Description: LifeCell’s patented tissue matrix was originally developed in 1994 as a graft for burn patients. Since that time, AlloDerm’s remarkable versatility has led to its use in a host of other reconstructive applications. From gingival grafting to abdominal wall reconstruction, AlloDerm allows surgeons to restore many types of tissue damaged through injury or disease—using the regenerative power of their patients’ own skin. <o:p></o:p>
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Precisely, the company's tissue process technology, AlloDerm produces a regenerative tissue matrix, a three-structure that contains proteins (extending the amount of time that skin grafts may be used for medical procedures), growth factor binding sites and vascular channels that provide a template for the regeneration of normal human tissue. Benefits are numerous-making its patented tissue matrix technology “first-in-class”, therefore LIFC a leader in tissue regeneration.<o:p></o:p>
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- Strong And Intact - As strong as synthetics, yet far more pliable; <o:p></o:p>
- Resists Infection And Rejection - Supports rapid revascularization and remodeling into native tissue, minimizing the risk of infection and rejection.<o:p></o:p>
- Resistant To Adhesion Formation - reduce the possibility of additional complications, such as strangulation of the bowels or re-herniation.<o:p></o:p>
- Reduces Costly Complications - Demonstrated to have substantially fewer complications than synthetics; may reduce length of hospital stay and associated medical costs.<o:p></o:p>
- Excellent Handling Properties <o:p></o:p>
- Safe - Screened and tested according to FDA regulations, American Association of Tissue Banks Standards, and appropriate state regulations.<o:p></o:p>
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Competitive Environment<o:p></o:p>
The sector is surely in its early phase and plenty of other companies are trying to turn the stem cell therapy business into a success. (Ticker: Osir; Stem; Astm; Viac) Hence, LIFC’s technology is already approved by the FDA and commercialized, while other companies are still in the testing phase. <o:p></o:p>
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- Database reveals no failure in 2006 out of approximately 14,000 hernia cases with AlloDerm through July.<o:p></o:p>
- On the opposite, FDA database reveals 2 cases of failure likely out of only first 300-500 cases with Bard's CollaMend, a close competitor of LifeCell in hernia repair. Thus, CollaMend is not a viable threat to AlloDerm in the complex hernia market.<o:p></o:p>
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The primary reason behind the success of AlloDerm has been that no other products available have the biological activity and strength characteristics of AlloDerm, nor do they have the vast clinical data supporting their use. AlloDerm is LIFC’s main products, a tissue replacement that is used in 20% of major hernia procedures and post-mastectomy breast reconstructions. AlloDerm adheres to damaged skin and teaches it how to start growing again and hardly leaves a scar.<o:p></o:p>
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Why the stock went down?<o:p></o:p>
• Reported weak 3Q results and reduced full-year guidance<o:p></o:p>
- Total Revenue under Consensus Estimates; $35.3M vs $38.2M<o:p></o:p>
- Earnings were a $0.01 below estimates, at $0.15 vs. $0.16.<o:p></o:p>
• Overly aggressive guidance, seasonality and some competitive trialing to blame<o:p></o:p>
· Abnormal Strong 2Q results explain raising FY 2006 guidance; Management guidance has been raised twice during 2006.<o:p></o:p>
· Sales have been affected by softness in surgeries the last quarter. I suppose decline in revenues are more transient than structural.<o:p></o:p>
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This might be a really good entry opportunity since the stock’s price decrease by 27%. LIFC receives 22,000 tissue donations a year, which is still low, and leaves LIFC with a limited supply of natural material in order to make their grafts. <o:p></o:p>
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Why we should own the stock<o:p></o:p>
Although LifeCell already commands a market cap of $1.04 billion in the biotech industry, it could triple that with the introduction of its new product in 2007 called XenoDerm. It will use pig's tissue instead of human tissue, and offers a solution to the company’s limited supply problem. Supply limitations will be lifted drastically for this company and sales growth won’t be an issue anymore. At that time, I will double my price target. LIFC could begin to market XenoDerm for use in cosmetic surgery, as it could reduce, or even prevent, hardening around breast implants and be a blessing to burn victims and those undergoing major surgery, who now must wait years for skin graft donations or use synthetic grafts and be exposed to more risk of bad scarring. This next product has strong chance to be used by every surgeon across the country.<o:p></o:p>
Investment Thesis<o:p></o:p>
LIFC is an above average revenue growth company with an above average ROE. The company has an excellent strategic position so they should be able to maintain their above average ROE.<o:p></o:p>
$21.93 (12/13/06)
Agree
Disagree
