1-Star Stocks Poised to Plunge: Cytori Therapeutics?

Based on the aggregated intelligence of 145,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, stem-cell technology specialist Cytori Therapeutics (Nasdaq: CYTX  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Cytori's business and see what CAPS investors are saying about the stock right now.

Cytori facts

Headquarters (Founded)

San Diego (1996)

Market Cap

$299 million

Industry

Biotechnology

Trailing-12-Month Revenue

$14 million

Management

Co-Founder/CEO Christopher Calhoun
CFO Mark Saad

Trailing-12-Month Return on Assets

(40.8%)

Cash / Debt

$13 million / $6 million

3-Month Return

132%

Highly Rated Biotech Alternatives

Amgen (Nasdaq: AMGN  )
Celgene (Nasdaq: CELG  )
Gilead Sciences (Nasdaq: GILD  )

CAPS Members Bearish on CYTX Also Bearish on

Targacept (Nasdaq: TRGT  )

CAPS Members Bullish on CYTX Also Bullish on

Geron (Nasdaq: GERN  )
Bank of America (NYSE: BAC  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 57% of the 79 All-Star members who have rated Cytori believe the stock will underperform the S&P 500 going forward. These bears include gokylego and TSIF.

Just last week, gokylego tapped Cytori as a former four-star stock gone too wild: "Too high of a bounce too soon. Money is safer elsewhere."

In a pitch from three days ago, TSIF echoes that bearishness. Here's an excerpt:

Biopharmaceuticals rarely pan out, even those who get FDA approval and produce an actual product. While Cytori has been successful in getting products to market, similar to others, ... the share price spikes above actual revenue opportunities as trial data is released and FDA approval nears or is even granted as in Cytori's case. ...

Cytori's stem cell work is also not unique. ... While they are international in products and devices for procedures that have recurring revenue, Cytori has net tangible book value of NEGATIVE $6 Million and a market cap of $300 Million. ... Only by multiple stock issues have they remained solvent. Even if they produce a product that lives up to the market hype, the share count will not generate a meaningful EPS.

What do you think about Cytori, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy always gets a perfect score.


Read/Post Comments (12) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 29, 2010, at 11:12 AM, lunchonme wrote:

    Fool is a great name for this analyst; paying attention to the short sellers who stand to profit from this report, instead of experts in this technology and its potential.

  • Report this Comment On January 29, 2010, at 11:26 AM, MrFuelCellKNOWS wrote:

    Yes, Cytori has risen very quickly btu so what? Cytori has a medical Therapy PLATFORM. We're not talking about your typical small cap biotech looking to get single drug approved by the FDA. We're talking about independent investigators around the world doing their own clinical investigations on their own dime and already having great results. We have a plastic surgeon in Arizona enhancing breasts without phony looking implants: http://www.prweb.com/releases/2009/10/prweb3051384.htm & http://www.youtube.com/watch?v=iecZIFFpQRI. We have an ederly gentlemen CURED of urinary incontinence: http://cytoritx.com/VideoPopup.aspx?link=nagoya_urinary.swf .We have a doctor who cured an 85 year old women whose radiation wound wouldn't close (can't find the link to the video). We have a heart diseased patient cured: http://cytoritx.com/VideoPopup.aspx?link=Interview_Dr_Takamu...

    We are talking about a revolution in regerative medicine. Stem cell stocks have been around for at least a decade with ebbs and flows of hype throughout that time frame. The reality is about to surpass the hype. Cytori is positioned to take it to the next level right now ant it market cap doesn't reflect its potential.

  • Report this Comment On January 29, 2010, at 11:38 AM, MrFuelCellKNOWS wrote:

    Yes, Cytori has risen very quickly but so what? Cytori has a medical Therapy PLATFORM. We're not talking about your typical small cap biotech looking to get single drug approved by the FDA. We're talking about independent investigators around the world doing their own clinical investigations on their own dime and already having great results.

    We have a plastic surgeon in Arizona enhancing breasts without phony looking implants: http://www.prweb.com/releases/2009/10/prweb3051384.htm & http://www.youtube.com/watch?v=iecZIFFpQRI. We have an elderly gentlemen CURED of urinary incontinence: http://cytoritx.com/VideoPopup.aspx?link=nagoya_urinary.swf .We an 85 year old women cured of a radiation wound that wouldn't heal (can't find the link to the video). We have a seriously ill, heart diseased patient cured: http://cytoritx.com/VideoPopup.aspx?link=Interview_Dr_Takamu...

    What we are talking about here is a revolution in regenerative medicine. Stem cell stocks have been around for at least a decade and have been the subject of repeated ebbs and flows of hype throughout that time frame. In my view, the reality is about to surpass the hype. Cytori is positioned to take it to the next level right now it's market cap doesn't come close to reflecting its potential in all these billion dollar markets. The Motley Fool CAPS got this one wrong.

  • Report this Comment On January 29, 2010, at 12:39 PM, TSIF wrote:

    No where in my pitch (made to stimulate factual discussion), did I say anything bad about the company from the medical standpoint. Financial metrics and medical metrics are not directly correlated UNTIL there are viable products that the market is willing to pay a premium (above other solutions) for.

    Investors need to realize the cycles that stocks must go through before the value side of the equation can be met. Yes, per FULL pitch, I'm very careful about potential. I did make some decent coin on Dendreon. I lost money off VITA and SPPI who the market decided to run up on FDA approval and then the stocks went above the immediate value that can be achieved before production and demand can be asserted.

    Opportunity abides in any equity. Execution is the metric. Passion is commendable, but try to separate the economics and the passion.

    My pitch is advice that sometimes the Passion exceeds the economic potential at times. Investors should be aware that this can happen and buy accordingly on dips or between news. Good luck.

  • Report this Comment On January 29, 2010, at 12:45 PM, TSIF wrote:

    No where in my pitch (made to stimulate factual discussion), did I say anything bad about the company from the medical standpoint. Financial metrics and medical metrics are not directly correlated UNTIL there are viable products that the market is willing to pay a premium (above other solutions) for.

    Investors need to realize the cycles that stocks must go through before the value side of the equation can be met. Yes, per FULL pitch, I'm very careful about potential. I did make some decent coin on Dendreon. I lost money off VITA and SPPI who the market decided to run up on FDA approval and then the stocks went above the immediate value that can be achieved before production and demand can be asserted.

    Opportunity abides in any equity. Execution is the metric. Passion is commendable, but try to separate the economics and the passion.

    My pitch is advice that sometimes the Passion exceeds the economic potential at times. Investors should be aware that this can happen and buy accordingly on dips or between news. Good luck.

  • Report this Comment On January 29, 2010, at 3:49 PM, JGGardner wrote:

    Analysts generally believe that a company should be priced on revenues, projected earnings and key events – and most companies are. The exception to this general rule is the old “cure for cancer” clause - meaning that if a company has discovered something so amazing, such as a cure for cancer, a more agressive valuation matrix applies. One company in the regenerative medicine market meets this criteria; Cytori Therapeutics.

    It is now known that Cytori’s technology, ADRC’s, have the potential to regenerate cells in a wide number of heretofore untreatable patients, but the story is really much bigger than this, and sadly the research analysts currently following the stock don’t seem to get it. Most of them are still under the impression that there are a host of viable stem cell competitors vying with competing technologies – still anybody’s game. They see embryonic, umbilical, marrow, and adipose derived cells going head to head and generally consider Geron the industry leader (because it carries the largest market cap) but here’s what they are missing:

    The non-adipose based sources do not provide enough cell volume for therapies proving to be the most immediate and promising in clinical trials (heart attack, chronic ischemia, breast reconstruction, wound care, urinary incontinence). The only way you get a sufficient quantity from non-adipose based sources is to culture the cells, which unfortunately for Cytori’s competitors takes critical time and adversely effects the character of the cells (generally makes them too large). This is especially vital in the cardiac market where the cultured cells cannot even reach some of the damaged tissue (due to size)– and moreover pose a clogging risk to the patient. ADRC’s do not have this drawback and appear to be the only efficacious solution in this enormous market.

    Even more important, and also generally unrecognized, is the magic of an autologous gimish to treat the vast majority of the patient population. Cytori, whose technology is treating patients everyday, is showing that a multiplicity of cells is absolutely vital to the regenerative process. Stem cells alone are just not enough in most cases because of all the different specialized cell functions required to take place during the arc of the overall healing process.

    So one needs ADRC's (for quantity and small size) and one needs a gimish (multiplicity of cells) for full regenerative capability (key to healing), but most still don't comprehend the significance of this combination, and fewer still realize that Cytori is the only company able to deliver the total solution. In fact, the Cytori head start and patents make it extremely unlikely that others will be able to develop a competing therapy anytime soon - meaning the main stem cell race is probably already won. When investors begin to understand that Cytori’s technology is the most viable and effective therapy for the mass market, (and that Geron and a few other stem cell hopefuls may not survive with current strategies), there will be a rapid reordering of valuations.

    To put it in perspective, if a company had a proprietary cure for a broad range of cancers, it would probably carry a $5 billion plus valuation before any significant sales were realized. Cytori literally has a cure for something bigger, serving a population several times larger than the total number of cancer patients.

  • Report this Comment On February 01, 2010, at 11:06 AM, fencejake wrote:

    I am new to this board and am looking for a balanced discussion regarding the positive and negative attributes of the technology behind Cytori’s Celution system and of CYTX as an investment. I marvel at what Cytori management and the company’s consultants/physicians say the Celution technology is capable of. Celution truly sounds like a wonder treatment and warrants a certain level of excitement. However, over 20 years of experience investing in life sciences/data driven stocks has taught me that it’s wise to keep a skeptical mindset until data from a well controlled clinical study - by FDA standards – exists, as I’ve seen many more blow-ups than successes. I would like to believe stem cell therapies – and CYTX’s technology, specifically – is a game changer, but until data exists, I remain cautious. Historically, this approach has served me well.

    The following things concern me and I’d really appreciate if someone could address them:

    Regulatory risk appears high for device makers across all areas of healthcare and particularly for autologous fat transfer technologies.

    There is a clear sea change at FDA and desire to raise the bar for clearance of 510Ks and PMAs in light of recent negative developments. Below are press reports.

    http://www.nytimes.com/2009/12/30/business/30device.html

    http://www.healthpointcapital.com/research/2010/01/05/pmas_s...

    There is a significant amount of literature that documents potential risks associated with fat grafting. Below are articles that a Google search turned up.

    • Complications after autologous fat injection to the breast

    o http://www.ncbi.nlm.nih.gov/pubmed/19116573

    • Adipose Tissue Increase Dramatically the Tumour Growth When Co-Injected with Breast Cancer Cell Lines

    o http://www.sabcs.org/ProgramSchedule/PosterSessions.asp?Sess...

    • Current Applications and Safety of Autologous Fat Grafts

    o http://www.plasticsurgery.org/Documents/Medical_Profesionals...

    Celution data generated to date is far from robust/acceptable by current FDA standards.

    • RESTORE 2 – Data announced Dec 09; Patient satisfaction rates in key areas of breast symmetry in RESTORE-2 were just 52% - which is well below other reconstruction procedure satisfaction rates. This critical sub-category score was omitted from the press release announcing the overall satisfaction scores on 12/12/09. And, according to Dec 09 FDA guidance, patient reported outcome measures in open label studies have no credibility. http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulat...

    • APOLLO – data expected late 1Q10; a cardiac study that was initially expected to enroll 48 patients but was stopped after enrolling just 13 because “the study met its primary goals of safety and feasibility” according to management in the 1Q09 conference call transcript. The fact that a Phase 1 study was stopped this early raises a red flag, from my experience, as study did not meet its primary objective if just 27% of the small enrollment target was met.

    • PRECISE – another cardiac study with data expected late 2Q10; only 27 of 36 completed enrollment in this study and an adverse event was reported in FDA’s MAUDE Adverse event database http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfMAUDE/De...

    Management communication practices appear concerning, as the company regularly disseminates information selectively to a “friends and investors” distribution list without an accompanying press release or posting to its website. This appears to conflict with SEC’s Regulation Fair Disclosure http://www.sec.gov/answers/regfd.htm

    To be continued….

  • Report this Comment On February 01, 2010, at 11:09 AM, fencejake wrote:

    Balanced discussion, please – Part 2

    Picking up where I left off in Part 1 - additional concerns include:

    Stock approaching bubble territory? The company announced clearance of a COMPONENT of Celution (Puregraft), not Celution itself, that will generate an immaterial amount of revenues – and the stock jumps 15% in two days? And, a couple of weeks ago the infamous Joe Feshbach pens a bullish story for Seeking Alpha website. For those of us who have been in this industry long enough know that Mr. Feshbach has a checkered history including: blowing up his fund in 1991,bankrupting Curative Health Services, and preaching scientology on his personal website.

    http://www.marketwatch.com/story/stockbuster-joe-feshbach-st...

    http://www.secinfo.com/d11MXs.vJ16.htm#1stPage

    http://www.our-home.org/joefeshbach/

    Valuation is misleading. Many on this board - and on the sell side - appear to be using a 38.8m share count to calculate market cap, however, the correct share count to use to calculate market cap is 64.5 million. Using a 38.8m count fails to adjust for : 1) “Potentially dilutive common shares excluded from the calculations of diluted loss per share [of] 20,255,308 for the three month period ended September 30, 2009” as disclosed on pp. 11 of CYTX’s most recent 10Q filing and 2) 5.4 million shares already issued and to be issued in connection with the Seaside 88 funding arrangement post 9/30/09. By failing to account for these shares, you calculation understates the true value of the company by approximately 39%.

  • Report this Comment On February 01, 2010, at 11:11 AM, fencejake wrote:

    Picking up where I left off - additional concerns include:

    Stock approaching bubble territory? The company announced clearance of a COMPONENT of Celution (Puregraft), not Celution itself, that will generate an immaterial amount of revenues – and the stock jumps 15% in two days? And, a couple of weeks ago the infamous Joe Feshbach pens a bullish story for Seeking Alpha website. For those of us who have been in this industry long enough know that Mr. Feshbach has a checkered history including: blowing up his fund in 1991,bankrupting Curative Health Services, and preaching scientology on his personal website.

    http://www.marketwatch.com/story/stockbuster-joe-feshbach-st...

    http://www.secinfo.com/d11MXs.vJ16.htm#1stPage

    http://www.our-home.org/joefeshbach/

    Valuation is misleading. Many on this board - and on the sell side - appear to be using a 38.8m share count to calculate market cap, however, the correct share count to use to calculate market cap is 64.5 million. Using a 38.8m count fails to adjust for : 1) “Potentially dilutive common shares excluded from the calculations of diluted loss per share [of] 20,255,308 for the three month period ended September 30, 2009” as disclosed on pp. 11 of CYTX’s most recent 10Q filing and 2) 5.4 million shares already issued and to be issued in connection with the Seaside 88 funding arrangement post 9/30/09. By failing to account for these shares, you calculation understates the true value of the company by approximately 39%.

  • Report this Comment On February 01, 2010, at 1:06 PM, TSIF wrote:

    fencejake,

    Welcome to the CAPS forum. In most cases if you want serious discussion on an equity then you'd be better off doing a blog entry on the forums. It might get noticed, but then again on little followed biopharm, it might not.

    These articles sometimes get serious discussion, but their main goal is to catch peoples attention on forums like the yahoo boards and try to interest them in the Motley Fool family of products/investing style.

    It sounds like you are doing a great job of doing your own DD. IN regard to the market cap, if we take the new or potential share issues into account then the market cap of CYTX is even more grossly disproportional to current revenue.

    Baby Bios cannot be graded fully on thier revenue stream, most are valued by perception, as perceived by those who either jump on the bandwagon in hopes of riches (DNDN, HGSI) or those who actually do some DD. In regard to baby bios, no FDA sure thing is certain nor is any measurable revenue stream on the few that do get approvals.

    CYTX, according to followers will save the world and surpass other multi-billion companies. In all liklihood, if they have some success with products they will get bought out by another company at a fair premium, but well under what the loyalists would like to see.

    So, intrinsic value, speculation, arbitrage, M&A, etc, all play in. The extra shares do not mean the true value is higher, it means the share price should/will eventually be lower after they merge into the float. What the share price will do next, however, as a biopharm is anyones guess.

    There will be no right, (or acceptable to all answer) to valuing a baby biopharm. Good luck.

  • Report this Comment On February 02, 2010, at 6:39 AM, barabo wrote:

    If you will know the truth about Cytori, first read and learn at :

    http://www.young-foxes.com/

  • Report this Comment On February 02, 2010, at 11:13 AM, baltbear wrote:

    3 red flags:

    a. mkt cap increasing at an irrational rate in comparison to the revenue event.

    b. as noted, massive dilution awaiting a change in book value.

    c. stockholders trying to take over p/r functions.

    all 3 have been noted in the above comments.

    the question for the prudent speculator is where the trading bottom is as people rolling this puppy leave the party.

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