Good afternoon, ladies and gentlemen, and welcome to Cytori Therapeutics First Quarter Earnings Conference. Before we begin, we want to advise you that over the course of today's call and question-and-answer session, forward-looking statements will be made regarding events, trends and business prospects which may affect Cytori's future operating results and financial position. Some of these risks and uncertainties are described under the Risk Factors section in Cytori's Securities and Exchange Commission filings which Cytori advises you to review. Cytori assumes no responsibility to update or revise any forward-looking statements to reflect events, trends or circumstances after the date they are made. I will now turn the call over to Chris Calhoun, CEO. Please go ahead.

Great. Thank you, Anthony. Good afternoon, and welcome to our quarterly business update. I'm joined today by our President, Doctor Marc Hedrick; CFO, Mark Saad; and Executive Vice President of Sales and Marketing, Clyde Shores. Management is executing to deliver strong results in each of our 3 business areas and achieving the goals established for 2012, setting the foundation for leadership in growth in the Cell Therapy field. To review, the 3 principal objectives are: to advance our cardiovascular disease pipeline; grow the commercial business; and achieve our operational and financial performance goals. We've provided a shareholder letter that discusses our progress in greater detail. This is available on the homepage of the Investor Relations section of our website. I'd like to briefly touch on some of the highlights from the quarter. Let's start with our cardiovascular disease pipeline. We have an application to expand our solution systems, CE Mark, to include no option chronic myocardial ischemia patients, which is under active review. During the quarter, we conducted multiple meetings with our governing regulatory authority and provided responses to their requests for additional information. Most open items have now been resolved. There are 3 key open items remaining, including: The details of a proposed post market red patient registry; a request for additional supportive data to further assess the risk-benefit ratio of Cell Therapy in this patient population; and agreement on the specific indications for use in claims. Our response to these remaining items will be submitted shortly followed by an in-person meeting in the upcoming weeks. Due to the complexity of the evaluation process, requests for additional information and the landmark importance of this first-in-class approval, we now anticipate the decision coming in the second half of the year. We're confident in our ability to supply our notified body…

[Operator Instructions] We'll take our first question from Steve Brozak with WBB Securities.

I'll ask one question that probably is on the top of everyone's mind, and that has to deal with the ATHENA U.S. study. Can you give us what the clinical ramifications are for "a successful study?" And then I'll follow it up with a question concerning the financials on that side.

Steve, Chris did a good job talking about the importance of the trial from a big picture perspective. Now being able to move forward rapidly in the U.S. is a place we haven't been before and why is that? FDA has been very responsive, we've gotten very fast turnaround from them, we've shown that we're a device regulated in the U.S., not a Cell Therapy. I know some people have some questions about that. So the subtext of that is things are going well with respect to the FDA. We're happy to be in that place. Scientifically, if you look at the study, you'd see leading cardiology stem cell doctors in the U.S. coming on board with the study and behind the scenes, there's a lot more interest. It's a shame that we only have 5 sites that we can get up and running at this point, because there is a tremendous amount of interest. From an enrollment perspective, as Chris said, I think we're going to move relatively rapidly through this study and we'll continue to update you. From a clinical perspective, in some ways, this trial is a mirror image trial from the PRECISE study in Europe, but it has that U.S. rigor, scientific characterization and meets the FDA clinical bar and it's meant to lay the foundation for a pivotal trial in the U.S. to follow upon that. So I think in summary, what it does is it illustrates the benefit of being in the U.S. when there's a clear regulatory path, which I think we have, we're able to move, I think very quickly and I think you'll continue to see that over the year.

Okay. That gives us the groundwork in terms of what you're looking at. Now, one of the things I don't think a lot of people appreciate and it's certainly not visible in your stock price is, what type of a market potential are you talking about, especially concerning how debilitated these type of patients are, and the future of what you're looking at in terms of the current standard of care? Just give us -- I know you can't say what you're going to be looking at, but just give us a current standard of care model that you've obviously run and give us some general ideas on that number. And now I'll jump back in the queue.

Big picture, Steve, is that this treatment is for patients that have no option chronic myocardial ischemia or stated differently, refractory heart failure, so these are heart failure patients that have run out of options. They don't have a good interventional options, they don't have good options in terms of surgical therapy, and they really are at the max of what pharmacologics can do for the heart. So then, as you know, there are only about 5,000 cardiac transplants around the world right now. So there's not nearly enough hearts. This is a gigantic multibillion dollar market, there really aren't good options for these patients, and there's not only approximately, let's call it about 250,000 patients a year, going into this from an incidence perspective, but there's a prevalence that's probably 10x, so it represents a critical market and there really aren't good therapies out there to address this need.

We'll take our next question from John Putnam with Capstone Investments.

I was wondering if you might elaborate a little bit on what's going on in Europe and why it seems that the regulatory bodies over there are kind of shifting what it is that they're looking for? Is this something you'd anticipated, Chris? Or is it something that's new or evolutionary?

John, it's Marc Hedrick. Let me field that. The core issue is in each country, they have a variety of different regulations and then there are European body regulations. So we are able to navigate the APOLLO trial and the PRECISE trial relatively readily through the -- those different regulatory land mines. So, for example, our current ADVANCE trial is approved, and we are enrolling patients in the Netherlands, but the Dutch health inspector, after the trial had begun and we were enrolling patients, raised issues about good manufacturing practices, and how they uniquely apply in the Netherlands, and asked us to justify what's being done, so play that out, throughout all the countries in Europe, including the G5 in Germany, in Italy, and France and so forth, and so you've got different countries applying both the European and their own regulations in different ways. So it really caused us, starting at the end of 2011, as we noted its difficulty to seek ways to harmonize these various interpretations throughout Europe, which, that meant a lot of meetings, face-to-face, with an alphabet soup of country authorities throughout Europe and then based on those meetings, we think we've learned kind of what their hot buttons are, not only where the regulations are today, but how they are evolving in Europe. And we've -- we are in the process of amending the trial to ensure, to the degree we can, that we can speed those individual country approvals in the trial. Now there are things that we're doing by taking advantage of this, of this lull in the trial to improve the trial from the clinical and scientific perspective, and from the perspective of beefing up the supply chain relative to the device. So kind of, break it all down, the goal of the trial hasn't changed. The goal still is to go back to BSI, our notified body, and get expanded claims to treat acute myocardial infarction in Europe. First approval for that for Cell Therapy in Europe. The budgetary impact, all in, is not significantly impactful, it might even push out the spend. But I think in aggregate, what we've done is we've completely, to completely, to the degree we can, removed some of these regulatory ambiguities that are in Europe and put those into the trial and done as much as we can to derisk the trial to ensure that we meet the trial's end points.

Okay. Can you remind me how large this trial is? And has that changed?

Yes. That will change. The protocol is not final. Originally, this was meant to be about 350 plus patients. We think that, that will be reduced somewhere in the neighborhood of about 40 patients -- 40% in terms of numbers of patients. There'd probably be no net positive variance on the budget side, in other words, the budget going to be probably about the same, but it will reduce the number of patients and we've improved the -- our ability to enroll patients quickly in this trial by changing the inclusion/exclusion criteria, we think in a positive way, based on emerging science in the Cell Therapy field. So by -- the regulations help us get sites on board and improving the enrollment criteria, helps speed enrollment of those individual sites.

We'll take our next question from Jason Colbert with Maxim [ph].

I wondered if you could just talk a little bit about mechanism of action and product consistency from patient to patient, and how that fits in the current treatment paradigm?

So the benefit of having a cultured Cell Therapy, as you effectively turn that, that cell or group of cells into a drug and you can have very strict lot release criteria, and you can very much apply manufacturing constraints that are applied to drugs. So while that's a good thing if you're a regulator, it's a bad thing if you're a patient, because when you culture cells, the tendency no matter where the source of the cells are from, they tend to lose their potency. So one of the core, if not the primary benefits of our cells, and that, it gets to the question of mechanism of action, it's because they're fresh, because it's a mixed population of cells, because these cells are have never seen tissue cultured plastic and haven't gone through that artificial process of cell culture, the potencies is much higher than it would be if you were to culture it and lose that potency. The downside of that is that you get a lot of -- a lot more patient to patient variability than you would expect in a cultured Cell Therapy. But in aggregate, in our view, the benefits strongly outweigh the negatives because you have more potent cell population, you regulate it as a device, the cells are all autologous, in other words, they're not rejected, and you take away the cost structure of building a big plant to manufacture cells. The mechanisms of the cells are related to their ability to create blood supply in the fat tissue and that actually translates over into the heart. And that facet's preserved in our process.

That's an excellent answer. And by the way, the economics associated with this are obviously very compelling when you compare it to a manufactured product. But what I'd like to understand a little bit better would be, I'm aware that for example, that Baxter is pursuing a similar indication and it's obviously, a highly processed target cell population, enriched for a specific cell type, I think in their case, CD 34. And so I'm just wondering, if you're not sorting, if you're not enriching from a volume point of view, how do you know what you're putting in to given ischemic heart?

It's a great question. And if you have to go back to the development program that we've been on for the last, almost 10 years in this field. And because we're a device, we've had to develop our device and reagent technology based on human fat tissue and so, we're -- we processed and tested over 3,000 patients -- of fat tissue over the course of the years. So by doing that, we developed verification and validation data around our device. So with all those patients, we know that if we take that tissue, put it in the device, I can tell you with a statistical certainty, what kind of cells we can get, what the distribution of those cells are around the mean with a standard deviation, and then what, and can tell you some of the key differences between patients that are male versus female, old versus young, smokers, non-smokers, diabetics and so forth. So all that's built into not only our device development program, but it's built into the software and it's built into our clinical therapy protocols. So while, just like with an aspirin, there's a good chance if you take an aspirin, your headache's going to go away. But there's about a 20%, 30% of a chance it won't impact your headache. And so we -- we're still subject to that dynamic in terms of the variability of these cells and their impact when you put back into the patient. And that's the purpose of the clinical trial: To show that we can do better even with this mixed cell population than standard of care.

One last question, you talked a little bit about the fact that it's likely we might see a partner or a license deal. Can you give us any idea of what indications out there look very attractive in the marketplace?

Jason, it's Chris. So let me start by saying that we, and by we, I mean collectively the board and management, realize the importance of completing one of these active partnerships as soon as possible. As I noted earlier, there's more activity and interest and real tangible deal processes going on than we've ever seen before. And while we have many more discussions that are going on, there are really 7 distinct deal processes that are underway, currently. And to provide some color on that, now I can't go into too much detail, but I think I can give you more color. It includes approximately 3 large Pharma companies, a medical device company, 2 government groups and at least one philanthropic organization. So we're talking a variety of people. They also represent organizations from around the world. There's some that are in Europe, some that are in Asia and some that are here in the U.S. So it's really looking at deals globally. As you asked specifically, the opportunities range as well, and these include core and noncore indications, both regional and global focused type deals and now, including several that are really new areas and these are areas beyond things that have either been clinically treated or that we have even discussed today. So there's even some new things that people are interested in that we think the technology could be very powerful at. So when I think when you kind of hear all of that, it sounds like a lot of opportunistic effort that's going on. But I would say, that it really reflects what we know and seen the technology that the application of these ADRCs are broad, significant, they're big markets and it's far-reaching. I guess you could say, it's really the quintessential platform technology. So now with all of that, how do we get something done? So while we continue to move kind of each of these through -- toward success, the management team is intensely focused on the 2 that are the furthest along, and while I can't say exactly, which date we're going to get one of these things completed, to be clear, it's my highest priority, and we're working expeditiously to get one of these things done as soon as possible, so we understand the priority, and we understand the importance and we're really working to get this thing done. And I'd also say that we're very confident that we're going to deliver one of these in the very near term. So hopefully that gives you an idea of kind of the range of things that we're talking to people about around the world and there's interest in a lot of different indications. But there's a couple that are really very close, and we're focused on getting those done.

We'll take our next question from Ken Arnold with Merrill Lynch.

I have a question on the change in the protocol, in the ADVANCE trial. You stated in the shareholder letter, you're going to more of a single-dose versus a standard of care control design. Can you maybe expand in that, those further, please?

Ken, as I said earlier, the principal reasons for going back and amending the trial in the protocol are the regulatory issues, but that's created a, the time window that we can go back and look at some of the areas of the trial to try to speed it up, better manage the cost and end up, at the end of the day, derisk it as much as we can. So keep our eye on the ball, which is to get regulatory approval. But one of the things that we've, since the trial was planned, is kind of, to keep track of the clinical and scientific data that's coming out of other trials and in the field. And we think that we can achieve our objective, which is to get claims without the second dose, so we can effectively have a one-dose trial. We think that the trade-offs are in our favor to doing that. The -- an added dose is in some way a hedge, this isn't a dosing study, or a Phase II b, it really is a pivotal study, we were, we've been, kind of struggling over whether to study 2 doses or a single-dose in this trial from the get-go, but kind of reading the data, some meta-analysis in the field with data from other companies with accomplished trials. We think we can get where we need to go, and with a lower risk in this trial by going to a single-dose, which is 20 million cells in a 2 to 1 randomization against standard of care.

So you're going to go with one dose and a smaller dose versus the larger escalate?

Yes, we're going with the smaller dose, the original trial had a dose escalation that went up from the 20 million up to 30 million or 50% increase. So we're going with the 20 million cells, which is what was shown to show a strong efficacy indication in the APOLLO study.

So it's kind of contrary to the standard form of trials we see, where we try to get them the highest dose for efficacy.

Right. Well this isn't a pharma trial, this is a therapy trial.

As compared to a pharma trial, we should look at it differently?

Exactly.

We'll take our next question from Buzzy Norman [ph] with Thompson Davis Asset Management.

Chris made a comment about the medical technology assessment application for breast reconstruction. And could you expand a little bit on that or explain it? And any implications should we get a favorable review on this process?

Buzzy, I'm going to let Clyde Shores answer this one.

Sure. Yes. This is a significant milestone for us in the publication of the RESTORE 2 data, because it validates the technology, the safety and efficacy in breast reconstruction, but it was a key piece that we needed to go ahead with the impact submission, which as you know is the medical technology assessment committee of NICE, of the NHS in the U.K. And really, there are 2 key things about this. One is that it helps us progress formally, toward getting that formal reimbursement, and toward validating the technology in the U.K. market. But it also, is really much broader than that, it's a proxy for a cost effective and innovative therapy that improves patient care versus the standard of care for breast reconstruction today, which is either flaps or increasingly, it's serial fat grafting, and that's growing at a very rapid pace. So with -- it could be impact submission and their approval of this technology, it will not only open up our market for us in the U.K. but that kind of proxy will also enable us to expand our market access in Europe, Canada, in many other countries around the world. So that the near-term implication, once we have that approval, will be increased sales and a movement towards getting formal reimbursement, which will really open up the market for us in that indication.

And we'll take our next question from Keith Singer with Keith Singer Wealth Management.

It seems like the technology of Cytori and the patents could be so valuable, yet the market cap's only $120 million, which, I guess must mean that the market is discounting the possibility that the company won't be able to execute before it runs out of money. I know you're working on some partnerships. Could you describe an ideal world that the kind of structure that an ideal partnership would to look like?

Keith, it's Chris. I would tell you that, you're kind of dialing in on some of the core things here, and I think that the intellectual property part is a major component of the due diligence and the interest from a lot of these companies. As you kind of watch the press and you're reading about all of the stuff going on around the world now with stem cells from fat. It's interesting, having been involved with Marc early on with this and watching it develop, that in the early days, when we'd go out and talk to people and scientists and venture capitalists and whoever, most of the time, we where laughed out if not thrown out of the room because it was so crazy, the business model was so different and our approach really broke all the paradigms. But today, what you see is, it's kind of becoming the most commonly reported on source of cells, both from clinical point of view, but also in the research world. So it's kind of becoming the go-to source for cells just because of the value of these cells, there's so many of them, and they're so easy to get and they're so powerful. I think the uniqueness here for us is that luckily, I met Marc early on, who was a smart enough to figure this out and begin patenting it back in the late '90s. And so we really have the earliest landmark IP in the field and now with 46 issued patents and that's growing significantly, and these patents are all pretty new, and I think our earliest patent dates only back 2, 3 years, Marc?

'08.

'08. So this is a fairly new patent portfolio, as you have got a long runway. So you're looking at pharma companies that are really struggling with patents that are expiring and technology that's going generic, I think there's a tremendous opportunity to see not only an emerging new segment in medicine, a new field, but one that has the kind of almost across-the-board protection that we think we've got, and a long runway for that IP. So now try to framing some deals around there, I think that thing, if you look at our history, we've executed partnerships. We had early, on a pretty big partnership, with Medtronic, we've had one with Olympus, we've had one with GE, Green Hospital, Senko, so it's not, we have created multiple partnerships over the years, but what we've done intentionally, and probably at some time to our almost to our own demise, was to protect our market rights, and we wanted to do that, to get the ball down the field until the value kind of caught up with what we think of as these different market opportunities. And we're getting closer to that. I mean, every day we have clarity on the regulatory pathway, more published data out there, and more clinical experience, I think that the validation of the technology and the business model in what we're doing goes up. So I agree, there is a mismatch in valuation, so it's probably a strong buy right now, there's an opportunity. But from a partnership point of view, I think that we want to focus partners on to particular indications and that could be geographically limited as well, so you might do a partnership just for America or just for Europe or just for Asia, for specific and probably not just…

Would it ever be feasible that you would say "well the one of the best thing to do is sell one of the technologies" to create funding for the rest of the company?

Yes, absolutely. I wouldn't count anything out. I mean, I if we have the right partnership we could, it gets a little bit messy, because you do have this core device and that's certainly contractable, I think we could figure out terms on that, but I think our ideal, and I guess in either way, you're going to get your value, either you're going to get it through a revenue sharing model and some milestones to fund the development work, or you're going to get a royalty type structure built. I think you ultimately end up capturing that value. We'd like to see the value, the technology moved as far downstream as possible, to maximize the shareholder value since we've really invested the last decade, bringing it to this point.

And we'll move on to our next question. [Operator Instructions] Our next question comes from Les Schulz from Schulz Capital Management.

Mark, when you were first talking about the potential capital, I mean the potential market size, I think you were mostly talking U.S., right?

Yes.

And so if you're talking worldwide, would it be something like 3 to 4x that?

Yes, I think, they're mind numbingly big numbers when you look at refractory heart failure and then you look at acute myocardial infarction. Now heart disease is the leading killer, to about 1/3 of the deaths worldwide. The number of patients with refractory heart failure is actually -- a difficult number to come up with any degree of certainty, but we think it's -- in the U.S. in the neighborhood of 250,000 patients a year in terms of incidents, and prevalences 10x that, and then heart attack is about -- in the neighborhood of 1 to 1 million and change per year in the U.S. and U.S., Europe, Japan are roughly equal in size. That gives you sort of a general overview of the market size. So this is, we're talking about $10 billion plus market.

Okay. Great. The other thing was, would, do you want to add some color to the heart partners that you have for your FDA?

Sorry, Les?

The clinical, the heart clinics that you're going to be working with.

Well, I think, I'll reiterate the key points that Chris made in that the trials approved for 5 sites, 35 patients, there are sites that are, that I would call clinical and stem cell cardiologist that have a well known a reputation built around moving Cell Therapy to the -- to clinical trials and in the market. But the 2 most well-known centers that are earliest in the that -- are early contributors to the trial in PIs are the -- in Minneapolis and in Houston, the Texas Heart Institute. There are another 4 sites that we have identified in the U.S. that are of equal stature in the field, and those will be coming online immediately following the sites in Minnesota and in Texas. And these are important bell weather sites and I would refer you to the web and the Medscape link that can be found by searching it, or you can call me and we'll illustrate the kinds of investigators that we have in the trial that are talking about the potential upside of our technology in the U.S. cardiovascular market to see the kinds of individuals and key opinion leaders that are on board.

We'll take our next question from Pete Welles with EGA.

Can you clarify the timing of the last financing if it was before or after March 31, 2012?

Pete, it's Mark Saad. The most recent financing was the equity commitment we had with Seaside and that commenced in the summertime of 2011 and we recently accelerated the termination of that at Cytori's discretion, so that has been completed and that raised an aggregate of about $18 million since of nonwarrant, pure, clean equity that was allowed to -- allowed us to positively modify our loan agreements and have a better standing now going to the partners discussions.

And was that accounting done as of March 31, 2012?

I believe that's correct. I believe there was one closing in early April of -- it would've been about 250,000 shares, but other than that, yes, it was complete as of the end of the quarter.

And we have no further telephone questions. However, we did receive an email question.

It's Marc Hedrick. We received a question regarding the EU approval for no option CMI refractory heart failure. The question is, how do you intend to monetize the approval? And do you have any related revenue projections that you can share? Let me start the question by reviewing the cardiovascular strategy, because for some, you see a European part of the strategy and you see this emerging U.S. part of a strategy, for 2 different cardiovascular indications. And the strategy itself might not be fully apparent. So from a near-term commercialization perspective, the strategy is really about heart failure, it's about these no options patients, the unmet medical need, the fact that there are aren't enough hearts to transplant and no good treatments for these patients. And so the reason we have the ADVANCE trial and the claims initiative going to a notified body, is the idea that we would marry the refractory heart failure claims with the 35 ADVANCE trial sites, that although they're for acute myocardial infarction, that pre-places, 30 plus systems around Europe, with physicians that are trained to use them, and strategically, we're making sure that they as many of them as possible, have the ability to deliver cells for the chronic indication. So if we can marry those 2, we think it really gives us a jumpstart on the commercial activity related to treating heart failure in Europe. And in the second part of the strategy, is in leveraging what we've done in the PRECISE study and our -- the risk-benefit ratio for the this very difficult patient that we've uncovered in our data in Europe, and in bringing that to U.S. where we think we have the opportunity, getting to our ATHENA trial and then into the pivotal trial to be first to market…

And we did have another telephone question queue up and we'll take that from Gregory Histon with OPCO.

I'm not sure if I'm pronouncing this correctly, but the Okyanos Institute has indicated they're going to start accepting and treating patients in August for the same no option patient population that you're going to be treating in the U.K. I'm just wondering how that dovetails with what you're going to be doing, will you have to include the data, the outcomes from their patient population? How do you monitor that? How that may affect applications you may later make in the U.S.? And then finally, whether you'd built anything into that $9 million revenue estimate that accounts for what success they may have in treating that population?

So you're referring to Okyanos in the Bahamas and our relationship with them, let me address your second question first. We have built in -- built that into our revenue assumptions and discounted that because there's uncertainty, both from a regulatory claims perspective and for the rate of enrollment. But yes, that particular thing is built into our revenue projection. I think from a regulatory perspective, obviously, the #1 goal is to protect what we're doing in the U.S., and we've got a great relationship with the FDA, we're moving quickly and we're strictly following FDA regulations. So that's #1. But we also have customers around the world and Okyanos is one of those that can legally acquire the technology and under the appropriate local regulations, treat patients as part of an IRB related study, as part of a registry or as part of full commercialization, as the Bahamas is more aligned with the U.K. and the CE Marking process rather than the U.S. So we think that it's entirely possible to have a successful, safe utility of the no option chronic ischemic therapy for patients in those areas where there is a clear regulatory path. That's why we're pursuing it so aggressively in the European Community, because we think the data supports the utility of those patients who are dying at 20% per year. There is no good option for these patients. It's the humane thing to do, to try to treat them and we think the data in aggregate shows that we can do it successfully, and customer partners, such as Okinos, we think are suited to be able to deliver that therapy in a U.S. high-level type of way.

No, I understand that, and I look forward to their success. I'm just wondering whether their data becomes part of any future submissions you make for that indication, and how the regulators would look at that.

Well, I think we can, and would like to take data like that as part of a registry. We think that, that helps build the database around the utility of the therapy for patients, and that would be our goal. It's to capture any of that data, not only in their -- whatever database that Okyanos or any other customer might have, but capture that data as much as we can into our data dossier and leverage that, not for Cytori shareholders, for enhanced regulatory approval, driving KOL adoption, driving studies and a more clear clinical benefit in the data behind that for our technology.

Are there any other institutes out there that are looking at similar ventures that you're aware of at this point?

Yes.

And at this time, we have no further questions. So I'd like to turn the conference back over to Chris Calhoun for any additional or closing remarks.

At the end of the day, we just want to thank everybody for their, for your time and support and all the great questions today. For the remainder of the year, we remain committed to executing across all 3 core areas of the business, that's advancing our cardiovascular disease pipeline, growing our commercial business and importantly, strengthening our balance sheet through strategic partnerships. Thank you all, and good day.

This does conclude today's conference. We thank you all for your participation.