1. Cell Therapy Fall 2014 Finance & Investment Club Healthcare Sector
Team 1
Senior Analysts: Matthew Sgrignari
Junior Analysts: Ian Ronda, Preyaa Docu, Nicholas Chiarelli, Tuquyen Pham, Roshni Mahbubani, Yaojie Chen, Dom Tarantino, Marco Buchmayer, Elizabeth Sakhnovsky, Denis Visnjic, Jack Zheng, Mohaira Osman

2. Industry Overview Industry Life Outlook: Neutral Upside Potential:
High Anticipated Growth
New Products
Increasing Investment
Industry Statement:
The cell therapy industry is expected to grow rapidly from , however this growth is difficult to quantify and highly volatile making the industry an overly risky investment in the next 2 years
Downside Potential:
Regulation
Volatility
Non-Receptive Market
Index

3. Industry Definition:
The cell therapy industry researches, develops, and manufactures therapies using engineered human tissue for regenerative medicine and human cytotherapy.
The industry is very new, marked by the regular implementation of bone marrow transplants in Cell therapy is currently being watched for its massive growth potential with dozens of new therapies in development.
Procedures include cancer cell therapy, musculoskeletal cell therapy, as well as mainstream medicine (transfusions) and alternative medicine (stem cells). Companies consist of mainly small startups with heavy backing from big pharma.
NASDAQ:DNDN
NASDAQ:SHPG
Private
NASDAQ:NUVA
NASDAQ:OFIX
IBIS World, S&P Capital
Index

4. Cell Therapy Market Share (US) Industry Breakdown by Revenue (US)
Healthcare
$2595B
100.0%
Pharma/Therapies
262B
10.9%
Cell Therapy
1.048B
.04%
IBIS World, S&P Capital, Investext
Index

5. Business Model: Cell Therapy
Research
Processing &
Manufacturing
Treatment
3-Step Process
Funding
Therapies Engineered from Non-Human Cell Matter
Hospitals and Treatment Facilities
Discovery
Creation
Process
Distribution
Process
Patients +
Therapies Direct from Human Cellls
FDA Interaction
Source: Copper Development Association -
Geographic Distribution: mostly in Southwest US (Arizona, New Mexico), some in the North, Great Lakes Region (Michigan, Minnesota)
Other Manufacturers
Completion
IBIS World, S&P Capital
Index

6. Revenue Generation Raw Materials Harvesting/Synthesis Engineering
Final Products Ready
Testing in Vitro
Animal Testing
Phase I: Safety
Phase II: Sick Patients
Phase III:
Longer Periods
Larger Groups
New Therapy Application
Approval
Therapy Designing
Therapy Prepared
Treatment Facility
Cell Harvesting
Allogenic
Autologus
Injections to Patients
Products Preseverved
Final Therapy in Progress
Discovery
Manufacturing
Distribution
Index
S&P Capital, IBIS World ,Company 10-Ks

7. Industry Competitive Landscape
Porter’s Five Forces Analysis
Power of Suppliers: Low
-Short Term Supplier Contracts
-Industry Harvests Many Inputs
Industry Rivalry
Moderate
-Well Integrated Firms Still Subject to Industry Risks
-Small Firms Can Enter With Promising Products
-Difficulty to establish long term product superiority
Barriers to Entry: Moderate
-Significant Regulatory Barriers
-Low Capital Intensity
-High Availability for R&D Financing
-Very Skilled Talent Pool Required
-High Wage Costs
Threat of Substitutes: Low
-Patent Protection for Periods of Time
-Regulatory Requirements Discourage Replication
-Treatments Targeted at Previously Unaddressed Illnesses
Power of Buyers: Moderate
-External Options Threaten Therapies
-Health Insurance Limits Products Eligible
-Highly Fragmented Market
-Low bargaining power
Index
S&P Capital IBISWorld, Company 10-Ks, Bloomberg

8. Developing Therapy Pipeline
Trends
Developing Therapy Pipeline
Decrease in PHE
Overcoming Wage Costs
Index

9. Trend 1: Developing Therapy Pipeline
Cell therapy firms have an expected 8-15 year drug timeline that started at the industries formal inception around 2000 The FDA’s Safety and Innovation Act (2012) created a fast track for “break through therapies” to expedite phases II&III of clinical trials Based on industry revenue projections revenue is expected to grow at a CAGR of 17.3% from 2014 to 2017 based on the expectation of 26 successful new products.
Trend 1: general economic behavior/outlook ­ Ben ­ explain that chemicals heavily tied to the business cycle ­ WHY
2 graphs
Past performance and how they affect future performance
-GDP
-Inflation
-Dollar-value
*finding out strong association business cycle and specialty because they are dependent
Prospect of Tapering: Positive or Negative
Federal Reserve regulate with monetary policy (interest) purchase or sell bonds, debts
It is in question as to when FE will scale-back and reduce it the bond-purchasing programs. But its probably in the first quarter that certain programs such as quantitative easing.
Over the past few years, support to keep the economy going (secondary support of economy)
Interest Rates (commercial to residential) : business effect how much they can borrow  effect growth
Domestic companies, USD dollar trends  affecting business
Leads to expected Inflation at current levels ; with tapering
IBIS World, S&P Capital, FDA, CT Coalition
Index

10. Trend 1: Cont.
Analysts currently project cell therapy revenue to reach 2.07B by 2017, a projection based on the release of 27% of therapies in the pipeline generating about 40M per therapy These two variables: -Product Completion -Revenue per Products Are the key determinants of industry revenue growth and are both subject to high degrees of volatility
If the industry does not deliver on the number of products estimated or the public does not take to the therapies then the industry revenue will sink
IBIS World, S&P Capital, FDA, CT Coalition
Index

11. Developing Therapy Pipeline
Trends
Developing Therapy Pipeline
Decrease in PHE
Overcoming Wage Costs
Index

12. Trend 2: Decreasing Growth in Private Expenditure
High development costs for cell therapy treatments lead to high costs for patients. Patients pay private insurance/out of pocket
Strong correlation between growth of CT revenue and private health expenditure (2011 Provenge)
ACA Expected Growth:
Healthcare %
CAGR 6.2%
Private % (Insurance 6.8%) CAGR 4.39%
Correlation
Export revenue: 35.5% of industry revenue (2013), expected to grow to 38.4% through 2018.
Slow relative growth in private healthcare expenditure and shift towards public plans can harm CT revenues in the next 5 years
IBIS World, S&P Capital, ACA, World Bank
Index

13. Developing Therapy Pipeline
Trends
Developing Therapy Pipeline
Decrease in PHE
Overcoming Wage Costs
Index

14. Trend 3: Overcoming Wage Costs
The average salary for workers in CT was $107,422 in 2013, primarily PHDs & researchers
Wage expenses in 2013 exceeded revenue by $193.7 million (118.5% of revenue)
Research consolidation and efficiency have allowed the industry to generate more revenue per employee, up to $90,700 in 2013.
1 to .07 ratio of labor to capital expenditures
CAGR 18.09%
Export revenue: 35.5% of industry revenue (2013), expected to grow to 38.4% through 2018.
If revenues exceed wages in 2015 the industry will have overcome its largest internal cost
IBIS World, S&P Capital, FDA, CT Coalition
Index

15. Industry Risks & Challenges:
Primary Risks to Cell Therapy Industry
Losses in Funding Industries
Much of the funding in the industry comes from Pharma and Biotech companies leasing and investing in products.
If these companies faces losses in upcoming patent cliffs they may choose to cut funding in projects not generating revenue.
External Solutions
Other areas of medicine are exploring ways to cure many of the currently incurable conditions that cell therapy looks to address
If these firms are successful patients will quickly transition to these treatments if they are covered by insurance or recommended by physicians
Failure to Survive Periods of Loss
The industry is currently facing yearly losses
Companies have been entering and exiting the industry based on this lack of profitability and products can only be seen to fruition of companies can survive long enough to complete them
IBIS World, S&P Capital, FDA, CT Coalition
Index

16. Industry Overview Trends Industry Outlook: Neutral Industry Statement:
The cell therapy industry is expected to grow rapidly from , however this growth is difficult to quantify and highly volatile making the industry an overly risky investment in the next 2 years
Trends
Decrease in Private Health Expenditure
Developing + Volatile Drug Pipeline
Decreasing Wage Costs/Increasing Revenue
Risks
Losses in Funding
External Solutions
Failure to Survive Losses
Index

17. Key Financials Index Company Mkt Cap (m) % of 52 Week High Closing
P/E Ratio
EPS
EV/EBITDA
Total Debt/EBITDA
ROE
R&D/Op Exp
NUVA
2067.0
96.85%
43.93
NEG
-0.40
30.20
5.10
-3.00
0.07
DNDNQ
22.0
3.92%
0.14
-1.06 -
0.13
OSIR
451.0
71.43%
13.15
-0.08
-82.90
0.24
OFIX
514.0
75.66%
27.92
0.01
37.80
1.40
-7.90
0.09
NBS
141.0
47.53%
3.94
-1.84
0.42
BLUE
1188.0
94.03%
41.23
2.30
18.01
0.00
-17.80
0.69
High
2067.0
96.85%
43.93
18.01
37.80
5.10
-3.00
0.69
Low
1188.0
3.92%
0.14
2.30
-1.84
30.20
0.00
0.09
Median
59.5
73.55%
20.54
-0.24
34.00
1.40
-17.80
0.19
Mean
730.5
64.90%
21.72
465.72
2.44
11.33
1.08
-37.45
0.27
Investext, Bloomberg, Company 10Ks
Index

18. Index Industry Overview Industry Definition Industry Breakdown
Business Model
Revenue Generation
Industry Competitive Landscape
Trend 1: Developing Therapy Pipeline
Trend 2: Decreasing Growth in Private Expenditure
Trend 3: Overcoming Wage Costs
Industry Risks & Challenges
Closing
Key Financials
Index