Marc Hedrick - President and CEO John Harris - VP, and General Manager, Cell Therapy Tiago Girao - CFO and CAO.

Jason Kolbert - Maxim Andrew D'Silva - B. Riley.

Good afternoon, ladies and gentlemen. Welcome to the Cytori Therapeutics’ Fourth Quarter and Full Year 2016 Earnings Results Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.

[Operator Instructions] Before we begin, we want to advise you that over the course of the call and question-and-answer session, forward-looking statements will be made regarding events, trends, business prospects and financial performance, which may affect Cytori’s future operating results and financial position.

All such statements are subject to risks and uncertainties, including the risks and uncertainties described under the Risk Factors section, included in Cytori’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission from time-to-time.

Cytori advises you to review these risk factors in considering such statements. Cytori assumes no responsibility to update or revise any forward-looking statements to reflect events, trends or circumstances after the date they are made. It is now my pleasure to turn the floor over to, Dr. Marc Hedrick, Cytori’s President and Chief Executive Officer.

Sir, you may begin..

Thank you, Paula, and good afternoon everyone. Welcome to our fourth quarter yearend 2016 earnings call. My name is Marc Hedrick, President and CEO of Cytori. Joining me on the call today is our Chief Financial Officer, Tiago Girão; and our Vice President and General Manager of Cell Therapy, Mr. John Harris.

Let me briefly review the agenda for today's call. First, I'll give you an update on pipeline progress, including key updates on Cytori's Cell Therapy technology as well as our nanomedicine program. Secondly, John will discuss the commercial related activities and performance.

Tiago will then update on our financial performance, and then we'll have Q&A, at which time I'll review key forthcoming milestones. So let's start off with cell therapy. So as I mentioned earlier this year, we christened our ECCS-50 product as Habeo, which was being developed initially for scleroderma.

But going forward it's our intention to position it more broadly for the treatment of autoimmune conditions affecting the hand. In late Q2 we enrolled the 88th patient in the STAR U.S. scleroderma trial for ECCS-50, now Habeo.

In Q4 we presented preliminary results of the blinded data from the STAR trial at the American College of Rheumatology Meeting in Washington D.C. We continue to follow these patients as planned. The full 12-month data log statistical analysis and readout in STAR is on track is expected in early Q3 2017.

We also presented top line 36-month data from the pilot trial SCLERADEC-1. We showed a persistent clinical effect after 36 months that was consistent with the 24-month data recently published in Q4. Effects on Raynaud symptoms seemed to persist, which was an interesting finding in the 36-month follow-up.

10 out of the 12 patients reported no episodes in the RCFs instrument in the prior week at 36-month time point. In Q4 we received U.S.

FDA orphan status approval for the treatment of scleroderma using the cryopreserved version of Habeo cell therapy; and this complemented the Q2 EU orphan approval for Habeo, which is independent of formulation in, other words cryorefresh. It's covered under that orphan approval.

As planned in 2016, we applied for and received scientific advice from EMA on key questions regarding the approval pathway for Habeo in Europe. Based on the feedback, our plan is unchanged.

We're going to rely primarily on the 88 patient STAR trial coupled with the SCLERADEC-1 pilot data, and up to 45 patients in the EU investigative initiative study called SCLERADEC-2. As mentioned previously, that study is enrolling slower than planned and we're working with the PI to complete that as soon as possible.

Now in 2017, based on promising data from our SCLERADEC pilot trial, we are presently exploring the use of Habeo for secondary Raynaud's, founded a number of autoimmune and inflammatory conditions outside of scleroderma as an potential independent indication for use. Discussion with KOLs and internal preclinical evaluation is ongoing.

If that supports moving forward, we intend to file for IDE later this year pending the outcome of the previously mentioned activities.

Switching to our BARDA related program; the FDA IDE filing for the RELIEF trial as it'll be known for the safety and feasibility of adipose-derived regenerative cells in the treatment of deep partial thickness and full thickness thermal wounds was filed in Q4 2016 as planned.

A $2.5 million BARDA contract option extension approved in 2016 is scheduled to end in April. Negotiations to extend the contract beyond its original term, incorporating the clinical option exercise which would fund the RELIEF trial are ongoing.

FDA feedback on the RELIEF IDE trial has been received; their questions have been answered and the plan remains to have first patient in on the RELIEF trial in 2017. Now, switching to our clinical and other activities in Japan; earlier this month Cytori held a prominent position at Japan's premier meeting for regenerative medicine.

That's called the JSRM or the Japanese Society of Regenerative Medicine, which met in Sendai just this month. A number of public updates and presentations were given regarding clinical studies using Cytori technology, facilitated by the newly approved regenerative medicine law. Things that are most relevant for shareholders are two studies.

One is urinary incontinence and the PI for that trail, of the ADRESU trails as it's been called has reported that the ADRESU trial which as I mentioned before is primarily funded by MHLW continues to enroll at all sites and is on track to complete enrollment in 2017, and we anticipate completing the clinical study reporter CSR in 2018. Also Dr.

Salazumi [ph] reported more detail on his parent institution's intention, that is a cancer Ariake to perform a trial for Cytori Cell Therapy for breast reconstruction.

Their trail protocol remains under discussion with regulatory authorities and we'll provide updates when finalized in terms of the protocol and when we are so informed by the institution.

Otherwise, a number of other new clinical studies had been approved or under active review under the new regenerative medicine law, which was fully implemented in late 2015.

Our plan is to be selective on these calls and with shareholders in terms of how we discuss these and focus only on those that we believe can meaningfully impact the company, such as creating an expanded path for product approval reimbursement or that drive meaningful sales under the early access provisions in the new regenerative medicine law in Japan.

And this point touches on a key point that the John Harris will bring out more completely later, and that’s a more complete articulation of our plan to bridge from some of the early access approaches and those provisions that are in Japan and Europe and elsewhere to a more therapeutically or entered approach to the market, as detected by approval for an orphaned therapeutic such as we're planning in the U.S.

and Europe. So now let me pivot over to the discussion of what's going in terms of nano-medicine program. As I mentioned in January, we announced the close of our acquisition of Azaya therapeutics.

Cytori identified in Azaya a unique and compelling opportunity to build on our late state cell therapy platform and develop next generation regenerative medicine therapies, which are currently in early development. But we also added two clinical stage drugs to our pipeline.

The compound farthest along in clinical development is the chemotherapeutic ATI 0918. Generic nano-particle liposomal formulations of doxorubicin are used commonly for four indications in breast cancer, ovarian cancer, multiple myeloma and [indiscernible].

ATI0918 has successfully completed the required bio equivalency clinical evaluation and has been shown in ovarian cancer patients to be bioequivalent to Calyx, the reference listed drug in Europe. The in-house manufacturing of the O918 is an important part of the overall value equation for us.

Currently marketed complex generic formulations of doxorubicin have experienced supply disruptions due to manufacturing challenges and facilities both inside and outside the U.S.

Cytori intends to manufacture 0918 in our acquired Texas facility, capable of providing a reliable and sufficient supply to meet to global market demand in this and similar drugs. As we mentioned, but I'll summarize here, what's the commercial opportunity with respect to this 0918 product.

According to independent industry research, the doxorubicin market is expected to grow to approximately $1.4 billion worldwide by 2024, and notably has been underserved in recent years and is forecasted to continue to be so. And this contributes to the positive revenue outlook that we forecast for this product, if approved.

The commercial plan is to seek EU approval initially and commercialize to a partner. We know of no currently available generic versions of liposomal doxorubicin on the market in Europe. The timeline in Europe is that we currently estimate we will have 0918 manufactured and ready for EMA submission in 2018.

In the U.S., Cytori will be communicating with the FDA as soon as possible to clarify whether a new BE trial, bio equivalency trial will be required in the U.S. or if the current trial may be of sufficient strength for approval under bio equivalency in the U.S. Outside of the U.S.

and Europe, Cytori believes there are substantial commercial partnering opportunities for 0918 in regions outside, including the broader Asia-Pacific regions that we are exploring these currently. In many of these countries, Calyx, to which we are bioequivalent is a reference drug.

The second compound in the acquired portfolio is ATI-1123, which is a patented nanoparticle stabilized liposomal formulation of Docetaxel.

Docetaxel as I briefed you in our previous call in January has various branded versions but has been commonly used in profitable chemotherapy for years, and the 1123 product represents unique patented reformulation for potential next generation versions that may have clear advantages over Docetaxel alone.

Our approach is going to be conservative for this product. We're going to build upon the completed phase 1 study and complete our ongoing analysis of the clinical and market opportunities for this drug. We believe it's promising but further study is warranted, and we intend to discuss that plan in further detail when finalized.

Now I'll turn the call over to John Harris to discuss our commercial activities.

John?.

Thanks Mark. It's pleasure to be with you all today and I'm happy to be joining with my colleagues in San Diego in person for the first time for this call. Today I have four main topics I'd like to address. First is our 2016 results. Second, I'll provide some detail on our top commercial market, Japan.

Third, I'll provide a few other high level details outside of Japan, and then finally I'll conclude with some of our key 2017 commercial goals. Now for the results; for the full year, global product revenue in 2016 was basically flat to slightly down, at $4.7 million as compared to $4.8 million in 2015.

Despite challenges in Europe and Asia-Pacific, product revenue was within our guidance levels through increased revenue in Japan which was up nearly 40% over 2015. I will address some of the Japan specifics later in this call.

Our challenges in Europe are mainly due to slower than expected profits of establishing sources of funding for the treatment of Scleroderma through our Managed Accessed Program or MAP. We anticipate commencement of patient treatment in 2017 but it's taking more time.

As for Asia-Pacific, we did not have any sales in 2016 to alarm [ph] vascular, and the discussions of restructuring alarm's [ph] obligations and our rights under the agreement continue. The growth trends we have seen in Japan for consumables is encouraging. Consumables grew from 2014 to 2015 at the 127%.

And then the growth rate continued in 2015 to 2016 at nearly 80%. In fact, the ratio of consumables, the capital equipment revenue in Japan is approaching 50-50. We attribute this to our investments and infrastructure over the years, the stable regulatory environment beginning in late 2014.

Speaking of Japan, with our growing user base, and increasing utilization trends, Cytori will continue to invest our footprint there to maximize our opportunities following areas. The [indiscernible] and breasts, osteoarthritis of the knee, will also support multiple investigator initiated studies.

Osteoarthritis continues to be a growth driver in Japan, where there are now five facilities either approved or in the process of approval under the regenerative medicine law following this in the past 12 months. Now along with patient driven word of mouth, we had seen immediate interest in these facilities further driving market expansion.

Our outreach in Japan is not limited to knee osteoarthritis as Marc indicated in his comments earlier. Cytori had a high-profile presence at the Japan society of generative medicine earlier this month. This Congress was attended by thousands of clinicians and Cytori led a regenerative medicine panel discussion along with two post-recession.

Our presence drove multiple sales leads, further cemented our status as a leader in the Japanese regenerative medicine market. While we benefit from Japan’s revenue and the resulting gross profit, we also get real time feedback from our customers on our system, which helps us optimize our products.

Given a long track record in Japan, where quality consciousness is extremely high, we value of the feedback from Japanese customers, which supports our technology as we approach potential market launches in U.S. and EU for Habeo over the next one to two years.

I want to transition and talk a little bit of some of the high level strategic points in markets outside of Japan.

In 2016 we'll begin a deliberate process of transitioning many of the device based research markets in which some of our technology may still be commercially available, mostly in the EU, via the CE Mark to an orphan disease oriented approach, separation for the future launch of Habeo Cell Therapy.

Our CE Mark approval as a device is one reason why we have commercial flexibility in certain markets both in the EU and elsewhere. However, in the EU, the Habeo product will likely be subject to approval as an ATMP or Advanced Tissue Medicinal Product under an orphan drug designation.

As we transition to this ATMP framework, we have made and will continue to make changes to our clinical emphasis, marketing efforts, product availability and pricing. Our efforts have driven interest from doctors and technology, as well as some of our existing users who are choosing patients with scleroderma of the hand.

That interest has generated a small, but growing number of patients in several markets the past year, who have increased access to Cytori technology for the treatment of their scleroderma outside the STAR and SCLERADEC-2 clinical trials.

As we make this commercial transition, we intend to continue to support this ethical access and seek to increasingly funnel existing and new users of our technology into a broadened managed access program in several countries with its goal of early ethical access to needy patients with scleroderma.

So let me conclude my remarks of a call today with talking about our 2017 goals, and 2017 is an important year for Cytori Therapeutics, and our goal are designed to position Cytori Therapeutics for commercial success when Habeo cell therapy launches in the West and the European Union.

Our five primary commercial activities for 2017 are as follows; one, in the U.S.

PMA preparation, reimbursement positioning and market readiness for Habeo; two, continued efforts to drive market development and awareness for Habeo through multiple efforts including MAP; three, driving consumable utilization in Japan with existing customers; four, new device installations; and five, market development and partner outreach for ATI-O918 in the EU as a priority and then through other ROW markets opportunistically.

I'm excited about our prospects in 2017, and look forward to sharing our progress with you in subsequent earnings calls. Now I'd like to hand off to our CFO, who will walk you through the specifics of our financial results.

Tiago?.

Thank you, John and good afternoon everyone. Our corporate priority and fundamental driver of stockholder value is consistent, focused in expedition development of our late-stage clinical pipeline, and related commercial preparatory activities.

In parallel, we seek to widely invest across the various opportunities, carefully managing our resources and work hard each day to improve our operating performance. We've reduced operating cash burn to $4.2 million in Q4, 2016, as compared to $4.6 million last quarter and $4.5 million in Q4, of 2015. Simultaneously, we improved our net loss.

When adjusted for non-cash charges related to changes in fair value of warrant liability, net loss was $4.9 million in Q4, 2016, as compared to $5.4 million in both Q4 of '15 and Q3 of 2016. On a yearly basis, our operating cash burn was reduced to $19.5 million in 2016, as compared to $20.5 million in fiscal 2015.

The reduction in cash burn was largely related to expense reductions in headcount and discretionary spend, somewhat offset by working capital impacts.

Our 2016 net loss was $22 million, as compared to $26.4 million in 2015, after adjusting for non-cash charges related to the fair value of warrant liability and a beneficial conversion feature related to series A preferred stock. That is a decrease of approximately 20% year-over-year. I will provide guidance related to 2017 later on this call.

Specifically regarding to research and development expenses, in 2016, excluding share based compensation, R&D expense was $15.8 million, versus approximately $18.4 million in 2015. The decrease in R&D expense from 2016 to 2015 is primarily related to the completion of enrollment, the phase II ACT-OA and the Phase III STAR clinical trials.

As a percentage of overall spend, our R&D spend was for 2016, was approximately 58% of total operating expense. That is when excluding share based compensation. This is in line with our plans, and indicative of our focus in late-stage clinical programs.

Our sales and marketing activities and related expenses in 2016 extended in two important activities, one, extended preclinical activities in the U.S., precommercial activities in the U.S.

and Europe for Habeo cell therapy, such as market analysis, reimbursement planning, pricing and quarterly strategy and payer discussions; and two, incremental investments to develop a longer range growth plan for Japan following the implementation of the new regenerative medicine law, which was released in late 2014 and effective in late 2015.

In aggregate, the increased spend was approximately $800,000 or $3.4 million in 2016, compared to $2.6 million in 2015. G&A expense, excluding share based compensation was $8 million as compared to $8.5 million in 2015.

The continued tightening of G&A expenses was related primarily to reduction in salaries and benefits, professional services and discretionary spend. Now, on our revenues; 2016 total revenues were $11.4 million as compared to $11.7 million in 2015 and were in line with our overall revenue guidance range of $11 million to $13 million for 2016.

Product revenues were $4.7 million in 2016, compared to $4.8 million in 2015. Deferred revenues showed a substantial revenue growth up almost 40% from 2015.

However, this growth was offset by a decrease in product revenues from Asia Pacific sites, largely to a lack of 2016 orders from our licensee Lorem Vascular, and a decrease in Europe as we shift away from less profitable and research sales as part of our focusing on MAP programs, both highlighted by John earlier.

Government contract revenues relate to our activity supported by BARDA, and resulted in $6.7 million in 2016 which is relatively consistent with the $6.8 million generated in 2015. Now turning to our balance sheet; at December 31st, we ended the year with $12.6 million of cash and $17.7 million in debt.

We recently put in place an equity line facility that we expect to be available to us in Q2. This equity line allows us to draw up to $20 million and this coupled with our ATM facility is part of our strategy to increase our optionality and raise funds in a less dilutive way.

We [indiscernible] ongoing capital requirements through a number of targeted activities that include further operational efficiency measures; tightened working capital management; increased revenue, accessing the capital markets via equity issuances but with an intense focus on only those activities that we believe will maximize stockholder value creation such as business development opportunities.

With respect to 2017 financial guidance, our 2017 guidance reflects an increasing spend over 2016; as it relates to investments to prepare for a planned PMA FDA filing later in the year for Habeo cell therapy and plan the investments through manufacturing and bringing ATI-0918 to market as discussed by Marc earlier on this call.

And as a result, we expect operating cash burn to range from $26 million to $29 million in 2017, with a good number of planned activities being triggered by the STAR data readout in early Q3 2017. Further, as in 2016, revenues in 2017 will result from a mix of contract and product revenues.

Contract revenues will depend on final renegotiations with BARDA in the first half of 2017, regarding their potential funding of our thermal burn trial and product revenues should reflect at least a double digit consumable growth in Japan. With that, I'll turn over the call back to Dr. Hedrick..

Thank you very much Tiago. Paula, we'll now turn the call over to any questions. .

[Operator Instructions] Your first question comes from Jason Kolbert of Maxim..

There are three areas that I'd like to focus on. One, I'd like to better understand kind of what you're talking about with the Azaya manufacturing in Texas and how that relates to your ability to kind file both in the U.S. and then Europe.

And two, I'd like to understand a little bit about moving beyond Raynaud's syndrome and scleroderma and kind of what steps you have to do to effectively get there. And three, in terms of a U.S.

filing around the Azaya acquisition, you were talking a little bit about the competitive landscape and the competitor drug, and I'd like to better understand that area with a little bit more detail. And then I'll come back with some financial questions for Tiago, if that’s okay. .

Sure, Jason thanks. So let me start with a question around manufacturing. The manufacturing challenges with related drugs, they are not difficult. They are difficult drugs to make, and that's why they are called complex generics.

Azaya, during our due diligence has showed a lot of -- a significant ability to manufacture these drugs at a high level of quality, and have IP related to the in process validation of those products during the manufacturing process, which we were impressed with.

They’ve also run two clinical studies, that Phase 1 and a BE study on the doxorubicin product. And so we were very impressed as we did our due-diligence. So they have the ability to process wise and procedure wise and quality wise to make these drugs successfully for commercial use.

The second component is they have a brand new facility, and this facility is at the highest quality and has sufficient bandwidth to be able to meet the forecasted demand for the product, not just in Europe but in the U.S. and in Asia Pacific. So that’s an important piece of the value proposition to us for this particular product.

With respect to Raynaud's, it's still early for us. We were struck by the small pilot trial data showing a near immediate effect of the Raynaud's symptoms after the Habeo product was administrated in the first couple of weeks, the first follow up periods after that.

And it's seen not only to persist but perhaps even get a little bit better towards the three year time point of 36 months, such that the majority of those patients weren’t reporting any Raynaud symptoms in the prior week using the RCS instrument as I mentioned. So the next steps are to take a look at the STAR data. That will be very informative.

We’ll know what, if and how, to what degree there is placebo effect.

If we ever look at the Raynaud's secondary endpoint data in that trial, and we’re also conducting some pre-clinical work to validate the mechanism of action of the therapy, with respect to Raynaud's and how these cells are working with respect to the endothelial dysfunction that's common in scleroderma but also these other diseases as well.

So that’s really going to be a second half of the year event. With respect to the, I think you mentioned U.S. filing of 0918, that’s going to an area where we’re doing a fair amount of research and we’re going to have to discuss that with the FDA. We value the acquisition based on the European approval of the generic alone. So U.S.

approval would be on top of what is the original valuation. There as you may know, there's has been a change certainly that Doxil, J&J product was the reference listed drug. They had manufacturing issues, taken off the markets [indiscernible] drug listed by then as a reference drug. But the reference listed drug is still Doxil.

So I think that’s an area we need to clarify with FDA before we finalize our plans and once we understand that, we'll report that to shareholders..

So what I hear you saying is that if there is a transition at the FDA, and a recognition of the Sun Pharma Drug versus the J&J Drug, that could break in your favor given the comparator that you've used and you could essentially file based on the existing data sets.

I’m just thinking that that’s possible now?.

I think it’s possible, but we want to be really careful, because Calyx and Doxil are we think essentially the same products. We don’t know exactly what the FDA will do in terms of making us repeat the study versus Doxil or whether the Calyx data would be sufficient..

Okay, great. Thank you and for Tiago, you talked a little bit about guidance and kind of the cash burn for 2017 and the judicious use of the ATM and credit facility. I can make that math work. We didn’t really talk aggressively about is the potential for partnering interest, given the late-stage nature of the 0918.

And so what I’d like to understand is, there is the potential wild card here as an analyst that's modeling the stock in terms either our regional or maybe even a bigger partnership associated with this asset. So my question to you is, I would just assume that you’re putting a lot of resources into that direction to see what surfaces.

Is that fair to say?.

Absolutely Jason, that’s a great point. As Marc alluded earlier today, on his remarks, we do -- we will not commercialize 0918 on our own. Our plans are to get a commercial partner initially in Europe, but as Marc said, there is tremendous opportunities for this asset outside of Europe where Calyx is the reference drug.

As an example, there is opportunities in Japan, there is opportunities in China and other parts of the globe. We will absolutely look for partners and are working on that right now to advance that program on the commercial front..

Okay, guys..

And those operating numbers are not, I can’t forecast those into my guidance. So if they come, they directly impact a reduction of operating cash burn..

Of course, I understand. And Mark, just one last thing. Having -- thank you very much for the exposure to patients and seeing the passion of these patients. So I can only imagine that success with Habeo and Raynaud's syndrome kind of opens up the door way beyond the manifestation of symptoms and the hands and looking at systemic.

But I think you're being very conservative now in saying let's get Raynaud's syndrome across the finish line while you kind of explore the much larger scleroderma market.

Is that fair to say?.

So or vice versa I think is what you meant. We are focused on getting the much smaller Scleroderma market addressed by the Habeo product.

But then considering label expansion into the broader secondary Raynaud's market, which is roughly about 20X of the Scleroderma market and encompasses more common diseases such as rheumatoid arthritis, Sjogren's, Lupus and so forth..

Yes, thank you for that clarification exactly. All right guys, congratulations. Great progress. I'm very excited to see what happens, both with Habeo and really for patients, but also to see kind of how Azaya develops and is monetized. So really very, very interesting time. Thank you..

Thank you, Jason. .

Your next question comes from Andrew D'Silva of B. Riley..

Hi good afternoon everybody, and thanks for taking my questions. Just a couple, maybe extending upon the Azaya acquisition, during the last call that you held in January, maybe give us a little bit of color as far as likelihood of partnerships being fairly strong this year and maybe potentially covering some of that cash burn related to it.

How do you feel about that now that's eight weeks or so after that call? Are you further along or maybe at the same spot and do you still feel like that's a reasonable likelihood that could be achieved this year or is it still far too early to say?.

I think it's always tough to forecast on the partnering side. I think you've sort of asked the question Andy in terms of the directional way.

I think we feel as good or perhaps better that this is a partnerable asset, but where maybe our initial focus was just on Europe, that we think there is also partnering opportunity outside of Europe where the bioequivalent product, reference product Calyx also is the reference drug.

And so we're very active in partnering discussions today along two tracks. One on the cell therapy side, which is more of an indication to specific discussion, and then separately on a regional basis. And so those are our two priorities right now, and where we're really at our bandwidth in terms of those discussions.

But we're going to open up this third track very soon related to more of a defined process around finding and identifying a partner for Europe and beyond for that product. And so we'll keep that front and center from shareholders as we roll that out. But we're more confident I think than we were initially..

And with Azaya partnerships, were they bringing anything to the table as far as company or enterprises that were looking at them already or are these more internally growing post- acquisition or through your own relationships that you saw as a potential synergy and that's why you acquired?.

It's a good question and I want to be sensitive to Azaya, but transparent on that. So why was Cytori able to acquire an asset and why -- how do we obtain the asset with the pricing and structure that we did.

The Azaya group, I was right at the go line with the potential partner and that partner was acquired and there was a change of strategy internally and that deal fell through. And so we happened to be talking them separately around that time, and we were able to find a way to make that work.

So we were in an opportunistic position with them, but we’ve got to leverage the due-diligence that had been done by a much larger company than us, that are looking into the asset and was very close to licensing the product, and we were able to just be fortunate and be at the right place, at the right time.

So we have a good sense that the asset is equality and partnerable, and now with a very recent market report, that chosen market growing to $1.4 billion, and in fact that it's continuing to be to be underserved market for this product, that we think we’re well positioned to find more than one regional partner..

Great. Thanks for the color on that. Maybe moving over to Europe, Scleroderma and the MAP program. In the prepared remarks you reference that, we should hopefully see some revenue in ’17.

Could you maybe give a little color or what needs to happen for you guys to really feel comfortable with moving forward with that initiative, and from a top-line standpoint?.

Yes. It is good question. So as John conveyed we are making a steady, if not slow progress, but we’re being very cautious about our investment and our plans in Europe and our forecasting.

And I think it’s probably good just to take a step back and say what is a MAP? It means Managed Access Prior to full commercialization, and ethical use for patients that -- where there is no other approved treatment. That’s the function of the MAP. And so I think that’s from a specific perspective related to Cytori.

Look, we’ve got a very unique product. We have a very small group of existing users out there, who -- wanting to treat scleroderma, but we have a very limited market presence. We have 1.5 employees that are there basically.

The interest is growing as we're out there in the market and particularly we're very high profile within the scleroderma community. So that’s creating notoriety and interest from new doctors, as well as existing doctors that have our CE Mark Technology.

And then the third thing that we’re coming up against is the, and as you know, the market is very fragmented. It’s fragmented in terms of regulations and it’s very fragmented with respect to a MAP program, as a relates to the payment alternatives. So just requires more work than I think we initially thought.

We’re being cautious in our investments and we’re just grinding away. We think that’s the right thing to do. We think there are upside opportunities, but we’re going to be conservative in our forecasting related to that. And the two goal posts are really ethical access to the patients and then meeting our long-term commercial and market strategy.

So we're trying to keep those two things in mind, but still move that program forward..

No, that was great. A lot of the useful information there. Obviously in the United States, it makes a lot a more sense for you to rollout commercially by yourselves due to the centralized facilities. But in Europe for Habeo and scleroderma, it obviously probably makes more to how fragmented the market is, to roll out with a big strategic partner.

Is there an opportunity here in the interim between when you get final approval in the EU to potentially look at an early strategic partnership there for rolling out MAP as they probably have the bandwidth be able to help you expedite through some of those fragmented processes?.

Yes, and there are partners that would potentially be good partners for this therapy, and as I mentioned briefly, that's one of the active tracks that we're on in terms of regional based partnerships, and we'll just move that process forward, and if the right deal comes along, then we'll seize it.

But in the meantime, we're going to be behind the scenes, just pushing forward, hitting our key milestones and we think that over time that will just increase in notoriety and the partnership interest..

And just a couple of quick financial questions for Tiago.

As far as the operational cash burn number that you threw out there, $26 million to $29 million for this year, could you maybe give us a sense of how that number is coming about? Obviously, a large portion of the expense related to the STAR trial has been completed last year, obviously, some still exist going into this year, but is the majority of that increase primarily related to the $6 million from Azaya or are there also other things that we're not counting on in there, such as maybe decreasing revenues because -- or a new product that you're more aggressively pursuing this year outside of Azaya, that you weren't previously?.

So, let me clarify that Andy. A couple of things. One, we -- a lot of the expenses -- so first, you are absolutely right about the additional spend coming from Azaya. That is around $6 million for 2017, which we are definitely working on offsetting that spend with potential partnerships. That's our goal. But I can't forecast that as I said earlier.

The second point is on the STAR trial. A good number of the spend has already been incurred as we enroll those patients, but in our plans, planning for success, we expect to have a cross over arm coming up in the second half of the year that we're going to need to treat the patients that got placebo.

So, that's part of the plan and that's not an insignificant amount of spend that is going to incur. On top of that, as I alluded earlier, there are a number of pre-commercial activities and PMA, U.S. PMA application activities that we need to incur to make sure that we file for approval in the U.S. very soon there after receiving data.

So, we're planning for success and we will absolutely monitor these activities and spend on these activities where we believe will generate a meaningful amount of value for shareholders..

Okay.

And just to clarify on that, you do expect sales out of Japan and then obviously if the EU comes in through MAP, but generally just sales overall year-over-year for products due to increase, and then you're looking at ancillary opportunities outside of Azaya and Habeo for scleroderma, and those are some incremental costs that could also be realized during the year?.

There're definitely additional costs outside of Azaya and Habeo. We have other programs that we are running, not as meaningful as the issue that we just described, but commenting on revenues. On purpose, we have not come out with the revenue guidance. That's not to say that we don’t expect a revenue increase.

That’s to say that there are -- I don’t think we did a good job at forecasting revenues, specifically on managed access program last year. We faced some challenges and those challenges, we learned a lot from it. And last year if you recall and you follow, we thought that we were going to have a meaningful piece of revenues coming from that.

What we are seeing is there is opportunity and we will absolutely engage on those opportunities to offset our burn absolutely, but we're not investing a significant amount of dollars on those. As Marc indicated, we have 1.5 employees there. Now in Japan in my remarks, if you go back you will see that I'm forecasting growth in there.

We have seen a significant growth in consumable utilization to the tune of approximately 80% year-over-year and on all way in ascetics we're doing pretty well there.

So I do expect that to grow, and I did indicate in my remarks that we do expect a double-digit growth coming from the consumable utilization, and consumables now are a significant portion of our revenues, where in the past they were not. Its 50-50% split between the equipment and the consumables.

That was to substantiate the pretty solid business that is existing in Japan that we would love to operationalize across rest of the other countries that we have approval on..

This concludes today's question and answer session. I will now turn the floor back to over Dr. Hedrick for any additional or closing remarks..

Thank you, Paula. So hope it was evident to you guys on the call that Cytori is emerging from '16 as a more diversified company with multiple late stage catalysts positioned to drive near and long-term shareholder value. 2017 is clearly a big year for the Company. We anticipate a read out on the STAR trail for Scleroderma and plan our U.S.

PMA approval, first in the Company's history. We're seeking U.S. IDE trail approval and milestone completion, key to our BARDA contract. We anticipate we'll complete the enrollment of our Japan approval trail addressing for urinary incontinence.

And we plan to complete the manufacture of ATI-0918 product and prepared for our EMA approval application and seek potential partners as discussed. So it’s a big year for us.

We really appreciate on behalf of Board and management you for participating in the call, We're very appreciative of our advisors and analysts that follow us, the patients that trust us and of course our hard working and dedicated employees who get up every day and make it happen. Thank you and have a good evening..

Thank you for your participation in today's conference. That does conclude today's conference call. Please disconnect your lines at this time and have a wonderful day..