About $18.5 million in net proceeds from a public offering by Cytori Therapeutics Inc. will go toward boosting the Celution System for processing adipose-derived regenerative cells (ADRCs), as well as clinical trials and general corporate purposes, the company said.

Cytori, of San Diego, sold about 7 million shares of common stock at $2.85 each, and granted underwriters an option to buy about 1 million more.

The new money strengthens not only Cytori's balance sheet but also its position in negotiations, as they continue with would-be strategic partners, said CEO Christopher Calhoun.

He acknowledged "some anxiety" among investors about the promised alliances, but said plans remain active. "We're working on those," he said. "We've got a couple at the late stage, the contract stage. These deals are still coming."

Major progress on the contract front came in late September, when the U.S. Department of Health and Human Service's Biomedical Advanced Research and Development Authority awarded Cytori $106 million to create a "countermeasure" for thermal burns that would be useful following a mass-casualty event.

The contract is "line-item specific" and, unlike most government contracts, funds the treatment all the way through approval, Calhoun said. Research with stem cells from fat is focused not only on soft tissue but on cardiovascular disease.

In October, Cytori began its own Phase I/II trial, called ATHENA, in refractory heart failure resulting from myocardial ischemia. The randomized, double-blind trial of safety and feasibility will enroll 45 patients at six centers in the U.S. who will be randomized to cell therapy or inactive placebo injection.

The same month, two independent, investigator-funded studies were given the green light in Japan, one for heart failure and one for cirrhosis. The patient's own cells processed using Celution, will be delivered through the coronary artery in the heart-failure study, which involves patients with low left ventricular function due to a prior heart attack. In the cirrhosis study, the ADRCs will be delivered through the hepatic artery.

Also in October, France cleared an investigator-sponsored trial, this one in 13 patients with limited and diffuse cutaneous systemic sclerosis. The primary endpoints are safety and the improvement in function of the hands.

Cytori's system is approved in Europe and Japan. It costs about $250,000, and is used in about 200 centers, most in translational medicine. After the cost of the Celution device, users pay for consumable cartridges – about $2,000 to $3,000 for tissue work, and about $8,000 to $12,000 for vascular, per patient.

"Think razor and razor blade," Calhoun said, noting that the company would be profitable with 100 systems treating three patients per week, "but to get to that level, you really need reimbursements."

In Japan, 20 percent of the approved clinical trials using stem cells deploy Cytori products. "We think that will be more like 40 percent or 50 percent by the end of next year," Calhoun told BioWorld Today.

The company is trying to place the Celution System into as many as possible of the 25,000 major hospitals around the world – 9,000 of which are in Japan.

"With this new approval in Japan, we're targeting 300 hospitals to get this system into, over the next three years," Calhoun said. "If we can do that, this [stock sale] is our last cash raise to get to profitability."

Stem-cell researchers, he said, face a choice. They can build their own Good Manufacturing Practices (GMP) plants at great cost, with all of the maintenance and overhead this entails. "Or you can buy our quarter-million dollar product, roll it in, and be up and running in a week," he said. "You kind of get the GMP at the touch of a button, and all the validated output."

The European CE Mark expanded in August to include cryptoglandular fistula, and a pilot study in this indication, which involves anal/rectal abscesses, began in Japan. Approval also has broadened there.

Historically, about 50 percent of Cytori's revenues have come from Japan. "Most of that was from physicians who could buy our product, because it was approved in Europe, but had to do it under prescription," Calhoun said. The wider approval means even more money ahead.

"It's going to be a step-shift in our revenue," he said. "We had been guiding $9 million for the year, and we were at $4.7 million through the third quarter. On our [earnings call], we said we were going to beat or exceed our number."

This means the fourth quarter will be "pretty strong," Calhoun said, predicting a "shift in our revenue curve that will continue into next year."

About 40 clinical trials using Cytori's system are ongoing around the world, not counting those under way by the company itself. "Most stem-cell companies treat 5, 10, 20 patients [at a time], a few of the maybe are in the hundreds range, probably Osiris is a thousand or two," Calhoun said, referring to Osiris Therapeutics Inc., of Columbia, Md. "We've treated 5,000 or 6,000 patients by now, so we've got by far the most clinical experience in the field, if not more than the entire field combined," he said.

"The dirty little secret [in cell therapy], if you will, is that these things are going to be pretty expensive," Calhoun said. "Dendreon [Corp., of Seattle] is probably the first cell-therapy milestone out there, and it's $93,000 for single-patient treatments" with Provenge (sipuleucel-T) for prostate cancer. "I think our peers are probably targeting less than that, but it's going to be in the $10,000 to $100,000 range," Calhoun said.

Lazard Capital Markets LLC is acting as the sole book-running manager of the stock offering. Maxim Group LLC and Ascendiant Capital Markets LLC are co-managers. Cytori granted the underwriters a 30-day option to purchase up to an additional 1.053 million shares of common stock on the same terms and conditions, solely to cover over-allotments, if any.

Cytori's shares (NASDAQ:CYTX) closed Friday at $2.84, down 48 cents, or 14.5 percent.

In other financing news:

• Lpath Inc., also of San Diego, sold about 2.3 million shares of its common stock for $5 per share, bringing net proceeds of about $11.8 million. The company will use the money for general corporate purposes that could include acquisitions, though no agreements were in place at the time of the sale. Summer Street Research Partners is acting as the sole book-running manager for this offering, and Lpath has granted a 45-day option to purchase up to an aggregate of 354,900 additional shares of common stock to cover overallotments, if any.