AutoXpress System: Not Yet A Winner for Thermogenesis Corp

When Thermogenesis announced that they had pioneered an automated system (AXP) for the processing* of cord blood stem cells, we were all quite excited that the industry was indeed moving in this direction. StemLife has been banking babies' cord blood stem cells in the FDA approved Thermogenesis cryo-storage bags since we started the service in Malaysia in 2001, hence the adoption of this system would seem a natural progression for us.

WHEN BEING FIRST IN TECHNOLOGY ISN'T NECESSARILY BEST

However, just like any system update (in IT terms), the question remains as to whether one wants to take a chance on being an alpha user or to wait for the beta version. StemLife's position is that we usually like to wait for all the bugs and kinks to be sorted out before we put our babies' stem cells on the line. There are 2 automated systems available on the market to stem cell processing laboratories namely Biosafe's Sepax System (Sepax) and Thermogenesis's AutoXpress (AXP).

Both systems have been in the Malaysian market for about a year and we've been evaluating them in terms of uptake internationally, performance and consistency of service. Despite the US largest cord blood stem cell provider- Cord Blood Registry- releasing results of 97% and above recovery rates using the system, many stem cell companies in the US (Thermogenesis's home market) and abroad have yet to fully convert their existing processing systems to the AXP system or Sepax system.


I should point out at this stage that the main advantage of using the AXP system (apart from its automatic sensor which makes recovery rates more consistent) is that it is pretty neat because it automatically puts all the stem cells into the thermogenesis cryo-storage bag in one closed loop (if you wanted to store it in any other container, you would have to syringe out the cells, defeating the functionally closed system that the sterile processing set is supposed to provide).


Upon following the most recent news released by Thermogenesis, it appears that thus far the uptake has been lackluster despite big announcements to market the product through General Electric Healthcare. This lackluster sales performance (due to problems with production and slow sales) for the year of 2007 has resulted in a doubling of the net loss at Thermogenesis Corp in the fiscal quarter ending in September.


GREAT, SO WHY AREN'T ALL CORD BLOOD STEM CELL BANKS USING IT?

I don't know if all cord blood stem cell service providers feel the same way but our reasons for a methodical evaluation are as follow:

a) COST
- It requires the acquisition of new expensive apparatus and equipment
- Technical fragilities (rate of machine breakdowns etc)

b) COMMITMENT
- All processing sets must be purchased from GE alone (effective monopoly)
- Hardware and Software and proprietary to Thermogenesis (data monopoly)

c) CLIENT
- StemLife already promotes the bag storage system but some other cord blood banks are still marketing a non-bag system. Hence Thermogenesis and GE need to convince those banks to adopt the bag storage system.

d) CONSIDERATIONS
- How committed are Thermogenesis and GE to this technology given on-going losses and opaque trendline?
- Price control (we're outside of the US and would be affected if there are currency fluctuations)
- How committed are Thermogenesis and GE to serving the needs of non-US clients? (which accounts for a smaller market)


FINANCIAL IMPACT

According to the article:

Revenue fell to $3.6 million in the quarter, down from $4.3 million in the same three months of 2006. The quarterly net loss swelled from $1.1 million, or 2 cents per diluted share, in last year's initial quarter to $2.3 million, or 4 cents a share, in the same period of fiscal 2008.

Thermogenesis's CEO William Osgood attributed the decline of the company's revenue to a series of false negative results in quality tests for the bags used in the AXP systems (leading to a delay in shipments) and the sale of only 3 BioArchive blood storage systems by GE healthcare, which he said was "significantly below target".

I wonder what the Thermogenesis target given to GE healthcare was, given that the challenges of the system remain and that most cord blood stem cell banks - both public and private- really have to operate on a tight budget and make the service available given their low margins.



*The processing of cord blood to obtain the important and critical stem cell numbers is lengthy (taking between 4-6 hours in total per unit if performed manually) and there is a level of operator dependent subjectivity (good, when you have many units to work on and experienced and well practiced laboratory scientists). This operator-guided process has been in use since the industry pioneered by the founders of the New York Cord Blood Bank in the 1990's.


**The FDA and American Association of Blood Banks (AABB) recommend the Thermogenesis cryo-bag for storage which most of the cord blood stem cell companies have adopted, but not all stem cell companies internationally or in Malaysia are using thermogenesis bag processing systems, instead they have promoted storage in vials, which implies that the AXP system isn't required.