, I'd be happy to. So one of the things that we had long awaited was the no-option approval, and granted the fact that you've got 90% of the way there with the Intravase. The thought was that you would probably be supporting this type of claim with some registry work, at least at some of the top EU centers, whether that be Okyanos or some of the other ADVANCE sites that are already set up and ready to go. Can you just fill us in on what type of registry support we should expect over the next year?

Sure. So and we have been, as you said, anticipating the claims for tissue ischemia and also for Intravase approval for a while.

While a relatively small number of ADVANCE sites are approved, we've been working with a much larger group of investigators over the last couple of years. Part of the feedback we've been getting from them is that they have, just like in the US, a list of patients that they really can't do anything for, and they think this is the best option for them.

On one hand, we think there's going to be some sales related to that and some either IRB-related studies for those patients. In terms of a potential registry or registries in Europe, we're in active discussions with clinicians about what those look like, either whether -- and what specific types of cardiovascular disease or ischemic disease we might treat.

So, sales are going to be driven next year by, as a result of those discussions. And we think we're laying the groundwork for on-label approval and ultimately reimbursement for that, as we refine our overall clinical strategy for this indication over time.

Thank you. And just to follow up, on the specific claim for no-option, how should we think about that? Is that still active but running in a somewhat delayed or lower-priority path at this point?

No. I'll reiterate, David, what I probably didn't say very clearly before, but we think with what we have now we basically have 90% of what we wanted with that chronic myocardial ischemic claim, which is to begin to drive utilization of the technology in CE Mark recognizing countries. We're continuing to interact with our notified body of things like Intravase, which we just got approved, and continuing claims expansion and having the appropriate clinical data for that.

So we will continue to expand clinical -- our claims in Europe over the next year, and the focus of that is for chronic myocardial ischemia. And when we and our notified body believe we have the appropriate data to do that, we think we'll get it.

Thank you very much.

This concludes the allotted time for today's question-and-answer session. Management would be happy to have investors follow up with them tomorrow and next week. Now, I would like to turn the floor back over to Mr. Chris Calhoun for any additional or closing remarks.

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Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.