LifeCell Corporation

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LifeCell Corporation

1 Millennium Way
Branchburg, New Jersey 08876
U.S.A.
Telephone: (908) 947-1100
Toll Free: (800) 367-5737
Fax: (908) 947-1200
Web site: http://www.lifecell.com

Public Company
Incorporated: 1986
Employees: 196
Sales: $61.1 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: LIFC
NAIC: 541710 Research and Development in the Physical Sciences and Engineering Sciences

LifeCell Corporation develops and markets products made from human tissue that are used in a variety of surgical procedures related to grafting and transplantation. The company's patented tissue-processing technology produces a regenerative tissue matrix that can be used in periodontal procedures, urologic and gynecologic procedures, and in plastic reconstructive, general surgical, and burn applications. The company's products, marketed under the names "AlloDerm," "Cymetra," "Repliform," "GraftJacket," and "AlloCraft," grew out of technology developed at The University of Texas Health Science Center in Houston, Texas. The company's first product, AlloDerm, has been used in more than 750,000 grafts and implants. LifeCell's tissue regeneration products are sold in the United States and internationally through distributors.

ORIGINS

LifeCell owed its existence, in part, to a change in policy effected by the Board of Regents of the University of Texas, who for years had prohibited its employees to profit from research conducted under the aegis of the university. In 1986, the board made an exception to the rule, allowing two of its researchers at The University of Texas Health Science Center in Houston to take a stake in a commercial venture that their research efforts helped to create. For its part, the University of Texas gained a 10 percent stake in the venture, a company named LifeCell to which The Board of Regents gave exclusive license to manufacture and market advanced technology developed by Dr. John Linner and his colleague, Dr. Stephen Livesey. For their part, Linner and Livesey took an equity position in LifeCell as well, spearheading the formation of what would become the first Houston-based biotechnology company to put a product on the open market.

While working at the Health Science Center, Linner and Livesey focused their research efforts on the field of cryobiology, the study of the use and effects of extremely low temperatures on living organisms. Specifically, the pair sought to avoid the structural and biochemical damages caused by traditional cell preservation methods, such as freeze-drying, which formed ice crystals that damaged cells. Linner and Livesey made significant strides in advancing cryobiological technol-ogy, developing a patented process that involved a rapid, ultra-cooling system coupled with a molecular dryer that removed the remaining vapor, enabling the preservation of cells and, by extension, tissues. LifeCell acquired the rights to the process, a technology it intended to market to medical schools, hospitals and pathology laboratories, pharmaceutical companies, and to the tissue and organ transplant market. Linner, for example, had developed a method for preserving and regenerating corneas for transplantation by the time LifeCell was commencing operations.

As with any biotechnology start-up, the road ahead for LifeCell promised to include years of financial uncertainty. The company had a process, not a product, to market, a shortcoming that meant annual revenues would be outstripped by annual losses as the company endeavored to turn pioneering work into a marketable product. To shepherd the company through the bleak financial years ahead, Paul M. Frison was chosen, a veteran of the healthcare industry who brought with him more than two decades of experience as a senior executive. He spent 13 years working for American Hospital Supply Corporation, directing the company's corporate activities in Latin America and Western Europe. Next, he joined LifeMark Corporation, a Houston-based hospital management concern where he served as president, chief operating officer, and a director until 1984. During the two-year period between leaving LifeMark and joining LifeCell, he served as chairman, chief executive officer, and president of ComputerCraft, Inc., titles he would hold at LifeCell. Frison, as he guided LifeCell through its critical first years of development, would be forced to rely on private sales of equity securities, nominal funds from venture capitalists, and government grants to keep the company financially solvent.

Under Frison's stewardship, LifeCell's small scientific staff focused on two broad fields of commercial use, tissue transplantation and blood cell preservation. Federal grants, which began being awarded to the company by the end of the 1980s, highlighted some of the work being performed at LifeCell's headquarters in The Woodlands, north of Houston. In January 1990, the company received its fourth research grant within the year, a grant awarded by the National, Heart, Lung and Blood Institution to develop a method of preserving heart valves for transplantation. LifeCell, which received $50,000 from the contract, also was conducting federally funded research into the preservation of human blood, skin, and cultured mammalian cells. Later in the year, the company was awarded a $500,000 grant from the U.S. Department of Defense to continue development on a method to preserve and store human blood at room temperature for extended periods.

Aside from its research work, LifeCell leveraged its technology and expertise to make its living in other ways. The company earned money from selling equipment designed to preserve tissue samples, relying on Phillips Electronic Instruments Co. to distribute the equipment in the United States and Bio-Rad Micro-sciences Ltd. to conduct distribution in Europe. In 1990, the company's equipment-selling business gained the support of an important partner when an agreement was signed with a major Japanese trading company, Nissei Sangyo Co. Ltd. Under the terms of the deal, Nissei Sangyo agreed to market LifeCell's equipment in Japan, opening up an important new market for the company. Frison, in a June 11, 1990 interview with the Houston Business Journal, commented on the significance of the distribution agreement. "Nissei Sangyo's strong market presence," he said, "will increase usage and acceptance of LifeCell equipment in Japan, where the market for electron microscopy and cryopreservation is at least as large as in the United States."

COMPANY PERSPECTIVES

Our mission is to continually expand our offerings with first-in-class products that are distinctly different—and superior—to anything available on the market. Toward this end, we are not only leveraging our existing proprietary technology to develop products that enhance the matrix, but we are also exploring how LifeCell can expand into new realms of biosurgery to provide surgeons a full complement of biologically based products that expedite the body's ability to fully heal. Above all, however, our research efforts are always grounded in our commitment to develop products and applications that fulfill a significant unmet clinical need, so that we can give surgeons and their patients real hope for recovery in cases where few, if any, options exist today.

FIRST PRODUCT DEBUTS IN 1993

As LifeCell eked out a living during the developmental phase of its existence, all expectations for future financial vitality were pinned to the day when the company put its first product on the market. Revenue totaled a paltry $239,102 in 1992, the year LifeCell completed its initial public offering (IPO) of stock, but the debut of the company's product was near, fueling hope that the company soon would generate exponentially larger sums of revenue. Commercial distribution of the company's first product commenced in December 1993, when AlloDerm, a human dermal graft, was introduced to the market.

A landmark achievement for the seven-year-old venture and the first product to be sold by a Houston-based biotechnology firm, AlloDerm initially was targeted for patients with third-degree burns or severe second-degree burns requiring skin grafting. AlloDerm consisted of specially processed skin from organ donors, which was used as an alternative to a patient's skin for grafting in extreme burn cases, a capability that no other company could claim to offer. LifeCell was one of only three or four companies competing in the burn treatment field, and the only one to have progressed beyond the clinical trial stage to sell a skin replacement product on the open market. Frison, after seven years of waiting for the moment, at last possessed a product capable of commercial success. "We knew we had identified a major product that answered a critical need in the wound healing arena," he explained in a March 21, 1994 interview with the Houston Business Journal. "We had been sufficiently shown that we had an answer, if fully developed, that almost assuredly would answer the need in a very, very big market. Competition was somewhere between minimal and non-existent."

AlloDerm gave LifeCell a product to rally around. Developing a commercial product represented only part of the battle, however. Financial success hinged on effectively marketing the product, on educating the medical community about the novel qualities of AlloDerm and promoting its embrace by doctors and surgeons. Frison, having penetrated the commercial marketplace by presenting AlloDerm as a product to treat burn victims, soon began to market the product for other uses, thereby expanding AlloDerm's potential customer base. In September 1995, LifeCell began marketing AlloDerm to periodontists, promoting the use of the tissue graft in periodontal surgery. Subsequently, periodontal surgeons began using AlloDerm to increase the amount of attached gum tissue supporting the teeth, eliminating the need to excise tissue from the roof of the patient's mouth. AlloDerm also was used in periodontal procedures for covering exposed tooth roots. One month after marketing efforts began targeting periodontal surgeons, LifeCell began courting reconstructive plastic surgeons, promoting AlloDerm's use as a soft tissue implant in a variety of procedures such as head and neck aesthetic surgeries, cancer reconstruction, and scar revision.

Despite an expanding potential customer base and nominal competitive pressure, AlloDerm did not deliver immediate financial salvation to LifeCell. Revenues increased substantially, jumping from $816,615 in 1994 to nearly $8 million in 1998, but losses during the period ranged from $3 million to $7 million annually, totaling more than $25 million. The period represented the last years of Frison's day-to-day control over the company, a transition in leadership that passed the reins to Paul G. Thomas, who assumed the responsibilities of president and chief executive officer in October 1998. (Frison stayed on as chairman until Thomas was elected to the office in June 1999.)

Thomas, who earned postgraduate degrees in business and chemistry, joined LifeCell after serving as president of the pharmaceutical products division of Ohmeda, Inc., a global competitor in the anesthetics and acute-care pharmaceuticals markets. Thomas took charge of a company that was struggling financially, but making encouraging progress. The year he took the helm, LifeCell estimated AlloDerm had been transplanted in more than 40,000 patients. Under Thomas's control, AlloDerm's use would increase substantially, as the applications of its use expanded and a greater percentage of the medical community turned to the company's tissue-regenerating technology to complete a variety of surgical procedures.

KEY DATES

1986:: LifeCell is formed as a technology transfer spinoff of the University of Texas.
1992:: The company completes its initial public offering of stock.
1993:: Commercial distribution of AlloDerm begins in December, at first marketed for use in treating burn patients.
1995:: LifeCell begins marketing AlloDerm to periodontal and reconstructive plastic surgeons.
1999:: LifeCell moves its head offices from Texas to New Jersey; Repliform and Cymetra are introduced.
2002:: GraftJacket is introduced for use in orthopedic surgical procedures.
2004:: Revenues exceed $60 million and the company records its third consecutive year of profits.

Not long after Thomas joined the company, LifeCell announced it was moving its headquarters. In 1999, the company began moving its operations to Branchburg, New Jersey, making the geographic leap to place itself in the center of activity related to its field of work. New Jersey was home to 15 of the 20 largest pharmaceutical companies in the country and the state chosen as the headquarters location for 100 biotechnology companies. "The move to New Jersey will allow us to access a very large pool of folks with experience in the commercialization of healthcare products," Thomas explained in a June 11, 1999, interview with the Houston Business Journal. "I think this is an important phase for LifeCell," he added. Indeed, the year of the company's relocation also marked the debut of two new brand names for products incorporating LifeCell's proprietary technology. Since 1997, some surgeons had been using AlloDerm for surgical procedures in the fields of urology and gynecology, which prompted the company to introduce Repliform as the brand name for a tissue-processing product tailored for the urology and gynecology markets. In December 1999, in another branding effort, the company introduced Cymetra, a form of AlloDerm developed for plastic and reconstructive surgeons, as well as for the dermatology market.

A PROFITABLE START TO THE 21ST CENTURY

After years of enduring financial hardship, LifeCell began to demonstrate financial strength as it neared its 20th anniversary. The company registered a $9 million loss in 1999 and a combined loss of another $9 million between 2000 and 2001, but the string of consecutive annual losses, which stretched back to the company's inception, ended in 2001. The company reported a $1.4 million profit in 2002, the year it introduced GraftJacket for use in orthopedic surgical procedures. Revenues, meanwhile, had begun to increase steadily, climbing from $12.6 million in 1999 to $34.4 million in 2002. Underpinning the company's financial vitality was the growing acceptance of its AlloDerm family of products, whose use had proliferated during Thomas's first five years in charge. By 2004, LifeCell estimated that AlloDerm had been used in more than 750,000 grafts and implants, exponentially more than the estimate of 40,000 such uses in 1999. The increasing demand for AlloDerm, particularly for hernia-repair procedures midway through the decade, fueled the company's financial growth, driving revenues from $40.2 million in 2003 to $61.1 million in 2004 and yielding nearly $26 million in profits during the two-year span. Looking ahead, the company was confident that the greater use of AlloDerm and the development of additional products that used LifeCell's tissue-processing technology would continue to generate positive financial results.