Cytomedix second quarter 2010 revenue increases 102% to $1.15 million

Cytomedix, Inc. (NYSE Amex:GTF) (the "Company"), a leading developer of biologically active regenerative therapies for wound care, inflammation and angiogenesis, today announced financial results for the three and six months ended June 30, 2010.

Highlights of the second quarter and recent weeks include the following:

• Acquired the Angel® Whole Blood Separation System ("Angel") and activAT® Autologous Thrombin Processing Kit ("activAT") from the Sorin Group for total cash consideration of $7 million to be paid over the two and one-half years from closing. Together these products had sales of approximately $5 million in 2009, of which more than 90% were from high-margin, single-use disposable products.
• Raised gross proceeds of $3.65 million in a private placement of securities with both new and existing stockholders. The proceeds from this private placement were used to fund the initial upfront $2 million payment on the Sorin asset purchase and for general corporate and working capital purposes.
• Appointed Patrick Vanek as Vice President of Operations to manage all aspects of the Company's technical business, including oversight of the manufacturing process by OEM partners, quality assurance and control, distribution, warehousing and all other operational and logistical aspects of the process; in addition, Mr. Vanek is overseeing the transition of the control over manufacturing and supply chain from Sorin to Cytomedix.
• Launched a sales and marketing initiative in Europe with a seasoned international healthcare marketing specialist.
• Successfully integrated the customer service and order fulfillment operations for the U.S. distribution of the Angel product line.
• Published positive results from the Company's prospective study evaluating the AutoloGel™ System to treat advanced, chronic wounds in the June 2010 issue of the peer-reviewed journal Ostomy Wound Management, demonstrating improved healing in 97% of wounds evaluated including those recalcitrant to previous therapies.
• Presented two posters highlighting use of the AutoloGel System to effect rapid improvement of chronic wounds at the 2010 Joint Conference of the Wound Ostomy and Continence Nurses Society and the World Council of Enterostomal Therapists (WOCN/WCET).

Martin P. Rosendale, Chief Executive Officer of Cytomedix, commented on the quarter, "I am very proud of our Company's performance during the second quarter. Notably our acquisition of the Angel and the activAT products early in the quarter has been accretive and synergistic, as we had projected. The integration process has been successful to date and we are delighted to report no net loss of business or customers through this transition period. The level of pent up demand and interest in the Angel product in the marketplace has confirmed our original belief that the product is truly best in class and positioned for growth with effective and targeted sales efforts. With the customer account transition now largely complete and growing access to new Angel devices available for new customer evaluation and placement, we are optimistic about our growth opportunities over the coming quarters. We continue to expand our domestic sales efforts with the addition of several new sales agents and participation in a number of important clinical congresses specializing in our core areas of focus, namely wound healing, blood management and orthopedics. In addition, we were pleased to announce the launch of our European sales and marketing initiatives. We believe there is a significant and untapped market for our PRP products in Europe upon which experienced leadership can capitalize with our clinically focused marketing strategy.

"Strong growth in AutoloGel System sales continued in the second quarter. We recently completed the new package design that removes steps from the process and provides added convenience. The first production lot for this new system was recently shipped to our facilities and will be released to our customers soon. We remain committed to providing enhanced product packaging and design, and toward that end, remain on track to file a 510(k) application for our enhanced centrifuge system for the AutoloGel System by year end. This important and proprietary enhancement allows for the rapid preparation of PRP in a semi-closed system which is suitable for future PRP indications in growing markets such as orthopedics. It eliminates a number of steps involved in the process, clearly improving the ease of use while lowering our overall cost of goods."

"Importantly, throughout the quarter we continued to publish and present positive clinical data in support of our biologically active regenerative therapy to meaningfully accelerate and enhance the body's own natural healing processes in a variety of exuding wounds – even those resistant to previous therapies. We continue to build a body of compelling clinical data that supports and enhances both our therapeutic and economic value propositions," added Mr. Rosendale.

Second Quarter Results 

Total revenues for the second quarter of 2010 were $1.15 million, a 102% increase over total revenues of $569,000 for the second quarter of 2009. The increase was largely attributable to sales of the Angel System and higher AutoloGel System sales, offset by the loss of royalty revenue due to the November 2009 expiration of the patent underlying the Company's prior royalty agreements. 

The Company began recording sales of the acquired products effective April 12, 2010. Sales of Angel and associated products were $1.05 million for the second quarter of 2010, which is in line with the Company's expectations and consistent with the sales levels of the products in the months preceding the acquisition.  Ownership of the acquired products for the entire second quarter would have added slightly over $100,000 to total revenues. AutoloGel System sales of $95,000 were up 30% compared with $73,000 in the second quarter of 2009 and up 51% sequentially from the first quarter 2010. Due to the November 2009 expiration of the underlying licensing agreements, there were no royalty revenues recorded during the second quarter of 2010.

Gross profit for the second quarter of 2010 rose 2% to $462,000 from $451,000 for the same period in 2009. This reflects higher product sales, offset by the decrease in royalty revenue and higher costs primarily attributable to the one-time sale of inventory adjusted to fair value in accordance with purchase accounting rules, transitory commission charges paid to Sorin during the integration period and the amortization of the intangible asset attributable to patents and know-how acquired from Sorin.

Reported gross margin was 40% for the 2010 second quarter, down from gross margin on product sales of 63% for the 2009 second quarter.  Cost of sales for the second quarter of 2010 consisted of certain charges of a non-recurring nature. Finished goods inventory acquired from Sorin, written-up to fair value in accordance with purchase accounting rules, and subsequently sold to customers in the ordinary course of business, resulted in a non-recurring charge to cost of sales of $168,000. Also, a 10% commission earned by Sorin for logistics support during the transition period resulted in a $104,000 charge. Effective August 2^nd, Cytomedix established direct control over the domestic distribution process in its entirety and will no longer incur the 10% commission as of that date on domestic sales. Excluding the two items noted above, gross margin was 64%. Further excluding the amortization of the intangible asset attributable to patents and know-how acquired from Sorin of $39,000 in the quarter, gross margin was 67%.

Second quarter 2010 operating expenses increased 51% to $2.02 million from $1.34 million in the prior year second quarter due primarily to increased consulting fees associated with regulatory compliance and CMS reimbursement initiatives, increased legal and accounting fees associated with the acquisition of the Angel and activAT products, increased research and development fees associated with development of the enhanced AutoloGel device and the Company's TAPS program (post-market surveillance study) for the AutoloGel System, and increased general and administrative expenses. In the second quarter of 2010, non-recurring charges relating to the Angel acquisition and integration totaled approximately $234,000. 

Total other expenses during the second quarter of 2010 were approximately $275,000 and consisted almost entirely of interest expense. Of this amount, $46,000 reflects cash interest costs while the balance of interest expense reflects amortization of deferred debt issuance costs associated with the warrants issued to certain guarantors of the notes and amortization of the discount on the promissory note to Sorin. 

The net loss to common stockholders for the second quarter of 2010 was $3.87 million or $0.10 per share, compared with a net loss to common stockholders of $891,000 or $0.03 per share reported for the second quarter of 2009. The second quarter 2010 net loss includes a charge of $1.95 million, which represents the amortization of a beneficial conversion feature on the Series D preferred stock issued in association with the fundraise conducted in conjunction with the closing of the Sorin acquisition in April 2010. This is a non-recurring, non-cash book charge with no net effect on total shareholders' equity.

First Half Results

Total revenues for the first six months of 2010 were $1.33 million, up 20% from total revenues of $1.11 million in the first six months of 2009, largely attributable to sales of the Angel System and higher AutoloGel System sales offset by the loss of royalty revenue due to the November 2009 expiration of the patent underlying the Company's royalty agreements.  Product sales of $1.21 million increased nearly tenfold compared with $115,000 in the first six months of 2009. For the first six months of 2010 royalty revenue decreased to $115,000 from $993,000 for the same period in 2009, due to the patent expiration described above.

Reported gross margin on product sales for the first half of 2010 decreased to 42% from 70% in the same period in 2009. Cost of sales for the first half of 2010 included certain charges of a non-recurring nature. Finished goods inventory acquired from Sorin, written-up to fair value in accordance with purchase accounting rules, and subsequently sold to customers in the ordinary course of business, resulted in a charge of $168,000. The 10% commission earned by Sorin for logistics support during the second quarter resulted in a $104,000 charge and the amortization of the intangible asset charged to cost of sales totaled $39,000. Excluding these items, gross margin on product sales was 68%.

Operating expenses for the first six months of 2010 increased 30% to $3.44 million from $2.65 million for the first six months of 2009.

The net loss to common stockholders for the first half of 2010 was $4.93 million or $0.13 per share, compared with a net loss to common stockholders for the first half of 2009 of $1.79 million or $0.05 per share. The net loss for the 2010 period includes a charge of $1.95 million, which represents the amortization of a beneficial conversion feature on the Series D preferred stock issued in association with the fundraise conducted in conjunction with the closing of the Sorin acquisition in April 2010. This is a non-recurring, non-cash book charge with no net effect on total shareholders' equity.

Cash and Liquidity

Cash and cash equivalents as of June 30, 2010 were $1.07 million, compared with $2.11 million as of December 31, 2009. The Company used $2.38 million to fund operating activities during the first six months of 2010. 

Andrew Maslan, Cytomedix's Chief Financial Officer, noted, "Our operating loss for the second quarter and six months of 2010 was approximately $1.56 million and $2.62 million, respectively.  However, as described above, our financial results for the second quarter of 2010 included a number of unusual items that impact the comparability to our prior reported results.  Excluding the above mentioned inventory fair value adjustment of $168,000 and Sorin commission of $104,000 that impacted cost of goods sold and non-recurring transition/transaction related expenditures of $234,000 for the quarter and $295,000 for the six months, that impacted operating expenses, our 'adjusted' operating loss for the second quarter and six months of 2010 was approximately $1.05 million and $2.05 million respectively."