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LifeCell: The Five Year Champion BY JOHN CHOPACK, JUNE 28, 2005

The allograft market has been extremely volatile during the last five years providing investors both short and long return opportunities. Five years ago the allograft soft tissue market was dominated by CryoLife which had a market capitalization of $300 million which skyrocketed to approximately $750 million in August of 2001. However, after contamination issues surfaced during 2002 the stock fell significantly and now has a market capitalization of $183 million representing a five year investor return of -0.4% and a -310% return since 2001. Similarly, Osteotech and Regeneration Technologies were the dominant public orthopedic hard tissue allograft players. Osteotech has returned -55% and Regeneration Technologies has returned -16% during the last five years. Tutogen, another allograft company has also struggled as late providing investors with a -59% return on their capital during the previous five years.

Then we have LifeCell which five years ago was the runt of the allograft market with the lowest market share of the five public allograft players. Five years later, LifeCell has a market capitalization of $450 million which is 2.5x higher then CryoLife which has the second highest public market valuation. More impressive is the fact that LifeCell has provided a steady increasing return during the last five years (see chart) with an accumulated five year return of an astonishing 600%.

LifeCell has been successful in dominating a very crowded biologic burn market and then focused its attention on the orthopedic space. It was successful in developing such innovative products as it's GraftJacket containing graft system and it's AlloCraft DBM. It has also established successful partnerships with Boston Scientific, Stryker Corp, Wright Medical and BioHorizons.

While it is difficult to predict what will happen in the next five years of the allograft market, we can provide our take on the market. We believe the entire allograft market will continue to come under pressure from the synthetic market as biotechnological advancements continue to improve efficacy of these types of products. It will be up to companies such as LifeCell to develop novel applications of its tissue products in order to maintain market share. Another strategic move will be to transition from OEM tissue suppliers to distribution companies. One company that seems ahead of the curve in making this transition is Regeneration Technologies which has experienced extremely volatile revenues as a consequence of Medtronic's inventory management. By building its own distribution network and proprietary product line, Regeneration Technologies hopes to control its own revenue growth, and destiny. Building a distribution network and separate product line is the right strategic move but may be a little late.

We congratulate LifeCell and encourage our readers to provide any feedback.