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Cytomedix undergoes business regeneration
GAITHERSBURG, Md.—When Cytomedix Inc. recently acquired Durham, N.C.-based Aldagen Inc. in a stock deal valued at $40 million, the Maryland firm fulfilled its vision of rising from a wound-care-based technology platform to resurrecting its business plan, broadening its pipeline and becoming 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 $16 million, giving Aldagen a 17.3 percent stake in Cytomedix. As part of the transaction, some Aldagen investors purchased $5 million of Cytomedix common stock in a private placement. Aldagen became a wholly owned subsidiary of Cytomedix, yet retained its North Carolina facilities and former Aldagen executive officers found parallel positions at Cytomedix.
Aldagen's lead stem-cell therapy candidates include a treatment for critical limb ischemia, a severe obstruction of the arteries that decreases blood flow to the extremities of the body. The company is also developing a treatment for ischemic heart failure, a condition in which the heart suffers from decreased blood flow and oxygen due to narrowing of the arteries.
In January, Aldagen received U.S. Food and Drug Administration (FDA) clearance to begin a Phase II study of a regenerative cell therapy for stroke patients, and in June 2011, Aldagen enrolled its first patient in a Phase II clinical trial studying candidate ALD-401 as a treatment for ischemic stroke.
Andrew Maslan, Cytomedix's chief financial officer, believes the agreement sets the stage for a bright future.
"We think this was a really good deal for us, primarily because we tied such a significant portion of the consideration (60 percent) to the achievement of milestones," Maslan tells ddn. "Of that, 80 percent is payable only upon success in the currently ongoing RECOVER-Stroke Phase II trial. Success, as I use it here, is defined as both a positive efficacy signal and a positive end of Phase II, in meeting with the FDA.
"We believe the upfront consideration, valued at $16 million based on a recent VWAP of $1.18 leading up to the transaction, is a relatively very low price for a platform technology that could potentially address huge markets such as stroke, critical limb ischemia, etc.," Maslan says. "We believe the ALDHbr cell line and manufacturing process has distinct competitive advantages as compared to other cell therapy companies. Other public cell therapy companies, at very similar stages of development to Aldagen, have market values in the $50 to $75 million range."
Maslan is quick to dispel any concerns about its use of stem cells.
"One of the very attractive components to the Aldagen technology 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 bone marrow, so it avoids totally any controversy associated with embryonic stem cells."
Cytomedix's new stem-cell therapy virtually eliminates immune system rejection, he adds.
"We believe the platform technology has multiple potential indications." Maslan says. "We are committed to completing (at our own expense) the ongoing Phase II study in stroke. We believe there will be additional studies in other areas funded by third parties that we hope to announce later this year."
The company already has positive Phase I data in end-stage heart 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 indication will require a strategic partner or other source of significant funding. We will seek such opportunities, but our first priority in these earliest days post-acquisition is to ensure that we focus on the immediate opportunities before us—namely the successful completion of the stroke trial and the third-party funded studies that we believe will materialize in the near future."
There are also opportunities to develop utilizations for the ALDHbr technology in combination with the company's Angel Whole Blood Separation System, "which we are very eager to explore," he says.
In a conference call Feb. 9, Dr. James Hinson, Cytomedix's chief medical officer, told investors, "To me, regenerative medicine holds the most excitement and promise that I have seen in therapeutic medicine over my 36-year medical career. The use of cells as therapeutic agents has potential not only to change the way physicians practice medicine, but significantly and importantly, to change the lives of patients who heretofore have had untreatable illnesses. To that end, the combination of these two companies that both have cellular focus in different areas offers the opportunity to tap potential with the synergy to treat complex diseases that so far has not been seen."
The deal between the two companies nearly did not happen. Venture capital-backed Aldagen raised more than $60 million from investors including the Aurora Funds, Intersouth Partners, Harbert Venture Partners, CNF Investments and Tullis-Dickerson. Aldagen took steps toward an initial public stock offering, but withdrew those plans in 2009, citing market conditions.
At the conference call, Martin P. Rosendale, Cytomedix's CEO, said the company is close to a licensing deal with a "top 20 global pharmaceutical company" on its Autologel wound care system. The company is also seeking to add indications for its Angel Whole Blood Separation System. A 510(k) clearance could give the company a piece of the $800 million-a-year biologics market associated with spinal fusion procedures.
"Since joining Cytomedix as chief executive in 2008, our strategy has evolved, but the vision to transform the company from a wound-care-based technology platform into a broader regenerative medicine company has remained constant," Rosendale stated in a news release. "In pursuit of this vision, we started with the successful 2010 acquisition and integration of the Angel System, a unique, best-in-class PRP platform technology that has allowed us to grow from nominal sales to $6 million per year in just over 18 months."
The acquisition of Aldagen provides Cytomedix with a "novel, patent-protected cell selection technology that fits well with our existing commercial products and strengthens our long-range growth profile," Rosendale stated.
"Aldagen has the only stem cell selection technology utilizing an intracellular enzyme marker to fractionate essential regenerative cells from a patient's bone marrow," Rosendale tells ddn. "We now touch on the three pillars of regenerative medicine with autologous stem cells, platelet-derived signaling molecules and plasma scaffolds. Fortunately, integration of the two companies will be straightforward. The first steps are to integrate our financial processes and our quality systems. Luckily, there is very little redundancy between the personnel at the two organizations, so we do not anticipate any staff reductions."