Washington Editor

Cytori Therapeutics Inc. is bringing in $21.5 million in gross proceeds, by way of a registered direct offering of common stock and warrants, largely to push product development and commercialization of its cell-processing system.

In particular, the San Diego company plans to use the funds primarily for clinical trials of its stem and regenerative cell-producing technology, the Celution System, for cardiovascular disease. It also plans to begin making commercialization plans for Europe, where its launch is expected early next year for reconstructive surgery applications.

Cytori also expects to apply its new money to preclinical research and development and for general working capital to further its therapeutic-through-a-device business model.

"Looking ahead" to those upcoming clinical trials and commercial launch, Chief Financial Officer Mark Saad told BioWorld Today, "to have a little more money on the books made sense now to strengthen our position." In addition, he said the timing of such catalysts in the coming months presented an opportunity to broaden the company's institutional investor base.

The new backers were not disclosed, though.

The Celution System is used to separate and concentrate stem and regenerative cells from a patient's adipose tissue - harvested via a small volume of liposuction - and then re-administer them to the patient about an hour later. Saad said such cells, which are concentrated in high volume in fat, include adipose-derived stem cells, endothelial and endothelial progenitor cells, smooth muscle and smooth muscle progenitor cells, as well as other growth factor-producing cells.

Collectively, they are thought to work principally through angiogenesis, along with secondary mechanisms such as immune modulation, anti-apoptosis and differentiation.

A significant body of evidence supports the use of those cells in reconstructive procedures, in which they are used to supplement soft tissue that is to be transferred from one part of the body to another, leading to what Saad termed a "super-charged," cell-enhanced tissue transfer.

The Celution System, which is regulated as a device, already has been cleared for use in Europe, along with specific therapeutic claims.

Early clinical data from an investigator-initiated study in Japan demonstrated a positive safety profile for adipose-derived stem and regenerative cells in breast reconstruction following a lumpectomy, and more studies are planned in Europe.

That data and the European clearance will allow the company "to drive" toward a launch there in about a year, Saad said. "If you put that all together," he added, "we see a great foundation for a meaningful launch into a completely unmet need."

In the U.S., Cytori expects to receive product clearance by the end of this year. So "on the heels of" those regulatory advancements, Saad said, "we've significantly accelerated our estimate of a commercial product from the end of 2009 to the beginning of 2008."

To broaden the Celution System's uses into cardiovascular applications, clinical testing is under way. A 36-patient study has begun to evaluate the safety and feasibility of using adipose stem and regenerative cells for chronic ischemia, and a 48-patient trial to test them as a treatment for heart attacks is scheduled to begin soon.

In these applications, the cells are delivered through a catheter into the coronary artery or directly into the heart muscle, where they work to revascularize bruised cardiac tissue and "bring it back," Saad said. Both studies will follow patients for six months before evaluation, and full results are expected next year.

In the longer term, additional applications for the Celution System include any ischemic disease, such as acute renal failure, Saad said, as well as urology, gastrointestinal disorders and orthopedic conditions.

In the financing transaction, Cytori entered definitive agreements to issue 3.75 million common shares at $5.74 apiece, along with 50 percent warrant coverage representing up to an additional 1.87 million shares. The five-year warrants, which are immediately exercisable at $6.25 each, represent the first such securities issued by the company.

Prior to the deal, Cytori had about 18.7 million shares outstanding and about $18 million in cash reserves, through Sept. 30. Its burn rate had been about $2 million per month ahead of that date. The new money, coupled with existing capital, "definitively gets us into commercialization," Saad said.

Cytori offered its securities pursuant to a $50 million shelf registration statement, which has been exhausted with this financing and another last summer, and the latest deal is expected to close on or about Wednesday.

Piper Jaffray & Co., of Minneapolis, served as the transaction's sole placement agent.

On Monday, Cytori's stock (NASDAQ:CYTX) dropped 38 cents to close at $5.44.