- This report offers an analysis of American CryoStem Corporation. We believe there is a positive risk/reward ratio to these shares at the current price.
- American CryoStem is an early-stage player in the stem cell and regenerative medicine marketplaces. These markets are two of the fastest growing within the worldwide economy with expected growth rates of up to 15% compounded annually expected for at least the next five to ten years.
- CRYO possesses an impressive patent and intellectual property portfolio on many of the technologies that are required to process tissue samples to produce the stem cells that are used in many of the innovative therapies that are moving into the marketplace.
- Over the past two years, the Company has started to expand its commercial relationships with several potential high-growth partners in Hong Kong, China and Japan. Additionally, the Company has begun fostering relationships with leading universities that are performing state-of-the-art research on stem cell therapies.
- Share counts have risen very little over the past year with only 36 million shares outstanding and common shareholder friendly terms on the Company’s outstanding debt.
- We also like this company because it is well out of its developmental stage with products and technologies that can be purchased today as hundreds of millions of dollars flow into stem cell related research, clinical studies, and most importantly, innovative therapies that patients are increasingly demanding.
American CryoStem Corporation, which is headquartered in Eatontown, New Jersey, is a fully reporting and current biotechnology company trading under the symbol “CRYO” on the over-the-counter market. The Company is involved in the very fast-growing stem cell and regenerative medicine markets. The growth within these markets is nothing short of remarkable with yearly compounded growth rates easily exceeding 15% per year. Some market research firms gauge the growth at up to 25% compounded per year.
The Company operates a fully FDA registered laboratory in Princeton, New Jersey and three international licensed facilities. Having significantly passed the startup stage, the Company is poised for potential strong as millions of dollars flow into stem cell-related development, clinical studies, and most importantly, into stem cell therapy clinics as patients increasingly pursue alternative therapies.
While the concept of stem cells and regenerative medicine are often confusing to most investors, stem cells can simply be thought of as cells that are not specific to a particular organ or body function. These cells, under the right conditions, can turn into any type of cell within the body. This makes these cells perfect for new therapies to cure a host of chronic and life threatening diseases and conditions. Additionally, many cosmetic-oriented procedures are now being based on stem cell-based therapies and technologies.
Acquiring stem cells from the human body is not an easy task. Traditionally, stem cells have been derived from bone marrow, blood, or through umbilical cords. These three methods have drawbacks especially related to side effects, cost and the low yields of stem cells that are provided. A much better method for acquiring stem cells is through an individual’s adipose tissue – Fat!
Acquisition of stem cells via this method is relatively easy. The patient undergoes a simple procedure that is very similar to liposuction, with the physician removing abdominal fat, which is then processed via various technologies. American CryoStem provides many of the laboratory technologies for this process and additionally provides storage facilities for unused tissues. It is becoming increasingly popular within the cosmetic surgery sector for the physician to remove more fat than can be used in a single cosmetic procedure. Unused tissues can then be stored in a facility such as that provided by American CryoStem. This bio-banking business is growing fast across the U.S. and Asia.
Over the past year, the Company has started to sign strategic relationships with other industry participants. Many of these have been in Asia, which is also experiencing very rapid growth in cosmetic procedures and even faster growth in stem cell-based therapies.
The Company’s balance sheet is typical for early-stage biotechnology company and has relied heavily on common stock and convertible note offerings to meet cash flow demands. Quarterly burn rates, however, are very conservative with management obviously doing a strong job relative to cost containment.
We view this Company as very well positioned with a dynamic patent and intellectual property portfolio on which it can capitalize to directly capture revenues via products and services or via licensing its IP to other market participants. Investors should be watching for additional announcements relative to industry relationships and clinical studies, which could significantly propel the price of the shares higher.
|American CryoStem Corporation
Riding the Wave in the Fast Growing Market for Stem Cell Therapies
American CryoStem Corporation was founded in 2009 becoming publically traded in 2011 via its merger with ACS Global, Inc. The Company is involved in a very specific segment of the fast growing market for stem cell therapies, which is expected to be valued at more than $119 billion worldwide by 2019, up from a value of only approximately $26 billion as of the end of 2013. Clearly, this will be one of the fast growing markets over the coming years within not only the medical sector, but within almost any sector of the worldwide economy.
As is explained more fully later in this report, one of the subsectors of the stem cell market where American CryoStem is engaged is called the cell or bio banking market. This particular subsector is growing by at least 15% per year according to research firm 9Dimen Group, with most of this growth occurring in the United States, Germany, Japan and China. Market research firm Ibis World is even more aggressive on the bio banking services market, pegging the current size of the U.S. market alone at approximately $2 billion per year with an annual compound growth rate for the next ten years of nearly 24%.
Regardless, of the market research numbers referenced, the market is very large and most importantly is growing very rapidly creating substantial opportunities for both established companies and new market entrants.
Defining the Market – What is it That These Companies Actually Do?
The field of stem cells and stem cell therapies is very complex and difficult for many regular investors to understand. There are many sub-sectors of this growing field, which further complicates understanding. This is certainly the case relative to American CryoStem.
For example, Company’s description of itself is copied below. We admit, we really had little understanding of what management was trying to describe and we would guess the average investor reading this report will be left with the same feeling. Therefore, we suggest you do not spend a lot of time on management’s description and instead read our descriptions outlined below.
American CryoStem Corporation describes itself as follows:
A pioneer in the fields of Regenerative and Personalized Medicine, American CryoStem is a developer, marketer and global licensor of patented adipose tissue-based cellular technologies and related proprietary services with a focus on clinical processing, commercial bio-banking and application development for adipose (fat) tissue and autologous adipose-derived regenerative cells (ADRCs). The Company maintains a strategic portfolio of intellectual property and patent applications that form its Adipose Tissue Processing Platform, which supports and promotes a growing pipeline of biologic products and processes, clinical services and international licensing opportunities. Through its ACS Laboratories division, the Company operates an FDA registered, cGMP compliant human tissue processing, cryo-storage, cell culture and differentiation media development facility in Mount Laurel, New Jersey.
The field of regenerative medicine is booming with billions of dollars being invested and many clinical trials now underway as is shown in Exhibit One, below. Regenerative medicine technologies enable the human body to use its own systems to re-create cells and rebuild tissues and organs. Many of these therapies are just now moving out of research laboratories and into practical application. Complex human organs like hearts, lungs, and liver tissues have already been successfully created in the laboratory and small arteries, skin grafts, and cartilage have been successfully implanted into humans.
The technologies and therapies relating to regenerative medicine are advancing rapidly and it is expected that over the coming years a whole host of new treatments will be available. Some of these include creation of bone tissue, revolutionary treatments for heart disease, restoration of damage muscles, tendons and other connective tissues. It will certainly be an exciting new world with regenerative medicine holding the promise to cure many of the world’s chronic and fatal diseases and conditions.
Many animals have the ability to regenerate certain body parts. For example, lizard can grow back its tail, many insects can regenerate limbs, snails can re-grow their heads, and flat worms can re-grow almost its entire body from a very small remaining portion. These animals can re-grow these body parts because they have certain types of cells that are ready to replace and regenerate these body parts. These cells are called stem cells.What is a Stem Cell?
Humans, and other animals, are comprised of billions of different types of cells. Human have approximately 10 trillion cells on total. Within the brain there are brain cells, within the heart there are heart cells, within bones there are bone cells, etc. Stem cells are a different type of cell that is not specialized and has the capacity to become any of the different types of cells found in the body.
Human stem cells exist within most organs and in bone marrow, blood vessels, muscles, skin and many other areas in the body. Many of these stem cells remain dormant in the organs or tissues for many years, dividing creating new cells only when they are activated by injury or disease, or anything else that requires the body to produce new cells. The exact mechanism to activate a stem cell and cause it to turn into a different type of cell is only now beginning to be understood by science.
A major portion of the field of regenerative medicine involves the collection of these stem cells and the activation of these cells in order to cure different diseases and conditions.
In order for scientists to develop stem cell-based therapies, stem cells must first be collected. The three traditional methods to acquire stem cells are collection from the bone marrow, from blood, or from umbilical cords. Collecting stem cells from bone marrow involves a highly invasive process with collection from the pelvic bone. This is a dangerous process. Collection via blood usually involves the injection of drugs several days, or even weeks, before samples are collected. These drugs often have side effects. Collection via umbilical cords is a controversial and expensive process that under the best conditions yields only a very small quantity of usable stem cells.
With all of the research currently ongoing and the many new procedures being developed it has become abundantly clear to the medical community that the methods of stem cell collection via bone marrow, blood and umbilical cords are either simply too invasive or not practical due to low yields and high costs.
A much better method to acquire stem cells is through an individual’s adipose tissue – Fat!
Adipose Stem Cell Therapy
Very high levels of stem cells exist in human fat. It is estimated there are nearly one billion stem cells in only 200 cc’s of human abdominal fat. The same amount of bone marrow tissue yields only about 50,000 stem cells. Collection of stem cells via adipose tissue is a relatively simple process. The patient is given a local anesthetic and abdominal fat is removed via a process that is very similar to liposuction.
The harvested fat is sent to a laboratory where it is processed to isolate the stem cells. The first step is to process the raw fat by removing the fat and blood with the remaining sample being called SVF or “Stromal Vascular Fraction”. SVF can then be further processed to isolate the stem cells. These isolated stem cells usually undergo various laboratory procedures, many of which include laser light application, that activate the stem cells to produce the desired therapeutic effect upon reintroduction to the body.
Removal of the fat can be done in as little as ten minutes and the processing to SVF can be completed in as little as two hours. This fast turnaround time enables the patient to donate the fat, have it processed to isolate the SVF or stem cells and then to have the processed materials reintroduced into the body intravenously all within the same day depending on the clinic and the type of therapy being provided to the patient.
In many cases, however, samples are sent back to a central laboratory where these are processed and stored for future use. This process of storage is cost effective and convenient because the patient needs to provide only one sample, which is then processed and preserved so that therapy can be provided in the future via either a single session, or in many cases via multiple ongoing therapies.
American CryoStem’s Products and Services Explained
With the background provided above on stem cells, how these cells are collected and are used in innovative therapies, we can offer a new and easier to understand description of American CryoStem’s business:
CryoStem develops, markets, and holds patents on technologies in the fast-growing stem cell therapies marketplace. Most of its technologies have to do with processing stem cells from fat collected from patients. This fat is processed to isolate into stem cells and other components, which are then activated and reintroduced into the same patient in hopes of curing diseases or for cosmetic purposes. CryoStem provides the technologies and services for not only the processing of these materials, but also the ongoing storage of these materials for later use.
Specific products and services include the following:
§ Tissue Collection and Transportation kits – Physician collected samples are placed in the Company’s Cellect tissue extraction kit and delivered back to Company’s labs. Considering the vast majority of stem cell therapies are autologous, (from the same patient) tracking the “chain of custody” of the collected tissues from the physician to the laboratory and then back to the physician is critical. The Company provides an entire system for validating and processing the tissues to ensure the integrity of this “chain of custody”.
§ Storage – Within the cosmetic surgery space it is increasingly popular for physicians to harvest fat from one area of body for reintroduction into different parts of the body for cosmetic purposes. Often times, the physician will extract more fat than is needed for immediate use. This remaining fat can be stored in a facility such as that provided by American CryoStem to be used later in cosmetic procedures for the same patient. When additional cosmetic procedures are required, the physician simply informs American CryoStem, which then delivers the materials back to the physician’s office.
§ Stem Cell Isolation – American CryoStem has developed a set of patented systems to isolate the stem cells from other tissues, which is a product line it calls ATCELL.
§ Stem Cell Culturing – Many stem cell therapies being developed today utilize a significant number of stem cells for reintroduction back into the human body. Oftentimes it is not possible to extract enough cells from the patient. In such cases, samples are sent to a lab and the number of cells is multiplied by growing the cells in a growth medium. The Company has patented technologies that allow for the culturing (growing via cell division) of the isolated stem cells. Whereas many alternative culturing technologies and processes utilize animal products, the Company’s technologies are based on serum free media products.
§ Contract manufacturing and licensing – The Company is also offering custom contract manufacturing services to support the research and development efforts of other companies. Over the past two years, the Company has also shown significant interest in licensing its technologies to other companies.
In early April of 2016, the Company announced it was expanding its operations via the opening of a new state-of-the-art laboratory in Princeton, New Jersey. This new facility provides tissue storage (bio-banking), sample processing and culturing. The new facility will not only allow the Company to store more samples, but also to process samples faster to be more responsive to customer needs.
The Company has also signed an important agreement to license its storage platform technologies to a Japanese company called Cell Source, which is operating a cellular processing and banking facility in conjunction with a chain of established surgery centers. Business at this surgery is growing rapidly as cosmetic and plastic surgery increases in popularity throughout Japan.
Last year the Company also made an important acquisition. BioLife Cell Bank, located in Dallas Texas, operated one of the first and largest tissue and stem cell storage locations in the United States. While much of BioLife’s business is also plastic surgery-oriented the non-plastic surgery business is also growing rapidly.
Patent Portfolio and Development Pipeline
American CryoStem has developed an impressive intellectual property portfolio, which consists of 12 U.S. patents, three international patents and five validated and trademarked cellular products. The five patented products include its tissue collection and transportation kit, its laboratory processing and storage procedures, its clinical grade adult stem cells, its animal-free culture media line and its topical growth factor condition medium.
American CryoStem’s development pipeline is shown in Exhibit Four, below. This pipeline focuses on the strategy to create and design technologies focused on adipose tissue and adipose derived adult stem cells in conjunction with strategic partners.
Likely the most important of these developmental efforts focuses on wound healing. In 2012, the Company entered a memorandum of understanding with Protein Genomics, Inc. to develop new products by combining certain components of each company’s intellectual property into new wound healing products. The first of which has been called “living bandage”. After initial success, the companies entered into a more formal relationship with each company owning a 50% ownership interest. The venture, called Autogenesis, has advanced past initial proof of concept with the next step likely being animal studies ultimately leading to the FDA application process.
The company is also working with Rutgers University scientists on a material transfer agreement that will allow the scientists to use the Company’s stem cell and cell culture technologies in research targeting a serious diseases, neurological disorders and other products within the wound care market.
The Company is fully reporting with the Securities & Exchange Commission having filed its last 10Q quarterly report on February 6, 2013. At that time, the Company declared there were approximately 35.5 million shares and that there were approximately 34.7 million as of December 31, 2015. It is worth noting that the share count has risen very little over the past year and a half. As of the end of the June 2014 quarter there were 32.6 million shares, meaning they share count has risen by only slightly more than 2 million shares.
The Company’s asset base is quite small, but that is not out of ordinary for this type of developmental life sciences-oriented operation. During the December quarter cash used in operations was a conservative $27,000. The Company has paid for developmental expenses and salaries, through the sale of convertible notes and common stock, which is a situation we expect is likely to continue for the foreseeable future.
Total current liabilities as of the end of the December quarter were approximately $2 million, which include approximately $500,000 of convertible notes. Additionally, there is approximately $200,000 of long-term liabilities of which approximately $127,000 is payable to a shareholder.
Approximately $160,000 of the convertible notes became due on September 30, 2014 with the Company currently indicating it is in negotiation with its note holders to extend the terms. All of the convertible notes convert to common stock at either $0.30 or $0.35. The current liabilities include $576,000 of bridge notes, which were due in fiscal 2015 and are currently in default. We would suspect the Company would attempt to renegotiate the terms of these bridge notes, likely rolling the debt into longer-term convertible the debentures. This is an area worth watching over the coming months, but we believe, considering the substantial opportunity in front of his company, an equitable deal with the note holders is likely.
Revenues for the December quarter were $139,000, which produced gross profits of approximately $61,000. After expenses, which are quite conservative for a Company in the growth developmental stage, loss from operations was approximately $48,000. With interest expenses, the loss was approximately $72,000. Most of the expense dynamics showed considerable improvement for the December 2015 quarter versus the December 2014 quarter.
John Arnone, Chairman & CEO Mr. Arnone has been the Chairman of American CryoStem since 2008 and Chairman & CEO since 2011. Prior to his involvement in the life sciences / biotechnology industries he spent 25 years in the investment banking/financial services industry as an investment banker, and a hands-on investor. Over a 25 year period holding 6 NASD licenses, Mr. Arnone founded, managed and operated two general securities sbroker-dealers based in New York specializing in strategic planning, corporate structure, financial planning and new business development. Over the years Mr. Arnone has provided advisory and business management services as a founder, officer, director and/or shareholder to both mid-level and development stage private and public companies. Mr. Arnone also co-founded and operated a global entertainment distribution corporation with 120 employees that under Mr. Arnone’s guidance was voted medium wholesaler of the year in the music industry (1997, 1998 and 2000) by the National Association of Recording Merchants. Mr. Arnone holds a degree in Business Administration and a BA. in Economics from Kean University in New Jersey.
Anthony F. Dudzinski, COO Mr. Dudzinski has been in the life sciences and biotechnology sector for more than 8 years and has more than 25 years of experience in areas of senior management with a variety of public and private companies. Beginning in the securities industry with a focus on regulatory compliance and operations, Mr. Dudzinski combined this experience with the biotechnology industry while building new investment vehicles focused on life sciences and biotechnology companies in 2004. Mr. Dudzinski is a founder of American CryoStem Corporation and is primarily focused on building and maintaining the Company’s operational and laboratory infrastructure and their compliance with current regulations. Mr. Dudzinski past positions include chief executive officer, president, chief operating officer and director of small and medium-size organizations including publicly traded company with approximately 300 employees and president and chief operating officer of a privately operated broker-dealer with more than 175 sales associates. In addition to this experience Mr. Dudzinski was a founder and chief executive officer of a number of publicly available exchange traded funds, and the founder, chairman and chief operating officer of a target date fund complex and a registered investment company.
Ruth Goldman, Vice President, Laboratory Director Ruth Goldman comes to American CryoStem with over 30 years experience in cell banking. Graduating from Douglass College with a Bachelors degree in Microbiology, she began work at the Coriell Institute for Medical Research after being hired by Dr. Coriell himself. During her years at Coriell, Ruth helped to develop the quality control standards that the Coriell Institute has become known for. She was a driving force in the development and implementation of customized growth media and environments needed by specialized adherent cell cultures. She also worked with researchers involved in the Integrated Primate Biomaterials and Information Resources (IPBIR) project in developing primate cell cultures. Ruth’s knowledge of the various aspects of cell banking ranges from data management to team management, and to all aspects of cell culturing; from biopsy sampling techniques, to culture initiation, large-scale cultures, and cryogenics. She has trained numerous individuals, from employees to scientists from across the US and the world, as well as an Adjunct Professor with Rowan and Rutgers Universities, teaching a cell culture course on-site at the Institute.
John DiFolco, Director of Marketing Mr. DiFolco has been has been involved directly and indirectly in creating and implementing marketing campaigns for various organizations over the years. He has marketed new products and services into new markets and as a result increased overall awareness and revenue. He has skills in understanding the market landscape and how to market company services through multiple channels including social networking, search engine marketing, local web searching and grass roots print media campaigns. Mr. DiFolco has a deep understanding of technology, specifically web development and the creation of digital media. His core focus is to create and implement marketing campaigns targeted towards the Company’s customer.
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