Fall 2014
Cell Therapy
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
Industry Overview
Industry Life Outlook: Neutral
Cell Therapy Revenue Projection
Revenue in Millions
3000
2500
2000
1500
1000
500
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Years
Industry Statement:
The cell therapy industry is expected to grow
rapidly from 2015-2019, however this growth is
difficult to quantify and highly volatile making the
industry an overly risky investment in the next 2
years
Upside Potential:
High Anticipated Growth
New Products
Increasing Investment
Downside Potential:
Regulation
Volatility
Non-Receptive Market
Index
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 1990. 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
NASDAQ:NUVA
IBIS World, S&P Capital
Private
NASDAQ:OFIX
Index
Industry Breakdown:
Industry Breakdown by Revenue (US)
Cell Therapy Market Share (US)
other
20%
Healthcare
$2595B
Shire
Dendreon Regenerative
31%
15%
Orthofix
17%
100.0%
Pharma/Ther
apies
Nuvasive
6%
262B
Organogensis
11%
Price Weighted Index
10.9%
25
Cell
Therapy
20
1.048B
10
.04%
IBIS World, S&P Capital, Investext
15
5
0
Index
Business Model: Cell Therapy
3-Step
Process
Processing &
Research
Manufacturing
Funding
Discovery
Creation
Process
Therapies
Engineered
from NonHuman Cell
Matter
Completion
IBIS World, S&P Capital
Hospitals
and
Treatment
Facilities
Distribution
Process
Patients
+
FDA
Interaction
Treatment
Therapies
Direct from
Human
Cellls
Other
Manufacture
rs
Index
Revenue Generation
Testing in
Vitro
Raw
Materials
Harvesting/Sy
nthesis
Therapy
Designing
Animal
Testing
Phase I: Safety
Engineerin
g
Therapy
Prepared
Cell
Harvesting
Treatment
Facility
Phase II: Sick Patients
Allogenic
Phase III:
Longer
Periods
Larger Groups
New Therapy
Application
Approval
Discovery
Autologus
Injections to
Patients
Products
Preseverved
Final Products
Ready
Manufacturing
S&P Capital, IBIS World ,Company 10-Ks
Final
Therapy
in
Progress
Distribution
Index
Industry Competitive Landscape
Porter’s Five Forces Analysis
Power of Suppliers: Low
-Short Term Supplier Contracts
-Industry Harvests Many Inputs
Industry Rivalry
Barriers to Entry: Moderate
-Significant Regulatory Barriers
-Low Capital Intensity
-High Availability for R&D Financing
-Very Skilled Talent Pool Required
-High Wage Costs
Moderate
Threat of Substitutes: Low
-Well Integrated Firms Still
Subject to Industry Risks
-Small Firms Can Enter With
Promising Products
-Difficulty to establish long term
product superiority
-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
-LowBloomberg
bargaining power
S&P Capital IBISWorld, Company 10-Ks,
Index
Trends
Developing
Therapy Pipeline
Decrease in PHE
Overcoming Wage
Costs
Index
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
Years
Products in Pipeline 2013
Other
Central…
Expected
Passing
Products
Gastro
Cardiovascular
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.
Phase II &
III
Oncology
Musculoskele…
Phase I
Enodocrine
Dermatology
0
5
10
15
Number of Products
IBIS World, S&P Capital, FDA, CT Coalition
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
3000
2000
1000
0
2006
Revenue in Millions
Cell Therapy Revenue
Projection
Index
20
Trend 1: Cont.
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
Revenue Growth 2014-2017
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
Revenue Growth Sensitivity to
Product Success
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
5.0%
15.0%
25.0%
35.0%
45.0%
%of Products Completed by 2017
Revenue Growth Sensitivity to
Revenue/Product
Revenue Growth 2014-2017
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
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
20
60
80
100
Revenue per Product (M)
Index
120
Trends
Developing
Therapy Pipeline
Decrease in PHE
Overcoming Wage
Costs
Index
Trend 2: Decreasing Growth in Private
High development costs for cell Expenditure
therapy treatments lead to high
Private Expenditure as % of Total
costs for patients. Patients pay
private insurance/out of pocket
Healthare Expenditure
PE % of HE
0.6
Strong correlation between
growth of CT revenue and private
health expenditure (2011
Provenge)
Slow relative growth in private
healthcare expenditure and
shift towards public plans can
harm CT revenues in the next
5 years
0.5
0.45
0.4
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Year
Y/Y Growth of CT Revenue vs. PHE
% Annual Growth
ACA Expected Growth:
Healthcare 2014 7.4%
2015-2018 CAGR 6.2%
Private 2014 5.2% (Insurance
6.8%) 2015-2018 CAGR 4.39%
0.55
IBIS World, S&P Capital, ACA, World Bank
60.00%
55.00%
50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
Correlation
0.705225993
2005
2006
2007
2008
2009
2010
2011
2012
Year
Cell Therapy Revenue
Private Health Expenditure US
Index
2013
Trends
Developing
Therapy Pipeline
Decrease in PHE
Overcoming Wage
Costs
Index
Trend
3:
Overcoming
Wage
Costs
The average salary for workers in
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.
Revenue vs. Wages
2500
2000
1500
1000
500
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Revenue/Employee
$180,000.00
$160,000.00
1 to .07 ratio of labor to capital
expenditures
If revenues exceed wages in
2015 the industry will have
overcome its largest internal
cost
IBIS World, S&P Capital, FDA, CT Coalition
Wages
Millions
CT was $107,422 in 2013,
primarily PHDs & researchers
$140,000.00
CAGR
18.09
%
$120,000.00
$100,000.00
$80,000.00
$60,000.00
$40,000.00
$20,000.00
$0.00
200420052006200720082009201020112012201320142015201620172018
Index
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
Industry Overview
Industry Outlook: Neutral
Industry Statement:
The cell therapy industry is expected to grow
rapidly from 2015-2019, 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
Decreasing Wage
Costs/Increasing Revenue
Risks
Losses in Funding
External Solutions
Failure to Survive
Losses
2250
Revenue in Million
Developing + Volatile Drug
Pipeline
Cell Therapy Projected Revenues
2000
1750
1500
1250
1000
750
2013
2014
2015
2016
2017
Year
Analysts Estimate
15% Product Success
20m Per New Product
Index
Key Financials
Company
Mkt Cap
% of 52
(m)
Week High Closing
P/E Ratio
EPS
Total
Debt/EBITD
EV/EBITDA
A
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
NEG
-1.06
NEG
NEG
-
0.13
OSIR
451.0
71.43%
13.15
NEG
-0.08
NEG
NEG
-82.90
0.24
OFIX
514.0
75.66%
27.92
2792.00
0.01
37.80
1.40
-7.90
0.09
NBS
141.0
47.53%
3.94
NEG
-1.84
NEG
NEG
-113.10
0.42
BLUE
1188.0
94.03%
41.23
2.30
18.01
NEG
0.00
-17.80
0.69
High
2067.0
96.85%
43.93
2792.00
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
-113.10
0.09
59.5
73.55%
20.54
1397.15
-0.24
34.00
1.40
-17.80
0.19
730.5
64.90%
21.72
465.72
2.44
11.33
1.08
-37.45
0.27
Median
Mean
Investext, Bloomberg, Company 10Ks
Index
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