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| CMXI > SEC Filings for CMXI > Form 10-Q on 14-Aug-2012 | All Recent SEC Filings |
14-Aug-2012
Quarterly Report
This Quarterly Report on Form 10-Q contains forward-looking statements regarding Cytomedix, Inc. ("Cytomedix," the "Company," "we," "us," or "our") and our business, financial condition, results of operations and prospects within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements. Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. When used in this document and other documents, releases and reports released by us, the words "anticipate," "believe," "estimate," "expect," "intend," "the facts suggest" and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward looking statements. Other unknown, unidentified or unpredictable factors could materially and adversely impact our future results. You should read the following discussion and analysis in conjunction with our unaudited financial statements contained in this report, as well as the audited financial statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Risk Factors" contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. The Company undertakes no obligation to update the forward-looking statements contained in this report to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as may occur as part of its ongoing periodic reports filed with the SEC. Given these uncertainties, the reader is cautioned not to place undue reliance on such statements.
Description of the Business
Overview
Cytomedix, Inc. ("Cytomedix," the "Company," "we," "us," or "our") is a regenerative therapy company, harnessing the body's own capacity to heal itself. Cytomedix develops and commercializes innovative autologous therapies that promote healing by harnessing the innate regenerative capacity of platelets and adult stem cells. We currently have a growing commercial operation, and a robust clinical pipeline seeking to exploit large market opportunities with unmet medical needs.
Our current commercial offerings are centered around our platelet rich plasma ("PRP") platform technology, and primarily include the Angel® Whole Blood Separation System ("Angel") and the AutoloGelTM System ("AutoloGel"). These products primarily address the areas of wound care, and support of healing and recovery following orthopedic procedures. Our sales are predominantly in the United States, where we sell our products through a combination of direct sales representatives and independent sales agents. In Europe, the Middle East, Canada, and Australia we have a network of distributors covering several major markets.
Our clinical pipeline primarily involves the ALDHbr cell-based therapies, acquired through the acquisition of Aldagen, Inc. , a privately held biopharmaceutical company, in February 2012, and the expansion of the Angel System for use in other clinical indications.
Angel Product Line
The Angel Whole Blood Separation System, acquired from Sorin USA, Inc. ("Sorin") in April 2010, is designed for single patient use at the point of care, and provides a simple yet flexible means for producing quality PRP and platelet poor plasma ("PPP") clinical blood components. The system is easy to set up and
maintain and is capable of processing up to 180 ml of whole blood. In surgical procedures, the PRP can be mixed with bone graft material prior to application.
We have grown worldwide sales of Angel steadily since acquiring the product line in April 2010 and expect this trend to continue. After acquiring Angel from Sorin in 2010, we successfully worked to ensure that we did not experience any net attrition of sales and any major supply chain interruptions, and our integration and transition efforts are now complete. Our focus is on growing sales in both the U. S. and international markets, and seeking efficiencies in the supply chain. We expect that future sales growth of these products will be driven through a combination of a focused marketing effort, strengthened distributor relationships, expanded indications, and direct sales. We expect our international distributors to drive increased sales in the coming quarters. In the long term, we expect new technology applications for Angel and expansion into other surgical and orthopedic applications will provide future growth opportunities.
The Angel product line also includes ancillary products such as phlebotomy and applicator supplies, and activAT®. activAT is designed to produce autologous thrombin serum from platelet poor plasma and is sold exclusively in Europe and Canada, where it provides a safe alternative to bovine-derived products. It currently represents less than 1% of our total sales revenue.
We continue to make progress on our efforts to obtain FDA clearance for additional indications for Angel, specifically, bone marrow aspirate processing. In August 2011, we filed a 510(k) submission with the FDA for bone marrow aspirate processing. Following discussions with FDA regarding this application, we have been collecting additional data which will be submitted in the third quarter of 2012.
AutoloGelTM System
The AutoloGel System is a device for the production of autologous PRP gel. AutoloGel is cleared by the FDA for use on a variety of exuding wounds and is currently marketed to the chronic wound market. The AutoloGelTM System harnesses the patient's natural healing processes to provide growth factors, chemokines and cytokines known to promote angiogenesis and to regulate cell growth and formation of new tissue. PRP technology restores the balance in the wound environment to transform a non-healing wound to a wound that heals naturally. In October 2011, the Company entered into an option agreement with a top 20 global pharmaceutical company granting the potential partner an exclusive option period through June 30, 2012 regarding U. S. supply and distribution of the AutoloGel System. In exchange for this period of exclusivity, to date we have received non-refundable fees totaling $4.5 million. Effective June 30, 2012, we agreed to a further period of exclusivity through August 30, 2012, within which we expected to negotiate the material terms and provisions of a distribution agreement. However, subsequent to the foregoing and as of the date of this Report, the parties agreed to the early termination of the August 30, 2012 exclusivity period and ceased further negotiations concerning a distribution agreement. As noted above, $4.5 million received by the Company to date for this exclusivity is non-refundable. The Company is now able to pursue potential partnerships and commercial agreements for the product with other interested parties.
We continue to make progress on a next generation device, enhancing the separation of blood components to provide the added convenience and effectiveness that treating clinicians are looking for at the point of care. Importantly, the new device allows for the whole blood collection and the separation of the platelet rich plasma to be accomplished with a single specially designed closed syringe system that maintains an aseptic environment. This streamlines the process, improves safety and ease-of-use and may be more conducive for certain developing orthopedic indications. The sterilization studies are complete. We expect to file a 510(k) application, in the first quarter of 2013, with the FDA upon the completion of platelet characterization and validation studies.
Since 1992, the Centers for Medicare and Medicaid Services ("CMS") had maintained a national non-coverage determination for autologous PRP in wound care. This severely restricted the markets which Autologel could address commercially. In late 2011, based on significant amounts of additional positive data regarding the effectiveness of AutoloGel, CMS accepted our request to reconsider its non-coverage determination. On August 2, 2012, CMS issued a final National Coverage Determination ("NCD") for autologous blood-derived products for chronic non-healing wounds. As previously reported, on May 9, 2012 CMS posted its proposed NCD, which was followed by a 30-day public comment period that ended on June 8. In the final decision memo released August 2nd, CMS responded to these comments, refined its
decision and confirmed coverage for autologous platelet rich plasma ("PRP") in patients with diabetic, pressure and/or venous wounds via its Coverage with Evidence Development ("CED") program. CED is a process through which CMS provides reimbursement coverage for items and services while generating additional clinical data to demonstrate their impact on health outcomes.
This determination provides for an appropriate research study with practical study designs that we believe will demonstrate that patients treated with AutoloGelTM experience clinically significant health outcomes.
ALDHbr Cell Technology and Development Pipeline
We acquired Aldagen in February 2012 in an all equity transaction valued, based on our volume weighted common stock price at the time of acquisition, at approximately $40 million in up-front and contingent consideration. The Aldagen technology utilizes an intracellular enzyme marker to fractionate essential regenerative cells from a patient's bone marrow. This core technology was originally licensed from Duke University and Johns Hopkins University. This proprietary bone marrow fractionation process identifies and isolates active stem and progenitor cells expressing high levels of the enzyme aldehyde dehydrogenase, or ALDH, which is a key enzyme involved in the regulation of gene activities associated with cell proliferation and differentiation. The selected biologically instructive cells ("ALDHbr") have the potential to promote the repair and regeneration of multiple types of cells and tissues, including the growth of new blood vessels, or angiogenesis, which is critical to the generation of healthy tissue.
Our lead product candidate, ALD-401, is for the treatment of post-acute ischemic stroke. ALD-401 is currently being evaluated in the RECOVER-Stroke clinical study, an ongoing 100-patient, double-blind, placebo-controlled Phase II study in patients with unilateral, cerebral ischemic stroke with an NIH stroke scale score of between 7 and 22. In this study ALD-401 is delivered via the carotid artery, and a single infusion is administered 13 to 19 days post the ischemic event. The trial is being conducted at up to 10 - 15 sites in the U. S. The primary endpoint of the trial is safety and the efficacy endpoint is post-stroke recovery of neural function based on the modified Rankin Scale at three months post treatment.
We recently completed the initial safety stage of the study. The independent Data Safety Monitoring Board (DSMB) reviewing the safety data has recommended that the Phase 2 trial of ALD-401 can continue as designed. Additional DSMB reviews are scheduled at 30 and 60 patients per the clinical protocol. We are in the process of expanding the study to between 10 and 15 sites. We expect to complete enrollment within the coming 12 months and to have top-line data approximately four months following completion of enrollment.
In July of 2012, we announced the initiation of a Phase I clinical study with ALD-451 in brain cancer patients in collaboration with Duke University Medical Center. The open-label study will enroll up to 12 patients and is intended to demonstrate the feasibility and safety of ALD-451 when administered intravenously in World Health Organization ("WHO") grade IV malignant glioma patients following surgery, radiation therapy and treatment with temozolomide. The trial also will obtain an initial description of the effects of ALD-451 on neurocognition. The clinical study is open for enrollment having received Investigational New Drug clearance from the U. S. Food and Drug Administration and Investigational Review Board clearance from Duke University Medical Center. Cytomedix will be responsible for manufacturing ALD-451 for the clinical trial. Duke University Medical Center, through the Robertson Clinical & Translational Cell Therapy Program, will fund the trial and be responsible for all other aspects of the study.
An additional product candidate, ALD-301, is in clinical development for critical limb ischemia ("CLI"). We have completed a Phase I/II study of ALD-301 in CLI. The results showed improvement in limb perfusion as well as improvements in key parameters measuring CLI severity, and was published in the medical journal Catheterization and Cardiovascular Interventions. FDA clearance has been received to begin a 150-patient, double-blind, placebo-controlled Phase II study of Rutherford Category 4 or 5 patients who are not candidates for blood flow restoration procedures.
We have also completed a Phase I study with ALD-201 to treat end-stage heart
failure. In this study, the trial provided initial evidence of improved blood
flow and improved clinical status. A paper detailing the clinical data was
recently published in the American Heart Journal in an article entitled:
"Randomized, double-blind pilot study of transendocardial injection of
autologous aldehyde dehydrogenase-bright stem cells in patients with ischemic
heart failure."
Our current development strategy involves seeking partners to further advance the ALD-301 and ALD-201 programs. We expect one additional trial, funded by a third party, to start in the fourth quarter of 2012. This study leverages our data and positive clinical experiences in CLI with ALD-301.
Comparison of Operating Results for the Three- and Six-Month Periods Ended June
30, 2012 and 2011
Certain numbers in this section have been rounded for ease of analysis.
Product sales continued along a steady growth trend, with total product sales of $1.8 million in the second quarter of 2012 and $3.5 million for the year. In February 2012, we also received a $2.5 million non-refundable exclusivity fee (in addition to the $2.0 million exclusivity fee received in the fourth quarter of 2011) from a top 20 global pharmaceutical partner in conjunction with a potential supply and distribution agreement for AutoloGel. Also in February of this year, we acquired Aldagen, Inc. , a privately held autologous adult stem cell company, in an all equity transaction valued at approximately $40 million, provided certain clinical milestones are met. Aldagen's lead product candidate, ALD-401, is currently in a phase II clinical trial involving post-acute ischemic stroke patients.
Our revenues will be insufficient to cover our operating expenses in the near term. Operating expenses primarily consist of employee compensation, professional fees, consulting expenses, clinical trial costs, and other general business expenses such as insurance, travel related expenses, and sales and marketing related items. Operating expenses have risen to support the continuing growth of product sales, our substantial efforts with regard to Medicare reimbursement for AutoloGel, and the more recent ALD-401 phase II clinical trial involving patients with ischemic stroke. We therefore expect losses to continue for the foreseeable future.
Revenues
Revenues increased $2,291,000 (164%) to $3,685,000 and $3,942,000 (143%) to $6,702,000 comparing the three and six months ended June 30, 2012, respectively, to the same periods last year.
For the three-month period, the increase was due to higher product sales of $420,000, license fee revenue of $1,824,000, and royalty revenue of $47,000. Sales of Angel increased $350,000 (27%) and AutoloGel increased $56,000 (51%). Royalty revenue was a result of royalties received from our Aldefluor® license.
For the six-month period, the increase was primarily due to higher product sales of $740,000 and license fee revenue of $3,155,000. The increased product sales were primarily due to an increase in Angel sales of $586,000 (23%) and AutoloGel sales of $131,000 (66%).
License fee revenue was a result of exclusivity fee payments recognized with respect to an option agreement with a top 20 global pharmaceutical company.
Gross Profit
Gross Profit increased $1,950,000 (258%) to $2,705,000 and $3,398,000 (230%) to $4,874,000 comparing the three and six months ended June 30, 2012, respectively, to the same periods last year.
For the three-month period, the increase was primarily attributable to $1.8 million in licensing revenue (which had no associated cost) as well as increased profit on product sales.
For the six-month period, the increase was primarily attributable to $3.2 million in licensing revenue (which had no associated cost) as well as increased profit on product sales.
For the same periods, gross margin increased to 73% from 54% and to 73% from 53%, comparing the three and six months ended June 30, 2012. The increase was primarily due to the license fee revenue which had no associated cost of revenue. Gross margin on product sales decreased to 46% from 54% and to 48% from 53%, for the same periods respectively. The decrease was primarily due to sales on lower margin products, specifically Angel machines sold to international distributors, which made up a more significant portion of the product mix.
Operating Expenses
Operating expenses increased $3,061,000 (154%) to $5,054,000 and increased $5,746,000 (137%) to $9,942,000 comparing the three and six months ended June 30, 2012, to the same periods last year. A discussion of the various components of operating expenses follows below.
Salaries and Wages
Salaries and wages increased $1,046,000 (143%) to $1,779,000 and $2,382,000 (163%) to $3,841,000 comparing the three and six months ended June 30, 2012 to the same period last year. The increases were primarily due to increased stock-based compensation expense and additional employees as a result of the Aldagen acquisition, in addition to increased bonus expense.
Consulting Expenses
Consulting expenses increased $156,000 (52%) to $454,000 and $648,000 (102%) to $1,283,000 comparing the three and six months ended June 30, 2012 to the same period last year.
For the three-month period, the increase was primarily due to consulting expense associated with clinical, finance, and European distribution channel activities.
For the six-month period, the increase was primarily due to consulting expenses related to the Aldagen acquisition, in addition to consulting expense associated with clinical, finance, and European distribution channel activities.
Professional Fees
Professional fees decreased $10,000 (5%) to $203,000 and increased $216,000 (48%) to $667,000 comparing the three and six months ended June 30, 2012 to the same period last year. The increase for the six-month period was primarily due to legal and accounting costs related to the Aldagen acquisition.
Research, Development, Trials and Studies
Trials and studies expenses increased $1,049,000 (2,492%) to $1,091,000 and $1,347,000 (1,319%) to $1,449,000 comparing the three and six months ended June 30, 2012 to the same period last year. The increases were primarily due to research and development costs related to the ALD-401 Phase II clinical trial.
General and Administrative Expenses
General and administrative expenses increased $820,000 (116%) to $1,526,000 and $1,153,000 (74%) to $2,702,000 comparing the three and six months ended June 30, 2012 to the same period last year.
For the three- and six-month period, the increase was primarily due to higher stock based compensation due to additional members of the board of directors, rent, employee benefits, and amortization expense as a result of the acquisition of Aldagen. Additionally, travel, marketing, and European services increased as we made further investments in our sales and marketing distribution efforts.
Other Income and Expense
Other expense, net totaled $5,103,000 and $7,102,000 in the three and six months ended June 30, 2012 compared to $452,000 and $529,000 in other income in the same periods last year.
For the three-month period, the change was primarily due to an increase in expense of approximately $4,335,000 related to the increase in the fair value of the contingent consideration mainly due to the change in the Company's stock price and $471,000 due to the settlement of a contingency. The settlement expense realized was a result of a contingency resolved, in the second quarter of 2012, that resulted in common stock issuable to our pre-bankruptcy Series A Preferred stock holders as outlined in the Company's plan of reorganization in 2002. In addition, there was a gain of approximately $577,000 recognized in 2011 related to the Company's renegotiation of the note payable due to Sorin.
For the six-month period, the change was primarily due to an increase in expense of approximately $4,335,000 related to the increase in the fair value of the contingent consideration mainly due to the change in the Company's stock price. In addition, there was approximately $1,513,000 in non-cash inducement expense, $471,000 in settlement expense, and a $625,000 non-cash change in the fair value of derivative liabilities. The settlement expense realized was a result of a contingency resolved, in the second quarter of 2012, that resulted in common stock issuable to our pre-bankruptcy Series A Preferred stock holders as outlined in the Company's plan of reorganization in 2002. The non-cash inducement expense is associated with common stock issued to compensate Series D preferred stockholders for forgone preferred dividend payments due to
the early conversion of preferred stock incentive warrants issued in exchange for the early exercise of existing warrants. These were partially offset by a gain of approximately $577,000 recognized in 2011 related to the Company's renegotiation of the note payable due to Sorin.
Liquidity and Capital Resources
Since inception we have incurred, and continue to incur significant losses from operations. Although our recent acquisition of Aldagen was an all equity transaction, the on-going Phase II study and general corporate activities at Aldagen will increase our operational expenditures over the next two years. Historically, we have financed our operations through a combination of the sale of debt, equity and equity-linked securities, and licensing, royalty, and product revenues. The Company's commercial products are currently generating approximately $7 million in revenue per year on a run-rate basis. The Company needs to sustain and grow these sales to meet its business objectives and satisfy its cash requirements.
At June 30, 2012, we had approximately $8.5 million cash on hand including approximately $4.7 million dedicated for use in the ALD-401 clinical trial and related matters. We believe we will have sufficient cash to sustain the Company at least through 2012. However, we will require additional capital to finance the further development of our business operations, in particular the completion of the Phase II RECOVER Stroke trial, beyond that point.
If a license and/or distribution agreement is finalized with the pharmaceutical company mentioned above, we would expect such agreement to incorporate up-front fees, milestone payments, and a profit sharing arrangement on future U. S. sales of AutoloGel. We also continue to have exploratory conversations with large companies regarding their interest in our various products and technologies. We will seek to leverage these relationships and this heightened interest to secure further non-dilutive sources of funding.
The Company may also access additional capital through a purchase agreement with Lincoln Park Capital ("LPC"). Under this agreement, which expires in January 2013, the Company may, within certain parameters, raise up to an additional $4.6 million. To date, the Company has raised $6.9 million by selling a total of 11.8 million shares to LPC with approximately 67% of those shares sold prior to June 30, 2011. Given the parameters within which the Company may draw down from LPC, there is no assurance that the amounts available from LPC will be sufficient to fund our future operational cash flow needs.
If significant amounts are not available to the Company from future strategic partnerships or under the LPC agreement, additional funding will be required for the Company to pursue all elements of its strategic plan. Specific programs that may require additional funding include, without limitation, continued investment in the sales, marketing, distribution, and customer service areas, further expansion into the international markets, completion of the ongoing Phase II RECOVER Stroke trial, significant new product development or modifications, and pursuit of other opportunities. We would likely raise such additional capital through the issuance of our equity or equity-linked securities, which may result in significant additional dilution to our investors. The Company's ability to raise additional capital is dependent on, among other things, the state of the financial markets at the time of any proposed offering. To secure funding through strategic partnerships, it may be necessary to partner one or more of our technologies at an earlier stage of development, which could cause the Company to share a greater portion of the potential future economic value of those programs with its partners. There is no assurance that additional funding, through any of the aforementioned means, will be available on acceptable terms, or at all. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, the Company's operations could be materially negatively impacted.
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