American CryoStem Letter to Shareholders
Dear Fellow Shareholders: Business Partners and Friends:
Advancements in Regenerative Medicine have been notably pronounced over the past year, helping to fuel the growing global excitement surrounding the many possible uses of adipose tissue and Adipose Derived Regenerative Cells (ADRCs) in the pursuit of significant new cellular therapies. We believe these advancements serve to validate that American CryoStem’s focus on its business of processing, commercial bio-banking and manufacturing cellular applications using autologous adipose derived cells is indeed right on the mark. We are proud to be at the forefront of the industry as traditional medicine shifts toward cell therapy to heal and repair ourselves.
American CryoStem Corporation (OTCQB: CRYO) is a front runner in the rapidly developing global cell therapy tissue processing and cellular expansion markets. At the core of our business strategy and the foundation of our Company is our state-of-art, FDA-registered (FEI# 3008307548), cGMP tissue processing laboratory located in Burlington County, New Jersey. Our laboratory R&D efforts over the last four years have produced significant intellectual property surrounding our cellular processing platform and bio-materials for which we currently have five U.S. patents pending and one patent issued. The issued patent covers our cutting edge method to formulate and manufacture 11 types of stem cell growth and differentiation mediums used in research and cellular therapy. We are in discussions with research universities to develop a unique pipeline of proprietary products and services that we believe target our proposed long term commercial growth strategy; to create standardized tissue processing, clinical grade tissue samples, stem cell samples and bio-materials for use in research and human applications. With 2013 now behind us, I wanted to use this opportunity to focus and inform you on several material developments we believe will positively impact our growth in 2014:
• Launch of our tissue storage service ATGRAFT™ and IRB approval of our core processes;
• Status of our patented cell growth and differentiation media ACSelerate™;
• Establishment of research collaborations with leading research universities and institutions;
• Expansion of our Medical & Scientific Advisory Boards & key personnel;
• Creation of international relationships for cosmetic and regenerative medicine applications; and
• Engagement of an Investment Banking Firm.
Launch of ATGRAFT and IRB Approval of Our Core Process
This past year, at the annual conference of the American Academy of Cosmetic Surgery, acclaimed cosmetic surgeon, Mel Bircoll, MD, introduced the medical community to American CryoStem’s proprietary ATGRAFT, adipose tissue storage system. Dr. Bircoll described how with one liposuction procedure (or mini-lipo), patients can safely and securely store their excess body fat with American CryoStem. The stored tissue (ATGRAFT) can be subsequently used as a natural biocompatible filler for cosmetic enhancement procedures including volume corrections in the hands, face, breast and other areas of the body that experience tissue volume reduction as we age; or for future processing and use in Cellular and Regenerative Medicine applications.
We achieved important corporate milestones in 2013 when American CryoStem was granted approval by the Institutional Review Board (IRB) of the International Cell Surgical Society of our Standard Operating Procedures (SOPs) to isolate culture and differentiate, Stromal Vascular Fraction (SVF) and Adipose Derived Regenerative Cells (ADRCs) from a patient’s tissue. We sought these approvals to allow collaborative researchers and clinical investigators access to our standardized cellular samples to produce repeatable treatments with standardized, GMP processed stem cells.
Additionally, in 2013, American CryoStem established international shipping methodologies and protocols, ensuring that our tissue transportation processes met international, federal, state and local regulatory requirements for the packaging and shipment of biologic materials. In April, we received our first international shipment of adipose tissue samples from Hong Kong for processing and long-term cryopreservation in our storage facility. We have since shipped product back to Hong Kong and retained the customer’s master cell sample in our storage tanks in New Jersey.
Product Commercialization Strategies
As we enter into 2014, we believe an important factor in furthering our proposed business will be our ability to execute marketing strategies that will increase the number of physicians, universities, partners and customers utilizing our wide range of cellular products and laboratory services.
To date these strategies include:
• Further developing our in-house product sales team and establishing strategic arrangements with outside sales organizations;
• Participate in a greater number of industry specific tradeshows for each of our products and services and position our advisory board members as key speakers at leading industry events.
• Continuation of our direct-to-consumer strategies that utilize a comprehensive social media, digital newsletter, and bi-weekly blog program.
Patented Growth & Differentiation Mediums
The most widely used medium today for storing and growing stem cell cultures for in vitro diagnostics and stem cell research contains fetal bovine serum. This raises questions in the medical and scientific community about utilizing animal biologic material for culturing human cells, as well as generating debate within the regulatory community relating to possible cross contamination. We are very proud of the fact that our ACSelerate-SFM™ patented medium is serum free (animal product free) and suitable for human clinical and therapeutic uses. We believe ACSelerate-SFM™ presents a safer and more efficacious alternative for culturing and differentiating regenerative cells.
To further expand the Company’s research affiliations and pursue additional Intellectual Property (IP) opportunities we have been selectively offering our clinically prepared stem cell lines and patented cell culture and differentiation mediums to leading stem cell research institutions. In response to this effort, we are in discussions with several research laboratories with which we hope to advance to collaborative arrangements.
Research Collaborations with Leading Research Universities and Institutions
In May of this year, American CryoStem entered into Material Transfer Agreements with three research scientists at Rutgers University allowing them to utilize the Company’s autologous ADRCs and patented, serum free, GMP grade cell culture and differentiation mediums for evaluation with the anticipation to implement additional agreements to research, develop and commercialize innovative new cellular therapies targeting incurable diseases, neurological disorders and the $5 billion global wound care market.
In December of this year, American CryoStem and Rutgers University executed a Collaboration and Research Agreement involving stem cell differentiation molecules and molecular biological reagents under the direction and supervision of Dr. KiBum Lee, the PRINCIPAL INVESTIGATOR (PI). Our collaborative efforts have advanced rapidly and new intellectual property is anticipated to result from this work. Based on the collaborative efforts under the Collaboration and Research Agreement, our Company’s patent counsel is preparing two patent applications based upon earlier developments which are now optioned to American CryoStem. In addition, American CryoStem’s agreement with Rutgers University allows us the use of intellectual property and biomaterials developed by Dr. Lee and his team in combination with our ATCELL™ and ACSelerate products for the development of new cellular therapies and regenerative medicine applications. To support the new discoveries, Dr. Lee along with our professionals will develop, file and publish patent applications, research papers, government and private grant funding applications to support future clinical studies as appropriate.
Further collaboration and research agreements are currently in negotiation with Rutgers researchers focusing on wound healing and topical delivery of our innovative products.
In 2012, American CryoStem entered into a Memorandum of Understanding (MOU) outlining our initial collaborative efforts with Protein Genomics, Inc. (PGen) to test and develop new products by combining certain components of our respective intellectual property and patented products. We have provided PGen and its research partner, Development Engineering Sciences (DES), with ADRCs and our patented cell culture mediums for testing with PGen’s patented products designed for the wound healing market. Research and development has been ongoing since late 2012 and notable progress has been achieved. In October of this year, the early results of this initiative was the subject of local media coverage in Arizona showcasing the groundwork laid by PGen, DES and American CryoStem in providing assistance in what we believe is a quicker way to heal skin injuries using a patient’s stem cells. Below is a link to local news coverage on this research:
• NBC News12: Growing skin from scratch
As a result of the success realized in the early stage of this research collaboration, we recently entered into a formal joint venture with Protein Genomics through the incorporation of Autogenesis, Corp. required in the 2012 MOU. Each company (CRYO and PGen) initially has an equal 50% ownership interest. All products capable of being commercialized, as well as any new intellectual property resulting from the ongoing scientific collaboration, will be wholly-owned by Autogenesis. This is a very exciting turn of events for us and is representative of how we believe additional research collaborations with our Company’s technology may evolve in the future.
Expansion of Scientific and Medical Advisory Board and Key Personnel
Our Medical and Scientific Advisory Board, which is comprised of highly qualified surgeons, PhDs and peer leaders in the industry, enhance our Company with their expertise, support and perspective on matters of significance to the Company. In June of this year, Dr. Dayong Gao became a member of our Advisory Board. Dr. Gao is a Professor of Mechanical Engineering and Biomedical Engineering at the University of Washington, has been actively engaged in cryopreservation research for more than 20 years. He brings us unparalleled clinical research and global recognition and strengthens our expertise in the field of tissue and cellular cryopreservation.
Recently, we added Dr. Michael L. Moeller to our full time laboratory staff. Dr. Moeller earned his PhD in Molecular Biology and Immunology from the University of North Texas Health Science Center in 2003, where he specialized in human tissue-derived stem cells and tissue engineering. His early work directly led to the development of several artificial tissue model systems and several novel methods in stem cell biology developed in collaborations with pharmaceutical and biotechnology business partners. Dr. Moeller has been an Assistant Professor in the Department of Cell Biology at the UMDNJ School of Osteopathic Medicine, where his research focused on the use of human tissue-derived stem cells in the development of therapeutic strategies for nervous system disorders. He also co-developed and led the execution of the first stem cell training course ever conducted in the State of New Jersey and has since been a frequent guest instructor and speaker at the Rutgers University Stem Cell Training Course. He has held scientific and technical positions at EMD Millipore, where he developed and assisted in the marketing of commercial products in stem cell biology, and ViroCyt, where he exerted a powerful influence on the global vaccine market, demonstrating a knack for bringing new technologies to market and promoting their use. During the course of his career, he worked closely with top-level researchers and thought leaders at Merck & Co., GlaxoSmithKline, Johnson & Johnson, Centocor, Ethicon, Sanofi Pasteur, Sanofi Aventis, Novartis and Biogen Idec, as well as USAMRIID and the NIH. We believe that Dr. Moeller brings a wealth of technical and scientific expertise, as well as an extensive network of contacts within the academic, pharmaceutical, and biotechnology arenas to our company.
Regenerative Cell Therapy and Medical Tourism
American CryoStem has been actively pursuing the international medical tourism market. In 2014, management believes it will enter into additional relationships outside the US with qualified physicians and medical clinics seeking to add clinically processed adipose tissue and ADRCs for use in cosmetic and regenerative medicine applications to their list of offered services.
Increasing healthcare costs in developed nations coupled with the availability of high quality medical services at lower prices in developing nations has driven expansion of the medical tourism industry. The rise in the elderly population along with a growing number of uninsured people has further triggered the market growth. When combined, the Regenerative Medicine and the Medical Tourism markets exceed $130 billion.
TriMark Publications, a leading research firm focused on biotechnology, healthcare and the life sciences industries, cites in its “Regenerative Medicine Markets” report (March 2013) that “the Regenerative Medicine market continues to witness significant advances in clinical efficacy, regulatory approval and product commercialization of cell based therapies which are projected to exceed $35 billion by 2019.”
The global demand for Medical Tourism is currently $100 billion, according to KPMG International. KPMG recently reported that “This increase in demand for global medical tourism has grown the industry at a rate of 20%-30% annually with a market size of $100 billion in 2012 up from $78.5 billion in 2010.”
Given the International Medical Tourism opportunity and the interest for our laboratory processing methodologies, we have developed a modular International Licensing Program designed to permit the licensee access to various levels of our intellectual property, laboratory products, and services. This program offers international licensees the ability to individually licensee or operate a turn-key laboratory to properly support one or more of our products; CELLECT™, ATGRAFT, ATCELL, as well as our contract manufacturing services in their local market.
International marketing efforts to date have focused on qualified clinics, physician practices and hospitals in the Caribbean, South America, Central America and the Middle East. A critical requirement of forming these new relationships is an agreement by the counter-party to adopt and diligently comply with our proprietary and patent pending processing and laboratory operational methodologies contained in American CryoStem’s clinical Standard Operating Procedures (SOPs).
Engagement of Investment Banking Firm
Since our Company’s founding in 2008, American CryoStem has largely relied on “friends and family” to finance our growth, develop our products and services, and meet our working capital requirements. However, we believe to move our Company through its next critical phase of growth, development and commercialization, and to attempt to ensure we are positioned to support our research collaborations and market penetration strategies, another financing channel is needed. In September, we engaged an investment banking firm to serve as our investment banker and financial advisor to assist us in attempting to raise $5 million of new capital in 2014.
Concluding Remarks
By way of this letter, I have endeavored to share several of the many positive developments occurring at our Company. I urge you to read our 10-K which will be published next week for additional details on our key growth strategies and critical milestones achieved, thus far. The Company is optimistic about its future in the Regenerative and Personalized Medicine industries. We are indeed standing at the forefront of a new era, during which unprecedented medical breakthroughs will continue on a near routine basis thanks to the increasing understanding of the power and capabilities of human stem cells.
In closing, I’d like to use this opportunity to express my sincere appreciation to all of my fellow shareholders for your commitment to American CryoStem’s mission, and for your continued trust and confidence in our industry and leadership. I’d like to wish you all a very happy and prosperous New Year!
Respectfully,
AMERICAN CRYOSTEM CORPORATION
John Arnone
Chairman, and Chief Executive Officer