Early in August, I introduced you to Cryo-Cell International, Inc. (OTC: CCEL) , one of the largest and most established leaders in the stem cell sector. Today, we get to meet the company's CEO who shares some interesting insights and unpretended wisdom about the business and all of the exciting developments at the company she leads.
First, we have to talk about the lineup of some of the top stem cell companies in the market. When investors talk about stem cells, we hear mentions of companies like Geron (NASDAQ:GERN) which is a six hundred and thirty million cap company. Osiris Therapeutics (NASDAQ:OSIR) has a four hundred and seventy four million cap. StemCells, Inc. (NASDAQ:STEM) has a hundred and eighty-three million cap. Aastrom Biosciences, Inc. (NASDAQ:ASTM), is another one, they have nearly a seventy million cap. Which one of those has earned a dollar? Where is the profit?
In the same sector, we find Cryo-cell- a nicely profitable company. They have plenty of revenue from cellular processing and cryogenic storage, with a focus on the preservation of umbilical cord blood stem cells for family use. They have only a twenty three million cap (sixteen million cap when we first talked about them at the beginning of August) yet it’s the cheapest in the whole group and their float is very small. The stock runs up on very little volume. Yet, this company has been almost completely off the radar, but as soon as this sector starts to heat up, investors- and perhaps more importantly, investment bankers- are going to recognize it. This could be a fifty, sixty, maybe a hundred million cap.
Curiousity about this intersting investment opportunity led me to interview Mercedes A. Walton, who serves as the company's Chairman of the Board, and Chief Executive Officer. The following is a transcription of our recent discussion.
BioMedReports: Mercedes, why don’t you start at the beginning and tell us how you became involved with the company.
Mercedes Walton: "Certainly, well, I’ve been involved with Cryo-cell actually for nine years. I joined the board in 2000, and I was the director until 2002, and in 2003, I assumed the operating role of Chairman and CEO. This has been an incredibly exciting opportunity to work with Cryo-cell. The core business has been and cryo-preservation, stem cells harvested from umbilical cord blood at birth, and Cry-cell was actually the first and most established of the cord blood banks that have actually begun operating. We incorporated in 1989 and began operation on 1992, and today, we have nearly 185,000 clients worldwide.
"We have a network of global affiliates that have licensed the technology, and we received, in many instances, up-front licensing fees, and we, in turn, provide a turn-key operation, and we also collect royalties from the processing and storage of the stem cells. So, we have a very strong distance that this large base of clients is lucrative on many dimensions. They’re loyal clients. They’re committed to Cryo-cell. They believe in our brand. Many of them are repeat clients, so a large portion of our business, perhaps over a third, comes to us from existing clients and referrals that they make.
"So, in November, 2007, we announced the launch of a new service, and this new service was based on a discovery that was made by Cryo-cell, and we’ve named the service C'elle, and we have an expansive IT portfolio pending around the technology, but we have a high confidence that we will be the only company that will offer this service, a proprietary service, that basically allows women to collect and harvest their own stem cells from their menstrual fluid, and these stem cells are nothing less than remarkable in that they actually have markers that are the same markers that those stem cells harvested from bone marrow possess, but they also have markers that are also embryonic stem cell markers, that make them very unique, and also suggest that the cells are a bit more immature than adult stem cells, and we know that the stem cells are highly prolific, they reproduce themselves, on average, every twenty-four hours, and we have demonstrated their capability to many other cell types in the body, including cardiac, neural, bone, and we also have reason to believe that the cells can potentially become another cell type in the body.
"So, the cell, the C'elle, and the company Cry-cell’s proprietary technology is so compelling to stem cell researchers around the world that we have been able to establish a universal business model, that has been the for a collaborations research partner sponsors the research and development a hundred percent, and anything that emerges from therapeutic applications that the partner may develop is split fifty fifty between Cryo-cell and the prospective partner.
"So, to date, we actually have different applications we’re working on with research partners, and they’re very impressive research partners, for example, in diabetes, we’re working Dr. Camilla Recordy at the University of Miami, who is a world-renowned stem cell researcher in diabetes, and we’re working with Dr. Paul Sandberg at the University of Florida, who has demonstrated that, when injected with into laboratory rats triggered with stroke, the C'elle stem cells actually reverse the his findings were presented late in 2008 to the Conference of Neuroscientists in Atlanta, and we are very, very excited about that work.
"We are working with NIH in a collaboration on a breast cancer model cells, like stem cells, have the capability to hone in to the site of injury. Potentially use these as a therapeutic agent to carry the chemotherapy treatment directly to the site of breast cancer, so that’s a very exciting development. We’re looking at a company called Engeneter, which is looking at the cells for vascular regeneration so critical to many other diseases. We recently had an announcement about our research and development collaboration agreement with nationally recognized wound specialist, Dr.Robert J. Snyder and the Snyder Wound Research Institute LLC in Tamarac, FL. That partnership will allow Dr. Snyder to conduct research studies usingCryo-Cell's proprietary C'elle menstrual stem cell (MenSC) technology with the goal of identifying and developing potential future therapeutic applications for chronic wound healing.
"So, it’s just an incredibly exciting technology. Cryo-cell is doing very, very well financially, and that, combined with the position we hold is quite incredible."
BioMedReports: When you talk about the different cells, as you were running down the list of partners, and you had so many different projects, what percentage of those are related to the ones that are coming from cord blood versus the new application, or the relatively new C'elle application?
Mercedes Walton: "Actually, all of those applications that I identified are associated with the C'elle technology."
BioMedReports: Oh, okay, what about the chord blood?
Mercedes Walton: "Actually, Cord blood technology has been around for about a couple of decades now. The first chord blood transplant occurred in 1988, and, since that time, there have been over 12,000 cord blood stem cell transplants that have worldwide. So, the cord blood stem cells are interesting in that they are actually associated with the blood, and diseases of the blood, so hematopoietic applications.
"Cord blood have typically traditionally been used to treat diseases like sickle cell anemia, leukemia, lymphoma, and, because they can become a specialized blood cell, they have been used most predominantly for blood related diseases. Recently, however, over the last few years, there’ve been a lot of experimental studies that have utilized, and are utilizing, chord blood stem cells for conditions such as cerebral palsy. Duke University, for example, has a major study under way right now, Dr. Joanna Kurtzberg. They’re actually using cord blood stem cells to treat children with cerebral palsy, so parents that saved their newborn’s cord blood stem cells, and those children subsequently developed cerebral palsy, many of them are participating in the Duke study.
"There’s another study under way in Florida looking at using cord blood stem cells experimentally to treat Type 1 juvenile diabetes. So increasingly, we are learning that cord blood stem cells are being used to go far beyond hematapoietic-type diseases, and they’re being used experimentally for these experimentally for these other applications.
"Cryo-cell actually markets both the new cord and the C’elle stem cell technology in a bundle offer - we call it “Protect Baby, Protect Mom,” and this is really a fascinating service because the C’elle stem cells are a one hundred percent match to the mother donor, and, of course, the umbilical cord blood stem cells are a one hundred percent match to the infant donor. Cord blood stem cells can be a one in four match for the donor’s sibling, as well, so there have been many stem cell transplants that have taken place allogeneic, where the cells have been used for a sibling or a family member, in addition to autologous cells, that are used to treat the donor themselves. The C’elle stem cell, of course, is in the early stages. We see that C’elle technology, we believe, is akin to where new cord technology was back in the late 1980‘s, and, based on our research studies, we believe that the cell has a very low immunological reaction, which suggests to scientists that it could potentially be used for a first or second degree relative, such as, you know, a parent, a sibling or a child. So, this 'Protect Baby, Protect Mom' package is very appealing to many families who were initially just looking to store new cord, and because they understand the promise of stem cell science, they’re very eager to get this package where, once the mom’s cycle resumes, following delivery of the baby, she participates in the C’elle service, so we see them as very complementary services."
BioMedReports: So, as far as the C’elle is services are concerned, how many companies are doing this, or is this something that is specific to your company?
Mercedes Walton: "Cryo-cell is the only company that is offering this service, and we believe, based on our patent applications that are pending, we believe that we will be the exclusive provider of the menstrual stem cell technology. We are licensing the technology to some of our affiliate partners worldwide, so there are companies that are affiliated with us that actually will be offering the service.
"We just signed an exclusive license agreement with S-Evans Biosciences, Inc. (SEB), a privately-held stem cell and genomics technology company located near Shanghai to to market and manufacture proprietary stem cell technology including the processing and storage exclusively throughout mainland China.
"We have a partner in India, called LifeCell India. They have been offering umbilical cord blood service, for probably about five years now. They have recently launched the C‘elle service in India. Since the C’elle technology is proprietary to Cryo-cell, we have an extraordinary advantage over competing cord blood banks.
"I think that there is another very interesting development, that would even illuminate our differentiation in the cord blood banking industry. A few months ago, we published some research that demonstrates that when you co-culture umbilical cord blood stem cells with C’elle stem cells, that there is the potential to generate an increased number of CD34’s, which would be the cord blood stem cells, which could mean huge potential for us, because one of the limitations of cord blood cells, there are a few limitations - one is that they can only be collected at birth, so it’s a one-time event.
"Another limitation is that the quantity of cord blood stem cells is relatively small, so, for example, cord blood stem cells can typically only be used to transplant a small child. Transplant surgeons often combine two or three units of cord blood stem cells, or combine cord blood stem cells with bone marrow stem cells to treat an adult because the volume of cord blood stem cells is so low. So, you can imagine the potential promise to have an expansion technology, such as the C’elle technology, whereby Cryo-cell could be the only cord blood bank that would be potentially be in a position to offer this expansion technology to families to store their cord blood stem cells, but need a larger volume and quantity of those cells."
BioMedReports: The process, for people who aren’t familiar at all yet with the banking and so forth, physically, what takes place?
Mercedes Walton: "Typically, expectant moms enroll in our service a few months before their scheduled delivery. Sometimes, it’s the day before, but most typically, it’s around the seventh month or eighth month of their pregnancy. They enroll, you can enroll very easily online and basically complete a maternal health questionnaire, and, once the enrollment is complete, Cryo-cell ships the cord blood collection kit to the mom, and she takes the kit with her to the delivery, and, after the delivery of the newborn, the umbilical cord is clipped, and a syringe is inserted into the cord and extracts the blood from the cord, so there is no impact whatsoever, to the mother, or to the baby, just a collection of blood, from a tissue that otherwise would have been discarded as medical waste.
"Once that blood is collected, it’s collected into what we call a closed vac system, it is then put back into the kit, and Cryo-cell has a differentation in that we believe that we are the only private cord blood bank to have a temperature- controlled kit, and the kit is then shipped to our laboratory in Oldsmar, Florida, and once received in the laboratory, the cord blood is harvested and then, actually through a controlled freeze method, is actually frozen to be included in a vessel that is minus one hundred ninety-five degrees Celsius.
"So basically, the stem cells are frozen in such a state that they go to sleep and all of the cellular activity just ceases, and it remains this way until the specimen is actually retrieved, and once it’s retrieved, it’s thawed, and the cells then wake up and they’re miraculously in the same state that they were before they went to sleep, and they are then, if they’re used for transplant, it’s done via an intravenous drip, almost, typically, and that’s how they’re used."
BioMedReports: One of the things that jumps out is the freezing process. You’re able to freeze the cells, without any kind of freezing damage?
Mercedes Walton: Yes, correct. There are basically re-agents that we use to protect the cells during that freezing process, and they are viable. We test for pre- and post-viability, and they are sound and viable once they are retrieved and thawed for transplant.
BioMedReports: Let’s talk about business operations. What sets you apart from competitors?
Mercedes Walton: "There are three private family cord blood banks that are the largest in the industry, and represent about eighty percent market share, so Cryo-cell is one of the three. Cryo-cell actually has more quality accreditations than any of our competitors in the industry. We are registered with FDA, our laboratory is state of the art good manufacturing practice, good tissue practice, facility, so we have clean rooms in which the processing, the manufacturing is done.
"We are accredited by AABB, which is formerly the American Association of Blood Banks, we are accredited by ISO, so we have an ISO 9000, 2001 accreditation, and so, the combination of all of the accreditations that we have make us the quality leader in the industry.
"This is really important because our clients are basically buying trust in us. These stem cells that they store, be it the U-cord or the menstrual stem cells, are very precious, and they are storing them for future applications, and the future applications could be many, many years down the road. So, they are trusting that we’re manufacturing to the highest standard, such that, if they need these cells, they would be viable upon thaw and useful to them in, what is often, a life-impacting transplant. So, the quality aspect of our business and operation is keenly important. Cryo-cell is really proud to be the quality leader in the industry, so much so, that we actually offer a fifty-thousand dollar product guarantee for our umbilical cord blood stem cells. The product quality guarantee would provide that, if a client retrieved their specimen for transplant, and, upon thaw, if those stem cells are not viable, Cryo-cell would provide them with a lump sum of fifty thousand dollars. We’re very proud that, with well over forty transplants, we’ve never had to pay that. They’ve all been viable upon thaw."
BioMedReports: Our readers and investor’s would be interested in knowing about the stability and profitability of the company. What can you tell us?
Mercedes Walton: Our Chief Financial Officer, Jill Taymans can talk about the most recently filed financials.
Jill Tayman: "Our most recently filed financials were for the six months ending May 31, 2009. We had revenue of 8.1 million, with a net earnings of approximately 1.3 million. We had reported six and a half million dollars in cash, and we are running gross margins at about seventy-three percent."
BioMedReports: What can you tell us about your marketing efforts?
Mercedes Walton: "Well, our marketing efforts have evolved at both the industry and the marketplace has evolved. So, initially, when Cryo-cell began operations back in the early 1990’s, the marketing strategy was a viral strategy, and it was predominantly word of mouth, where one mom would share with another, and educate family and friends about the benefits of Cryo-preserving cord blood stem cells. In the late 90’s when the competition increased in the industry, the focus shifted to practitioners, as the influencer to the clients’ decision to store cord blood, so there was much more of an emphasis to educate physicians on the benefits.
"Then, in 2005, FDA took jurisdiction of the industry, and began regulation of the industry, and, from a marketing perspective, the industry actually self-adopted the pharma-med guidelines. So, that really changed the way in which our competitors could market to the medical community. So, increasingly now, OBGYNs are agnostic in terms of making a recommendation on a service provider. There are, for example, I believe, sixteen or more states in the country that actually require OBGYNs to inform expectant moms about the possibilities of cord blood stem cell preservation, but increasingly, they’re agnostic to actually recommend a provider, so much of the marketing strategy today is Internet-based.
"I would say that Cryo-cell’s platform is very much focused on Internet marketing, because our clients are , for the most part, the profile of the cord blood client, is a woman that is in her early thirties, a large number of our clients have college degrees, and a good proportion have post-graduate degrees, so they’re highly educated. The average income is approximately a hundred thousand dollars annually, the average family income, these clients typically have discretionary income, and they’re value shoppers. They’re Internet savvy, and they comparatively shop on the Internet. So, that’s where a lot of our focus is right now. There are a lot of blogs, for example, that talk about cord blood stem cell services, so it’s very viral. Cryo-cell is on Facebook and Twitter, we’re very much in the mix of the social marketing strategy.
BioMedReports: Is there anything that prohibits you, for example, from doing magazine and broadcast type of outreach for future clients?
Mercedes Walton: "No, no, in fact, we’ve had, over the years, a lot of prominent presence in a lot of the pregnancy journals, but, as I’ve mentioned, the shift has clearly moved away from print advertising as the most effective vehicle, and we find that Internet marketing is, by far, the most effective way to reach our target market.
BioMedReports: So you don’t have to have a sales force out there making contact with practitioners to help move your product.
Mercedes Walton: "No, we don’t, but we certainly keep an active rapport with the practitioner community. We have a base of well over twenty thousand practitioners with whom we have established relations, so we communicate with that base very frequently. But, really and truly, as consumers are becoming more educated about stem cell research and regenerative medicine, the way that we can reach these clients most effectively is through the Internet, and by having a highly differentiated product.
"Cryo-cell’s new cord product, for examples, is an extraordinary value when you compare it to the services of our competitors. From a feature, functionality and price standpoint, what we have is, hands down, more compelling than our competitors. For examples, our service, for the processing, testing and first year storage, our service is $1,720, is the retail price, and when you compare that to the top two competitors, ViaChord, for example, is $2,195, and Cord Blood Registry is $2,150. But for that $1,720, we provide a value-packed service. Not only do we have the $50,000 product guarantee that I mentioned, but we’re the only company that only company that actually offers, we have a Cryo-cell Cares payment program. Knowing that it’s such a financial burden for families that have to pursue transplants, with transportation to the hospital and hotels, and such, we will provide our clients with a lump sum of $10,000, should they retrieve a specimen for a transplant, and no other company offers that.
"We’re also the only company that is partnered with Upromise, the college savings program, so we’re an industry-exclusive partner with Upromise, so clients who purchase our service using a Upromise registered credit card receives money for college, and we’re the only company that has locked-in prices for returning clients. We have the Cryo-cell Client for Life program, which is very significant for a lot of families, because they want to store for their subsequent children, and they really appreciate the confidence that, if they purchase their service from Cryo-cell, any future children they have, they’ll be able to purchase the service for the same price as the initial child they stored with. So, all of these combined, and of course the fact that we’re an industry quality leader - we’re just in an orbit of our own.
BioMedReports: Every business has challenges. What are some of the challenges for your business?
Mercedes Walton: "Well, I think that the challenges for the cord blood banking industry in general relate to the overall state of the economy and it’s impact on discretionary consumer spending, and I think another related challenge has to do with the growing prevalence of public cord blood banks.
"There are a number of public banks that are funded both at the state and the federal level, and families can actually donate their cord blood specimens to these public banks, and they become part of the public registry, so many families that don’t have the discretionary income to store privately opt for this public alternative. So, the competitive landscape is shifting in a way that public banking is a formidable competitor of private banks in today’s environment.
"So, I think those are the predominant challenges. The challenges associated with innovative technology, such as our C’elle technology, have to do with the fact that it is a very new cutting edge service, and because the stem cells are not being used in clinical therapies, it is a future, forward-looking type of service to participate in. Many of our well-educated clients that understand stem cell science at a basic level, can understand and know that stem cells harvested, for instance, from bone marrow, have been used for thousands and thousands and transplants for decades, so we know that the C’elle stem cells have the adult stem cell markers similar to those that are harvested in bone marrow, and we also know that there’s huge promise in embryonic stem cell research , and these C’elle cells have embryonic stem cell markers, yet they have not demonstrated the propensity for teratomas, in the same way that embryonic stem cells have that drawback.
"Embryonic stem cells always produce teratomas, and our C’elle cells have not demonstrated that propensity. In addition to that, both of our products are coming from non-controversial sources, that otherwise would be discarded as waste. So, for our C’elle stem cells, the challenge is really educating the consumer about the characteristics of the cell, and really being able to draw the parallels between menstrual stem cell technology, bone marrow stem cells, and other adult stem cells."
Disclosure: Long CCEL
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