Cytomedix undergoes business regeneration

Company acquires Aldagen in stock deal valued at $40 million, becomes regenerative stem-cell therapy operation

Lori Lesko
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GAITHERSBURG, Md.—When Cytomedix Inc. recently acquiredDurham, N.C.-based Aldagen Inc. in a stock deal valued at $40 million, theMaryland firm fulfilled its vision of rising from a wound-care-based technologyplatform to resurrecting its business plan, broadening its pipeline andbecoming a genuine regenerative stem-cell therapy operation.
Under the terms of the acquisition agreement announced Feb.8, Cytomedix issued Aldagen shareholders preferred shares valued at $16million, giving Aldagen a 17.3 percent stake in Cytomedix. As part of thetransaction, some Aldagen investors purchased $5 million of Cytomedix commonstock in a private placement. Aldagen became a wholly owned subsidiary ofCytomedix, yet retained its North Carolina facilities and former Aldagenexecutive officers found parallel positions at Cytomedix.
Aldagen's lead stem-cell therapy candidates include atreatment for critical limb ischemia, a severe obstruction of the arteries thatdecreases blood flow to the extremities of the body. The company is alsodeveloping a treatment for ischemic heart failure, a condition in which theheart suffers from decreased blood flow and oxygen due to narrowing of thearteries.
In January, Aldagen received U.S. Food and DrugAdministration (FDA) clearance to begin a Phase II study of a regenerative celltherapy for stroke patients, and in June 2011, Aldagen enrolled its firstpatient in a Phase II clinical trial studying candidate ALD-401 as a treatmentfor ischemic stroke.
Andrew Maslan, Cytomedix's chief financial officer, believesthe agreement sets the stage for a bright future.
"We think this was a really good deal for us, primarilybecause we tied such a significant portion of the consideration (60 percent) tothe achievement of milestones," Maslan tells ddn. "Of that, 80 percent is payable only upon success in thecurrently ongoing RECOVER-Stroke Phase II trial. Success, as I use it here, isdefined as both a positive efficacy signal and a positive end of Phase II, inmeeting with the FDA.
"We believe the upfront consideration, valued at $16 millionbased on a recent VWAP of $1.18 leading up to the transaction, is a relativelyvery low price for a platform technology that could potentially address hugemarkets such as stroke, critical limb ischemia, etc.," Maslan says. "We believethe ALDHbr cell line and manufacturing process has distinct competitive advantagesas compared to other cell therapy companies. Other public cell therapy companies, at very similar stages ofdevelopment to Aldagen, have market values in the $50 to $75 million range."
Maslan is quick to dispel any concerns about its use of stemcells.
"One of the very attractive components to the Aldagentechnology is that it is not involved with embryonic stem cells," Maslan says."Aldagen technology relies on stem cells that come from the patient's own bonemarrow, so it avoids totally any controversy associated with embryonic stemcells."
Cytomedix's new stem-cell therapy virtually eliminatesimmune system rejection, he adds.
"We believe the platform technology has multiple potentialindications." Maslan says. "We arecommitted to completing (at our own expense) the ongoing Phase II study instroke. We believe there will be additional studies in other areas funded bythird parties that we hope to announce later this year."
The company already has positive Phase I data in end-stageheart failure and Phase I/II data in critical limb ischemia, he says.
"We have thoughts around other potential applications,"Maslan says. "However, any major development outside of the stroke indicationwill require a strategic partner or other source of significant funding. Wewill seek such opportunities, but our first priority in these earliest dayspost-acquisition is to ensure that we focus on the immediate opportunitiesbefore us—namely the successful completion of the stroke trial and thethird-party funded studies that we believe will materialize in the nearfuture."
There are also opportunities to develop utilizations for theALDHbr technology in combination with the company's Angel Whole BloodSeparation System, "which we are very eager to explore," he says.
In a conference call Feb. 9, Dr. James Hinson, Cytomedix'schief medical officer, told investors, "To me, regenerative medicine holds themost excitement and promise that I have seen in therapeutic medicine over my36-year medical career. The use of cells as therapeutic agents has potentialnot only to change the way physicians practice medicine, but significantly andimportantly, to change the lives of patients who heretofore have haduntreatable illnesses. To that end, the combination of these two companies thatboth have cellular focus in different areas offers the opportunity to tappotential with the synergy to treat complex diseases that so far has not beenseen."
The deal between the two companies nearly did not happen.Venture capital-backed Aldagen raised more than $60 million from investorsincluding the Aurora Funds, Intersouth Partners, Harbert Venture Partners, CNFInvestments and Tullis-Dickerson. Aldagen took steps toward an initial publicstock offering, but withdrew those plans in 2009, citing market conditions.
At the conference call, Martin P. Rosendale, Cytomedix'sCEO, said the company is close to a licensing deal with a "top 20 globalpharmaceutical company" on its Autologel wound care system. The company is alsoseeking to add indications for its Angel Whole Blood Separation System. A510(k) clearance could give the company a piece of the $800 million-a-yearbiologics market associated with spinal fusion procedures.
"Since joining Cytomedix as chief executive in 2008, ourstrategy has evolved, but the vision to transform the company from awound-care-based technology platform into a broader regenerative medicinecompany has remained constant," Rosendale stated in a news release. "In pursuitof this vision, we started with the successful 2010 acquisition and integrationof the Angel System, a unique, best-in-class PRP platform technology that hasallowed us to grow from nominal sales to $6 million per year in just over 18months."
The acquisition of Aldagen provides Cytomedix with a "novel,patent-protected cell selection technology that fits well with our existingcommercial products and strengthens our long-range growth profile,"Rosendale stated.
"Aldagen has the only stem cell selection technologyutilizing an intracellular enzyme marker to fractionate essential regenerativecells from a patient's bone marrow," Rosendale tells ddn. "We now touch on the three pillars of regenerative medicinewith autologous stem cells, platelet-derived signaling molecules and plasmascaffolds. Fortunately, integration of the two companies will bestraightforward. The first steps are to integrate our financial processes andour quality systems. Luckily, there is very little redundancy between thepersonnel at the two organizations, so we do not anticipate any staff reductions."

Lori Lesko

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