Cytori CEO Tries His Best to Spin Stem-Cell Company's Setbacks

SAN DIEGO (TheStreet) -- Did you read the "exclusive" interview Cytori Therapeutics  (CYTX) CEO Marc Hedrick gave to Benzinga on Tuesday? I did. Afterwards, I vomited on my shoes.

As the CEO of a struggling stem-cell therapy company, Hedrick needs to don brightly colored pom-poms just to grab investors' attention. Unfortunately, to believe the fairy-tale story Hedrick spins to Benzinga requires ignorance of Cytori's ugly past and an inability or unwillingness to actually conduct any due diligence on the company outside of Hedrick's assertions.

Let's run Hedrick's interview through our BS detector:

On Monday, Hedrick said, Cytori and its exclusive licensee, Lorem Vascular, were granted regulatory clearance for distribution and sale of the Cytori Celution System by the State Food and Drug Administration of the People's Republic of China.

Ah, the big news which pushed Cytori's stock price higher this week. Okay, but Cytori still hasn't answered questions about the background and capabilities of its Asian stem-cell partner Lorem Vascular dating back to November 2013. Lorem's Web site remains a static placeholder.

And where is the promised revenue from Lorem which Cytori promised long ago? When the Cytori-Lorem Asian stem-cell partnership was first announced in November 2013, Cytori told investors that Lorem would be spending $7 million to purchase Cytori's stem-cell harvesting machines and another $2 million on consumables used with the machines.

CYTX Chart

In reality, Lorem spent $1.85 million to purchase Cytori equipment in 2013 and zero -- nothing -- in 2014, according to Cytori's annual reports filed with the SEC.

I asked but Cytori won't explain why Lorem fell more than $7 million short of its spending commitments so far. It's important and material because Cytori revenue in 2014 of $4.95 million was a 30% drop-off from 2013.

With the new China approval, Cytori claims Lorem will be purchasing 23 Celution Devices and 1,100 sets of consumable Sets throughout 2015. How much revenue are these purchases expected to deliver for Cytori? The company won't say. Is it even credible to expect that Lorem will make good on these promised purchase orders given its failure to meet prior spending commitments to date?

The key to Cytori's success, Hedrick said, is a medical device (Cytori Celution System) about the size of a washing machine. "We developed a cell therapy manufacturing setup," he said, "which is completely automated with a graphical user interface and all sorts of different electromechanical and biologic technologies. You put a little bit of the patient's fat tissue in one side, push a button and get a syringe of pharmaceutical grade cells to treat the patient out the other end -- all in about an hour."

A graphical user interface? Wow, you mean the Celution device has a computer screen? Like every copier in every office in the U.S.? That is so cutting edge. Let's be clear: Celution is a liposuction machine. It sucks out fat from a patient's belly. The fat is then blended and whirled in the machine to separate out a stem-cell soup. That's it. Sadly for Cytori, the finished stem-cell product dripping out of the Celution device hasn't demonstrated any legitimate medical use worthy of regulatory approvals. (not for lack of trying on Cytori's part.)

Cytori has not conducted clinical trials proving its stem cell therapies are effective or safe treatments for any disease, but regulatory agencies in certain countries still allow the company to sell its stem-cell processing device. Cytori revenue has declined because there is no proof its stem-cell therapies help patients.

Cytori, which has been around for more than a decade, is probably "the single most advanced cell therapy company" according to Hedrick.

Most advanced cell therapy company? That's like being the tallest midget.

Currently Cytori's cell therapy targets two indications. "One," Hedrick said, "is an orphan indication for an autoimmune disease, predominantly in women, called scleroderma. The other one is osteoarthritis. We're in a Phase II trial in the U.S. for osteoarthritis and we'll be starting a Phase III trial in the U.S. for scleroderma in the next two or three months. We have other trials that are ongoing in Japan and in Europe."

In which Hedrick conveniently forgets to mention all previous clinical trial disappointments and failures of the Celution-derived stem cell therapies, like breast reconstruction and heart attack.

Although the medical landscape seemed full of potential, Hedrick has continued to keep the primary focus of the company on its U.S. clinical trials on the orphan disease, scleroderma. "If you look at what we are doing as a whole," he said, "and take that one thing that can really transform the company from an investor's perspective and from a patient's perspective that's the one thing because if that trial is successful that's a billion dollar market right there."

Because you wouldn't want investors to focus on zero clinical evidence that the Celution-derived stem cells have any therapeutic value, declining revenue, years of shareholder losses and massive stock dilution.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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