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ThermoGenesis, TotipotentRx, and Cesca Therapeutics: A Disappointing 'Gemisch'

July 31, 2013

Here at SCSI: The Stem Cell Stock Index we chronicle the lives and fortunes of America’s leading stem cell companies, by which we mean (among many other things) companies that meet our admittedly idiosyncratic criteria for 'seriousness of purpose,' including avoiding what we consider to be ethically questionable practices such as marketing unproven and unapproved stem cell therapies of dubious clinical value.

Since the SCSI’s founding, just 15 companies have met all of our inclusion criteria, including 'seriousness of purpose.' One of them, ThermoGenesis Corporation (NASDAQ:KOOL), is about to undergo two simultaneous events:

  1. A merger with privately held TotipotentRx to form the new Cesca Therapeutics, which will continue to trade on the NASDAQ under the KOOL ticker symbol, and
  2. The de-listing of KOOL from our SCSI Index, for what we perceive to be the new company's apparent lack of seriousness of purpose, both historically and going forward.

This article, then, is SCSI component KOOL’s somewhat untimely epitaph -- our explanation for why KOOL will disappear from the SCSI index the day the ThermoGenesis/TotipotentRx merger is consummated (if not sooner).

Founded in 1986, Rancho Cordova CA-based ThermoGenesis has been unique among SCSI component companies as the only one with no stem cell therapeutic development program of its own, instead manufacturing and marketing devices and disposables for the processing, storage and administration of cells and tissues used in the practice of regenerative medicine, such as its AXP® product for the automated, closed-loop harvesting of the stem cell-rich buffy coat from umbilical cord blood (which it sells primarily to cord blood banks worldwide), and its MarrowXpress™ (MXP™) System for concentrating mononuclear cells from bone marrow aspirate. The MXP and its sister product, the Res-Q™ 60 BMC, are often incorrectly described as "isolating stem cells" from bone marrow, but in fact merely remove red blood cells and excess liquid from bone marrow aspirates, leaving the stem cells that are so rare in bone marrow equally rare in the resulting reduced-volume cell suspension.

While we have long been concerned that the company’s MXP and Res-Q BMC systems seemed to be ideally suited to what we would consider to be ethically-challenged (i.e., unproven, unregulated, and likely ineffective) ‘practice of medicine’ stem cell therapy applications, nonetheless we have, till now, been willing to give the company the benefit of the doubt. After all, to the best of our knowledge the company has never marketed questionable therapeutic treatments itself. We reasoned that ThermoGenesis could hardly be blamed if a rogue physician independently took it upon him- or herself to use the company’s products to perform questionable ‘medical’ procedures, any more than one could blame the manufacturers of the syringes and needles that physician also used in such procedures.

A Tangled Web

That said, the deeper look into ThermoGenesis' business that news of the upcoming merger inspired us to take reveals a complex web of relationships that appear to systematically connect the company's business with providers of unregulated 'stem cell' therapies both here in the U.S. and abroad.

Central to the U.S. side of the story is Celling Technologies (currently Celling Biosciences), an Austin, TX subsidiary of Spine Smith LP that describes itself as "...at the forefront of regenerative medicine by researching and developing technologies across the continuum of care that allows the patient to benefit from healing itself [sic]." Celling became a U.S. distributor for ThermoGenesis' MXP system in 2008, and ThermoGenesis re-brands its Res-Q BMC device as Celling's Art21™ BMC for the latter to use and sell in the U.S.

In 2010, Celling expanded its horizons by opening its Celling Treatment Center in Austin, "providing stem cell therapies for common back and spine disorders." A news feature at the time said Dr. Mark Flood, the Center's medical director, "has used adult stem cells in nearly a thousand procedures. The cells are harvested from a patient's bone marrow." The Austin treatment center appears to be out of business today (its phone is disconnected and its web site is gone). In a recent online discussion among patients sharing experiences with stem cell therapies, one participant stated "I'd contacted Celling Treatment Center, in Austin Texas, I think, quite some time back...sent in my MRI for review, and was advised that I was a candidate for their stem cell treatment. When I talked to the doctor over the phone, and asked about those he had treated, he stated he'd had 12 patients he'd treated and that all were doing well. I forget the quoted cost, but I think it was about $12,000," to which another participant replied "I looked at Celling, too. However, it appears to have fled the state in the wake of a Texas Medical Board ruling regarding oversight of procedures. The web site says Celling is in the process of relocating."

Celling Biosciences' CEO and its President both serve on the three-member Board of Directors of the Austin-based MedRebels Foundation, "a 501(c)(3) non-profit organization [...] on a quest to create awareness of the possibilities of adult stem cell treatments. We are educating the public about how their lives may benefit from the use of their own stem cells." Alongside a prominent 'Donate Now' button, MedRebels' web site features glowing patient testimonials such as this:

Thanks to MedRebels and the amazing research and orthopedic successes utilizing adult stem cells, my pain is gone! I'm a true believer and avid supporter of adult stem cell therapies. I'm euphoric about my success and grateful to all those who helped me! I can't wait to be able to run and hike again soon!

TotipotentRx: ThermoGenesis Extends Reach Into Asia

TotipotentRx (a privately held company headquartered in California) and its sister company, TotipotentSC, both subsidiaries of the privately held MK Alliance Inc. (owned by Kenneth Harris), first appear in the public record in connection with ThermoGenesis in the latter’s 2010 annual report filing with the SEC, in which TotipotentSC is named as a distributor of the Thermogenesis’ MXP and Res-Q™ 60 BMC systems for India, Malaysia, and Thailand -- three countries notable in the annals of stem cell therapeutics as prime destinations for ‘medical tourism’ by desperate (and, we believe, frequently ill-advised) Western patients seeking unproven stem cell treatments overseas.

In July of 2011, TotipotentSC’s name was publicly associated in yet another context with ThermoGenesis, when Totipotent registered a Phase 1/2 clinical trial with the U.S. National Institutes of Health’s ClinicalTrials.gov online registry, titled Safety and Efficacy of Autologous Bone Marrow Mononuclear Cells in Patients With Severe Critical Limb Ischemia, naming ThermoGenesis as a collaborator. We’ll have more to say about this trial, conducted in India, below.

The Coming Wedding of ThermoGenesis with TotipotentRx

Most recently, ThermoGenesis surprised us -- and, apparently, the rest of the stem cell industry as well -- with its July 16, 2013 announcement that it had entered into a definitive merger agreement with TotipotentRx to form the newly-christened Cesca Therapeutics, which will continue to trade on the NASDAQ exchange under ThermoGenesis’ old ticker symbol, KOOL. According to documents filed by ThermoGenesis with the SEC, TotipotentRx shareholders will hold approximately 43% of Cesca’s common shares outstanding immediately following the merger, and ThermoGenesis’ CEO will continue as CEO of the new company while TotipotentRx’s CEO, Kenneth Harris, becomes Cesca’s President and a member of its board. Totipotent will have the right to nominate two Board members (including Harris). As of its most recent proxy statement ThermoGenesis had four serving board members.

According to ThermoGenesis’ recent corporate presentation, the merger partners believe that Cesca’s implied market value should be on the order of $300 million -- substantially in excess of ThermoGenesis’ market cap of just $13 million as recently as May 8th of this year, and a value that would exceed those of all SCSI component companies today with the single exception of Osiris Therapeutics, whose current market cap is $378 million.

What’s Past Is Prologue

Until demonstrated otherwise, it seems reasonable to assume that Cesca Therapeutics’ immediate future will look a lot like the Venn diagram union of the pasts of its merger partners. In the case of ThermoGenesis that past is easily studied, thanks to its longstanding SEC reporting requirements as a publicly traded company: a solid (if perhaps unexciting) little operating company, routinely topping the SCSI in sales revenues (about $19 million on an annualized basis, as of its most recent quarterly report), but lately struggling unsuccessfully to find significant new growth opportunities, chronically notching annual net losses in the low millions, and thus perennially stuck in penny-stock territory.

In the case of TotipotentRx and its parent, MK Alliance Inc., our crystal ball is much hazier, owing to these companies’ privately held and thus non-reporting status. This is unfortunate for investors and others who wish to size up the new company’s prospects, because Totipotent certainly seems intended to bring most of the sex appeal to the proposed new marriage. But what little we do know, when taken all together, constitutes a pattern of behavior that we find to be, at a minimum, troubling.

The TotipotentRx Value Proposition: Asian ‘Clinical Trials’ On the Cheap (And Off the Record?)

Totipotent’s ambitions of growing beyond the role of merely an Asian distributor of cell processing equipment appear to have first evidenced themselves in March of 2011, when the company and Fortis Healthcare Ltd, India’s fastest growing hospital network, announced "... a collaboration to set up centres of excellence offering cellular therapies and stem cell clinical trials, across select Fortis hospitals. These centres will undertake stem cell clinical research procedures relating to diabetes, cancer, cardiovascular disease, and neurological ischemia. TotipotentRX will also set up state-of-the-art cGMP laboratories in select hospitals, for processing stem cells before transplantation to patients." ThermoGenesis’ and TotipotentRx’s corporate presentation regarding their proposed merger states that even earlier (sometime in 2010) "TotipotentRx and Fortis entered an exclusive collaboration agreement."

In January of 2011, Totipotent’s Indian partner in these initiatives, Fortis Healthcare, was reportedly accused by officials of the Indian Council of Medical Research of "outrightly illegal and unethical" behavior in treating a paraplegic medical tourist with a "stem cell therapy...extracted from the patient's own bone marrow" (the same type of cell preparation enabled by ThermoGenesis’ instruments, distributed in India by Totipotent to its exclusive partner, Fortis). Fortis physicians pronounced the treatment’s results "a miracle." The reported price for the re-injection of the patient’s own cells, 150,000 rupees (roughly $2,500), equaled three times the per capita income of Indians in 2011.

Just a year later, by January of 2012, a TotipotentRx self portrait described the company and its Indian operations as:

...a leading cell therapy company founded in 2008 focused on clinical research services and on developing therapies for cardiovascular and neurological diseases. The company operates its business through two geographic locations Los Angeles (US) and Gurgaon (Delhi NCR, India). TotipotentRX has advanced the practice of minimally manipulated cellular therapies utilizing point of care technologies for the rapid treatment of patients at the bedside. Our TotipotentRX Centre for Cellular Medicine is a state-of-the-art cGMP/GTP cell processing and biobanking facility offering services to both the cell therapy development company and the academic research clinicians. Our cell therapy Clinical Research Organization (CRO) provides contract services in designing and conducting early phase human clinical trials specific to the use of autologous and allogeneic cells. The TotipotentRX Center for Cellular Medicine is in partnership with Fortis Hospitals Ltd., the largest in-patient clinical organization across Asia.

TotipotentRx argues that one major advantage of conducting clinical trials in India, as opposed to the U.S., is their 80% lower cost there. Given the country’s famously weak oversight and enforcement of clinical trial regulations, this is not difficult to believe. For example, in its 2012 World Stem Cell Summit poster presentation TotipotentRx claimed that it, MK Alliance, or ThermoGenesis were sponsoring a total of 3 clinical trials in India at Fortis hospitals. But while all clinical trials in India have, since 2009, been required to be registered with the Clinical Trials Registry - India (CTRI), our exhaustive search of the online CTRI trials database on July 27, 2013 could not identify a single registered trial sponsored by “TotipotentRx”, “TotipotentSC”, “MK Alliance” or “ThermoGenesis”, nor any registered cell therapy trials conducted at “Fortis” hospital sites.

To their marginal credit, MK Alliance companies and ThermoGenesis have been somewhat more punctilious in registering a few of their sponsored clinical trials with the U.S. National Institutes of Health’s ClinicalTrials.gov online trials registry, including

Unfortunately, both of these trials are outside the jurisdiction of the U.S. Food and Drug Administration, so their registrations at ClinicalTrials.gov are voluntary and without regulatory significance. As well, those trials’ records were last verified by the sponsor in November 2011 and February 2012 respectively, listing the status of NCT01536106 as “Not yet recruiting,” whereas TotipotentRx’s poster presentation (linked above) claimed both trials were “Underway.” Thus, even the minimal trial registration information we have available to us appears to be so outdated as to be effectively useless.

A third trial registered at ClinicalTrials.gov, NCT01490242, lists as its sponsor Max Institute of Neurosciences, whereas the World Health Organization’s International Clinical Trials Registry Platform (accessed July 29, 2013) listed that same trial as sponsored by TotipotentRx. The reason for this record-keeping conflict is not immediately apparent.

When Is a Trial Not a Trial?

The gold-standard of clinical trial design traditionally employs a variety of features to guard against the all-too-human propensity to fiddle with data until it appears to yield the answer one hopes for. Good trial design thus enables legitimate statistical analysis of results, and maximizes the likelihood of achieving a reliable answer (whether that answer proves favorable or unfavorable for the trial’s sponsor). In a nutshell, such a gold-standard trial design is:

While this sort of rigorous design is both more expensive to implement and more risky than the alternative (an uncontrolled, non-randomized, ‘open label’ trial with a poorly-specified protocol and little transparency), it is really the only way to conduct a fair trial that provides a really meaningful test of a candidate therapeutic. It is thus the design that the U.S. FDA strongly encourages for trials conducted within its regulatory jurisdiction. One tempting reason (among others) for conducting clinical trials in less demanding jurisdictions, such as some Asian nations, can be such countries’ historical lack of insistence on strong trial design and rigorous conduct.

The apparent failure of MK Alliance companies to publicly register all of their ‘clinical trials’ in the relevant jurisdictions makes it difficult, if not impossible, for us to fairly judge their commitment to good trial design, but what little we do know isn’t encouraging. Two of the three registered trials cited above employ non-randomized, open-label, uncontrolled designs with (in our opinion) rather ambiguous protocols, as did an Italian trial (NCT00306085) of ThermoGenesis' products sponsored by the University of Naples and frequently cited by TotipotentRx.

The University of Naples study cited above (a Phase 1 trial of bone marrow mononuclear cells to treat critical limb ischemia) provides a useful illustration of why the conduct of a poorly designed trial is essentially an exercise in futility. This modest study’s results were recently published (seven years after its initiation) by authors including ThermoGenesis’ principal scientist and Manager of Research at the time. The report concludes that the trial "confirmed the beneficial effects of bone marrow cell transplantation in patients with PAD [peripheral artery disease] using cell concentration strategies," despite the fact that the trial’s uncontrolled open-label design did not permit such a conclusion. The trial’s originally registered protocol called for outcome measures to include "improvement in the ankle-brachial pressure index, ischemic ulcers and angiography as well as laser doppler flow", but the published results report only laser Doppler flow measurements. Given such obvious discordance between a trial’s protocol and its published results, it is always tempting to wonder whether the missing data were indeed collected, but perhaps proved unpleasant and so were simply wished away -- a compelling reason why strict adherence to protocol, and publication of detailed results, is the gold-standard best practice in clinical science.

Since any job worth doing is worth doing well, an interested layman might well wonder why a sponsor would even bother to conduct poorly designed trials such as those frequently associated with MK Alliance companies’ and ThermoGenesis’ names. To be fair, such Hail Mary trials (often more generously termed ‘pilot studies’) can play a legitimate role in clinical science -- mainly as a means to prepare for planning more rigorous future trials. But all we know in the case described above is that that didn’t happen: the uncontrolled, non-randomized, open-label University of Naples Phase 1 study is now followed by an equally uncontrolled, non-randomized, open-label Phase 1/2 study sponsored by TotipotentSC itself (NCT01472289).

A rather less benign motive for habitually participating in poorly designed clinical trials might be at play if a company has no real intention of ever applying for national marketing approval of its therapeutics as drugs, but intends instead to offer them for use in unregulated ‘practice-of-medicine’ applications (as the recent TotipotentRx/ThermoGenesis corporate presentation suggests will be Cesca’s "sweet spot")...particularly outside the jurisdiction of the pesky FDA. In that case clinical trials may be nothing more than show trials -- merely marketing gizmos -- for a company to point to in order to suggest its legitimacy (mostly to prospective investors and desperate patients). In that case, scrupulous adherence to the best practices of clinical trial design might actually be counterproductive.

Transparency in Publication: Clear as Mud

Of course, clinical research is both pointless and useless (even as a mere marketing gizmo) if it is not published in the scientific literature, and so Cesca Therapeutics' founding partners appear to go to considerable lengths to cite the 'publications' reporting the 'results' of their clinical studies. Here too, however, ThermoGenesis and TotipotentRx appear to be considerably less than forthcoming.

The Cesca corporate presentation filed with the SEC presents in considerable detail some seemingly encouraging data from an (unidentified) test of the company's technology in the treatment of non-union long bone fractures, touting a "71% union rate in 18 weeks post-treatment" and "no SAEs" (serious adverse events) -- claims whose significance is impossible to judge because the presentation does not mention parallel control (placebo) data. We can only assume, because the study described does not appear to be registered with any clinical trials registry, that the study referred to is the same one referenced in a 2012 ThermoGenesis press release as "a clinical evaluation...of 20 planned patients with a non-union or delayed union fracture of a long bone....sponsored by SpineSmith, LLC [see "A Tangled Web," above]" conducted at the University of California, Davis, Medical Center (a clinical research coordinator for the university's Department of Orthopaedic Surgery confirmed to us that this study is underway and, as a single-center pilot study, has not been registered with any clinical trials registry). Cesca's presentation claims that the study's results have been "Accepted for publication: 2012 International Society of Cell Therapy, Rotterdam," a claim that is, at once,

This is not the first time TotipotentRx has obscurely alluded to a "publication" of its claimed orthopedic study results. The company's 2012 World Stem Cell Summit poster, dated Nov. 30, 2012, also alludes to, but does not identify, an orthopedic study which it cites as sponsored by MK Alliance and conducted at Fortis hospitals in India, as "completed, published May 2012" -- another publication we are at a loss to identify after an exhaustive search.

TotipotentRx did not respond prior to publication to our repeated requests for citations to the orthopedic clinical study and its publication(s) discussed here.

[Update #1 (8/1/13): Following publication of this article, TotipotentRx's CEO, Ken Harris, responded "We are in the process of filing 8-K documents on this clinical trial so the details will be available to the market as a whole. Once this is completed, I will be happy to send you the documents which are available in the public domain."]

[Update #2 (8/29/13): Thermogenesis' latest 8-K filing with the SEC, dated 8/29, did not provide the promised citations to the clinical trial publications the company claims.]

Inside Information?

No list of the litany of reasons to be uncomfortable with the planned merger of ThermoGenesis with TotipotentRx would be complete without mentioning recent moves in ThermoGenesis’ share price that seem hard to explain. Over the two-month period from May 8th of this year to the day before the July 16th announcement of the planned merger, KOOL shares enjoyed an abrupt reversal in what had previously been a long, slow slide into penny-stock status, for an unprecedented 100% price increase driven by unusually heavy trading volume. Familiar as we are with all publicly available information regarding ThermoGenesis, we watched this rise with real bewilderment (nothing we knew at the time suggested to us that ThermoGenesis was quite that good an investment opportunity) -- until the scales fell from our eyes with the release of the merger announcment.

We remain at a loss for an explanation for KOOL’s meteoric pre-announcement rise. But it might be worth noting here that MK Alliance’s projected 43% stake in the newly-formed Cesca Therapeutics (see above) -- just slightly insufficient to assure its control of the new company -- does not take into account any ThermoGenesis shares it might be able to buy up on the open market prior to the merger.

Are Autologous, Minimally Manipulated, Bone Marrow Mononuclear Cells A Good Bet?

At the end of the day, an investor’s decision regarding whether to invest in the new Cesca Therapeutics will come down to an educated guess regarding whether or not the volume-reduced bone marrow cell preparations on which the new company is staking its future will ever find any real clinical utility. This is, of course, a question that can only be answered with respect to specific clinical indications. Will it be useful in treating cardiovascular disease? Spinal cord injury? Orthopedic conditions? Diabetes? All or none of the above?

With respect to cardiovascular indications at least, we -- like many of the scientific authorities we’ve discussed this with -- believe it is fair to say that the verdict is in, and it isn’t good. Of the many stem cell-based approaches to treating cardiovascular disease that are under active study and development today (including cardiac-derived stem cells, mesenchymal stem cells, induced pluripotent stem cells, embryonic stem cells, and many others), minimally manipulated autologous bone marrow has certainly been studied the longest and the most exhaustively, but has yet to show any real promise of significant clinical utility.

There may be any number of biological reasons for unmanipulated bone marrow’s apparent lack of promise, but one that nearly all authorities cite is the plain fact that stem and progenitor cells are extremely rare cells in bone marrow. More and more, it simply appears to be impossible to harvest enough of them from a bone marrow aspirate to be likely to achieve a therapeutic effect without first culturing those cells in the lab to expand their numbers -- a process that disqualifies the resulting preparation for ‘minimally manipulated’ status, and therefore requires the product to be approved and regulated as a new drug rather than being sold for largely unregulated ‘practice of medicine’ applications as TotipotentRx does today and proposes to do tomorrow.

But don’t just take our word for it regarding the unlikely clinical utility of minimally manipulated bone marrow. A recent and influential editorial in the American Heart Association journal, Circulation, titled Bone Marrow Tinctures for Cardiovascular Diseases, reviews the history of research on such preparations and their clinical trials, and likens them to the quack nostrums popular in the 1800s. "When the first BM-MNC trials were conducted more than a decade ago," the authors conclude, "they were based on the scientific data that were available at that time. The use of a heterogeneous bone marrow gemisch in the hope that some cell type contained in the bone marrow extract would improve cardiac function might have been appropriate 1 decade ago. However, now we know [...] that there are many other, better characterized and defined cell types that may be more effective at promoting cardiovascular regeneration."

We believe that much the same can be said of most -- if not all -- other clinical indications that have been suggested for Cesca’s “bone marrow gemisch.” Of course, differences of opinion are what make horse races (not to mention stock markets, and science), so reasonable people may still differ on this question. But when the deep uncertainty regarding the clinical utility of Cesca’s lead product is viewed alongside the many other troubling questions we have raised here regarding the proposed new company, its forebears, and the company they keep, we believe the only rational decision can be to drop Cesca Therapeutics like a hot rock.

Which is what we here at SCSI: The Stem Cell Stock Index intend to do on the day the new company is born. For, as the time-tested old saw wisely advises, "Fly with the crows, get shot with the crows."