Hematopoietic stem cell therapy has been successfully employed in the treatment of a variety of cancers and other serious diseases, beginning with bone marrow transplants that were first pioneered in the 1960s. According to the International Bone Marrow Transplant Registry, 45,000 hematopoietic stem cell transplants were performed worldwide in 2002. It is estimated that this correlates to a market size of roughly $900 million, using an average cost of cellular material per treatment of $20,000 based on data from the International Bone Marrow Transplant Registry. Many more patients needed transplants, but suitably compatible cells could not be found.

As information about the potential therapeutic value of stem cells has entered the mainstream, and following the first successful cord blood transplant performed in 1988, cord blood collection has grown rapidly. Based on a survey of private cord blood banks conducted in 2000 by the Boston Healthcare Associates consulting firm, there were approximately 24,000 units stored by private cord blood banks as of June 1999. That number had increased to 178,000 units as of September 2003, according to a survey by the independent organization Parent’s Guide to Cord Blood Banks, representing an increase of over seven-fold over the past four years.

Another opportunity in the use of cells for therapy relates to oocytes, which are female egg cells essential to reproduction. The ability to preserve these cells outside the body could be a significant breakthrough in the field of reproductive health with multiple applications in infertility (extending fertility and preventing infertility).

The Company’s Viacord product involves the collection, testing, processing and preserving of umbilical cord blood. The Company’s customers are expectant parents who choose to collect and store umbilical cord blood at the birth of their child for potential use in a pediatric hematopoietic stem cell transplantation for the donor and family members. The Company has established a leading position in this emerging field of private umbilical cord blood preservation, with an estimated market share of approximately 21% total units stored and 25% of revenue generated in the United States, based on estimates by the independent organization Parent’s Guide to Cord Blood Banks of total units stored in family cord blood banks (178,000 as of September 2003) and by an independent market researcher of industry revenue ($128 million in 2003).

Family cord preservation has been growing in acceptance by the medical community and has become increasingly popular with families. To date, the Company has performed facilitated collections at over 2,000 hospitals in the United States. The Company currently stores over 63,000 cord blood units for customers.

Direct costs increased by $0.3 million or 6% for the nine months ended September 30, 2004 from $5.3 million for the nine months ended September 30, 2003.

Sales and marketing expenses decreased by $1.1 million or 7% for the nine months ended September 30, 2004 from the $16.2 million for the same period the previous year.