On Friday, I previewed the Q4 earnings news out of cord-blood storage specialist ViaCell (NASDAQ:VIAC), which reports tomorrow. Today, I'll take a look at ViaCell's biggest (in a relative sense) publicly traded rival in this new field of business: Tiny Cryo-Cell (OTC BB: CCEL.OB), which reports Q4 and full-year news of its own on Wednesday.

What analysts say:

  • Buy, sell, or waffle? One analyst follows Cryo-Cell and rates it a buy.
  • Revenues. The lone analyst predicts quarterly sales growth of 28%, to $4.9 million ...
  • Earnings. ... and profits of $0.03 per share, versus just a penny last year.

What management says:
After providing what appears to be a quite detailed quarterly report last quarter, Cryo-Cell CEO Mercedes Walton summed up the firm's progress thusly: "As Cryo-Cell's growth initiatives take hold, we anticipate accelerated unit growth will result in capturing additional market share. We believe that the anticipated short-term impact of increased expenses on quarterly earnings will be positively offset by longer-term growth of revenue and earnings in the coming periods."

There, in a nutshell, is the story at Cryo-Cell -- a company in a race for market share, whose rapidly rising costs are unfortunately outstripping more than respectable sales gains (21% last quarter, for instance.)

What management does:
The margins table below shows the results of Cryo-Cell's increased spending to build its business. Gross margins have dwindled from supremely strong to merely superb. And under GAAP accounting standards, the firm is now operating at a loss on both an operating and net basis.

Margins

5/05

8/05

11/05

2/06

5/06

8/06

Gross

80.8%

79.8%

71.3%

69.7%

68.2%

66.4%

Operating

16.9%

18.1%

4.2%

1.6%

(1.7%)

(10.7%)

Net

17.4%

7.6%

7.2%

6.1%

(0.4%)

(10.5%)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Drilling down to the details, we see that Cryo-Cell has grown its revenues pretty steadily all year long, with sales up 20% year to date. The reason: Costs of services provided have risen 47% year over year, and selling, general, and administrative expenses are up 45%. These rising costs, however, are directly attributable to Cryo-Cell's quest for market share, with management describing them as deriving from "enrollment incentives," increased reimbursements paid out for "laboratory supplies and cord-blood collection," the cost of "service enhancements" (e.g., paying postage on courier shipments of cord blood from new customers) that the company has offered to sweeten the deal on its recent price hikes, and increased spending on advertising. It should be especially interesting, therefore, to compare the revenue gains that Cryo-Cell reports on Wednesday with the corresponding performance from rival ViaCell on Tuesday -- to see whether the former's "investments" in building market share are paying off.

Here's something else that's interesting to watch -- ViaCell says it's targeting cash flow-positive status by early next year. In contrast, Cryo-Cell is cash flow-positive today. While I don't necessarily consider the company's recent GAAP unprofitability a good thing, so long as it's generating cash, and ViaCell isn't, I'm much more inclined toward thinking that Cryo-Cell is the more worthy investment for investors' cash. That's my wordy way of saying: Let's keep a close eye on Cryo-Cell's cash flow come Wednesday, to ensure that this company is maintaining its advantage in that regard.

Find further reading material on the twin near-homonyms of biotech in the science lab:

Let high-tech, cutting-edge growth stocks be the lifeblood of your portfolio with a free 30-day trial to Motley Fool Rule Breakers.

Fool contributor Rich Smith does not own shares of any company named above.