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The former president of Cryo-Cell says frequent malfunctions in a supercold storage freezer means customers could be paying to store totally useless stem cells.

By KRIS HUNDLEY, Times Staff Writer
© St. Petersburg Times
published February 3, 2003

CLEARWATER -- Wanda Dearth remembers the weekend when Cryo-Cell International Inc.'s freezer, which stored more than 1,000 of its customers' umbilical cord stem cells, had one of its more spectacular breakdowns.

The freezer's shutoff valve failed, allowing icy liquid nitrogen to bubble to the top of the 7-foot-tall stainless steel storage tank and overflow into the blood processing lab.

Dearth, then president of the Clearwater company, and another employee say floor tiles near the freezer cracked from the blast of liquid nitrogen. The liquid, which stays at a constant temperature of minus 196 degrees Celsius (or minus 320.8 degrees Fahrenheit), created sheets of ice everywhere. It encased the freezer. Cleanup crews slid across the floor. Inside the freezer, the nonstop flow lifted customers' vials from their assigned slots and set them afloat like ice cubes in a drink.

"We had no choice but let the temperature in the freezer rise and then retrieve the vials," Dearth said of the fall 2001 incident. "Everyone was in a panic."

During the cleanup effort, at least a couple of vials dropped to the bottom of the unit and ended up wedged under shelving, Dearth and her coworker said. The vials reportedly were not retrieved until several months later when the freezer was drained.

Customers, who pay Cryo-Cell $90 a year for safe storage of their children's stem cells, were not notified about the incident, Dearth said.

One scientist experienced in cell preservation said it would have been difficult to clean up such a mess without compromising the viability of the samples. But Cryo-Cell faced a dilemma: Specimens can't be tested for damage without thawing them, eliminating the possibility of their future use.

Dearth, 50, who left the company soon after the freezer catastrophe for unrelated reasons, is not alone in criticizing Cryo-Cell's proprietary freezer. Several current and former employees, as well as the chief executive of Cryo-Cell's European affiliate, say the machine was an unmitigated disaster, constantly malfunctioning and potentially jeopardizing the viability of any stem cells inside.

"Customers could be paying for storage of totally useless cells," Dearth said. "But they'll probably never know."

* * *

Cryo-Cell, with nearly 40,000 customers, is one of about a dozen for-profit companies storing stem cells from newborns' umbilical cord blood. It's a multimillion-dollar industry that has blossomed over the past decade amid publicity about potentially life-saving new uses for cord stem cells. More effective and less expensive than stem cells taken from bone marrow, cord cells are a perfect match for the child from whom they've been collected. There's also a 1-in-4 chance they'll work for a sibling.

But the odds are low that a child might ever need a transplant, about four in 10,000. And the American Academy of Pediatrics has been reluctant to endorse routine stem cell storage, saying there is "no strong evidence" to recommend it.

Nevertheless, about 175,000 parents have taken advantage of the service in recent years. They entrust companies such as Cryo-Cell as insurance against the worst that could happen. These companies promise to act like a medical safe-deposit box for anxious parents: Should the child or a sibling be diagnosed with leukemia, lymphoma or cancer, frozen stem cells can be thawed and transplanted to regenerate the immune system, possibly saving the patient's life. A recent study showed cord cells that had been frozen for 15 years were as effective in a transplant as cells from fresh blood.

So far, there have been about 2,000 transplants in the past decade using cord stem cells. Just 52 of those have used specimens stored with companies such as Cryo-Cell, however; most involved samples from public cord blood banks run by hospitals and research institutions.

Cryo-Cell, which is publicly traded, reported its first transplant in July, saying it provided a sibling's stem cells for a leukemia patient. That patient, who was not identified, is reportedly in remission.

"As an expectant parent, you're faced with many decisions in preparation for the birth of your child," Cryo-Cell's brochure reminds prospective customers. "One of the most far-reaching could be the decision to collect and preserve your baby's umbilical cord blood."

While the stakes are high, regulation of the industry is nearly nonexistent. The Food and Drug Administration just began requiring the companies to register with the agency last month, but they do not conduct regular inspections of the facilities.

New York and New Jersey require companies that sell services to their residents to be licensed, but they rarely do onsite inspections. Bill Walbesser, an inspector in New York, said he is kept busy responding to complaints, like the one from a San Francisco woman who never got a reply after she sent her newborn's blood to a company she found on the Internet.

The company's Long Island address turned out to be an empty apartment, where an inspector found piles of stem cell shipments, including the one from California, on the floor, unopened and ruined.

Though fly-by-night operators might be dismissed as an aberration, Robert Vago, an engineer who worked at Cryo-Cell for four years, thinks sloppy lab procedures are endemic throughout the industry.

"Nobody storing stem cells knows what they're doing," said Vago, who was sharply critical of Cryo-Cell's handling and freezing procedures. "They've been lucky if they've had viable transplants with their samples. But it's like playing blackjack. It's a probability game."

* * *

Cryo-Cell, which was founded in Arizona in 1989 and relocated to Clearwater in 1997, got off to a slow start. It didn't attract its first paying customers until 1998 and by the end of 1999 had fewer than 3,000 samples stored.

From the beginning, Cryo-Cell promoted itself -- to everyone from Lamaze classes to local obstetricians -- as the lowest-price alternative with superior freezer technology. In every marketing pitch and corporate filing, Cryo-Cell boasted that it had a "competitive advantage" with its patented "computer-controlled, robotically operated, multifaceted cellular storage system" known as the CCEL II.

One of the inventors of the CCEL II was Daniel D. Richard, Cryo-Cell's co-founder, a company director and its largest shareholder.

The way stem cells are processed and stored is critical. One mistake along the way and the specimen could be destroyed, but still appear intact.

After cord blood is received at a storage bank, the stem cells are processed out, then gradually cooled to minus 95 degrees Celsius in a controlled rate freezer. Next they are placed temporarily in a liquid nitrogen canister until they reach minus 196 degrees C. The vials are then transferred to a long-term storage freezer where they are kept in liquid nitrogen or its vapor at 196 degrees below zero C.

While cells can be stored in this manner indefinitely, if the temperature of the samples is allowed to rise above minus 130 degrees C, even briefly, irreparable damage can occur.

That's one reason Cryo-Cell says its technology is better. To add or retrieve samples from standard lab freezers used by most companies, technicians have to open the lid on top of the unit, exposing all stored samples to room temperature, however briefly.

The CCEL II machine has a robotic arm that is designed to take a sample fed through a small opening and automatically place it in an assigned slot in the machine. In the event the specimen ever needs to be retrieved, the robotic arm locates and removes it without exposing stored samples to outside air.

But as with any new technology, there were problems with the CCEL II. Its gripper arm dropped vials on the lab floor, shattering them. The robotic arm inside the freezer jammed. Pipes froze. Pumps stopped working.

In 1996, as the company was feverishly trying to turn its marquee technology into reality, Bill Hardy, Cryo-Cell's president at the time, hired Bob Vago to help. Hardy and Vago, who holds a dozen patents, had both worked for Arjo International, a medical equipment company.

Vago, formerly vice president of research and development at Arjo, said he was brought on to ensure CCEL II, which was in the developmental phase, met FDA standards as a medical device. But he soon convinced Hardy and Richard of the need for an entirely new design, the CCEL III.

Much of Vago's time, however, was consumed fixing problems with the earlier model. Vago said he witnessed several CCEL II malfunctions that he characterized as "catastrophic failures," including a liquid nitrogen overflow like the one Dearth experienced more than a year later.

Vago might have been forewarned. He said his first encounter with the CCEL II was when he visited Illinois Masonic Medical Center in Chicago, which supposedly was using the freezer.

"I immediately received a blistering attack by the top scientist there who said he wasn't about to use the machine," Vago said. "The doctor said it used 10 times the amount of liquid nitrogen it was supposed to, it dropped vials and the pump seized up."

(The genetics group that was using the CCEL II in Chicago has since left the hospital, according to a hospital spokeswoman.)

Vago said it was normal for the CCEL II's pump to fail every three weeks or so. When that happened, the flow of liquid nitrogen to the tank's reservoir was interrupted and the temperature inside the freezer gradually rose as the nitrogen vapor warmed. The storage shelf at the top of tank warmed up the fastest; the one at the bottom, closest to the liquid nitrogen reservoir, stayed cold longer.

The crisis occurred so frequently that Vago calculated the freezer's maximum capacity based on a worst-case scenario. If the company stored specimens only on the bottom seven of the tank's 11 shelves, Vago estimated he had 10 to 12 hours to repair the pump before the temperature hit the critical point of minus 130 degrees C at the seventh shelf.

He said, to his knowledge, only one specimen, belonging to a relative of Dan Richard, then Cryo-Cell's chief executive, was housed in the tank during this period. But Vago said Richard relentlessly pressed the lab staff to move customer vials into his problem-plagued invention.

"I told them a reasonable shelf to put vials on," Vago said. "Anything higher than that, there was no way they could save the samples if the pump failed and wasn't repaired in a given time."

The CCEL II wasn't the only thing that troubled Vago at Cryo-Cell. A fastidious engineer used to complying with strict FDA regulations, he was stunned by what he saw as the lackadaisical way stem cells were processed.

Lab techs, he observed, seemed in no hurry as they transferred vials from the holding canister, where they were cooled to minus 196 degrees C, into long-term storage. Concerned about potential damage to the samples, Vago asked several experts how long it would take for vials to warm to the danger point at room temperature. To his surprise, he said, no one had a definitive answer.

So using sample vials, Vago conducted his own experiments. He discovered the contents thawed from minus 196 degrees C to minus 130, the point at which cells start to deteriorate, within 45 seconds at room temperature.

"It was absolutely horrifying how quickly the samples thawed," said Vago, who said it's unlikely a technician can transfer vials into any type of freezer that quickly. To help remedy the situation, Vago designed and patented a vial holder for Cryo-Cell that tracked a vial's temperature and time elapsed. He does not know if the device was ever manufactured and put into use.

In 1998, two years into Vago's tenure at Cryo-Cell, the company was prodded by a major shareholder to bring in outside scientists to evaluate its technology. One of those consultants was Stanley Leibo, a professor of biological sciences at the University of New Orleans and faculty member with the Audubon Center for Research of Endangered Species in that city.

Though Leibo remembers being generally impressed with Cryo-Cell's operation, his report raised several concerns, including the one Vago had raised about the samples thawing during transfer.

"There is a potential risk for unwanted, deleterious biological and physiochemical process to take place at temperatures above -130 degrees C which may result in loss of function of the cells," the report said.

In a phone interview, Leibo said it is possible that Cryo-Cell's vials could thaw to the danger point in as few as 45 seconds, as Vago's experiment indicated. And Leibo emphasized there is no way to tell if viability of a sample has been jeopardized simply by looking at it.

"The problem with cryo-preserved specimens is that if they are mishandled, there may not be overt evidence of it," Leibo said. "They won't discover the problem until years or decades later."

Leibo could not recall if the scientists had been told of any problems with the CCEL II during their 1998 visit. In their report, they described the freezer as being "currently in operation to store frozen samples."

Commenting on the overflow incident witnessed by Dearth and another employee, which occurred two years after his visit, Leibo said cleaning up such an accident without harming the samples would be challenging if not impossible.

"However carefully one handles anything, whether it's a frozen sample or a demitasse, accidents happen," he said. "The problem is, if you drop a demitasse, you know it's damaged. A frozen specimen will not appear any different, so you put it back in the liquid nitrogen and as far as anyone knows, everything is okay."

In their 1998 report, Leibo and his associate had sufficient concern about problems with the CCEL II to urge the company to move quickly with the improved design being developed by Vago.

"Because the CCEL III instrument seems to offer very significant advantages and improvements compared to the CCEL II, we recommend that the company move as quickly as possible to complete the manufacture and installation of the new instrument," the report concluded.

* * *

When Wanda Dearth joined Cryo-Cell as president nearly two years after Leibo's visit, the company still was relying on the trouble-prone CCEL II freezer. Dearth, who had been a vice president in charge of nurse staffing at Kforce Inc. in Tampa, said she was a believer in Cryo-Cell's service.

"I agree the chance of needing stem cells is minimal," said Dearth, who is single and has no children. "But I would collect a child's stem cells if I could."

It was not long after being hired in June 2000, however, that Dearth discovered all was not as it seemed at Cryo-Cell. Most importantly, she learned that despite the company's promotion of the CCEL II as its competitive edge, most samples were stored in the same kind of medical freezers used by every other company.

"I was shocked because the CCEL II was the basis of our whole marketing," Dearth said. "We'd have these open houses for expectant parents and we'd even show off the machine. But there were only about 1,000 vials in there."

Dearth soon discovered why the CCEL II had only limited use: It malfunctioned frequently. Nor did the problems abate when a second, supposedly upgraded model was introduced.

"We had problems with that machine from the time it was plugged in," Dearth said. "At one point a girl in the lab passed out, it was leaking so much gas. But when the temperature started rising in the tank, that was more of a crisis than anything."

When the sensor inside the freezer registered a temperature change, it triggered a automatic telephone page to Dearth and Vago, Cryo-Cell's vice president of product development. Dearth said Vago, who lived in nearby Palm Harbor, sometimes would have to climb inside the nearly ceiling-high freezer to clean a fan or repair a pump.

"What concerned me most was that if Bob were hit by a truck, no one else would know what to do," Dearth said. "His backup was in Boston and he wasn't always able to get here at a moment's notice."

But just four months into Dearth's tenure, Vago decided he'd had enough.

Richard had pulled the funding on the development of the CCEL III and announced he had signed a deal to send a CCEL II to Europe. Vago resigned in protest.

"I can't compromise my professional standing and go ahead and do something with a device that I don't believe will ever work," he said. "It was a fundamentally flawed device in my opinion."

Marc Waeterschoot would have to agree. Waeterschoot is the clinical pathologist who has been trying to make the CCEL II freezer work in Europe.

Richard signed the agreement to license the freezer technology to Cryo-Cell Europe in April 2000. The Europeans paid $1.4-million cash to use the Cryo-Cell name and agreed to give the U.S. company 10.5 percent of each processing fee and 20 percent of storage fees. Cryo-Cell, in return, promised to deliver a CCEL II freezer, Waeterschoot said, "as soon as resonably possible."

Waeterschoot said the European company, which is 6 percent owned by Cryo-Cell International, did not receive the CCEL II until June 2001, 14 months after the contract was signed. When it arrived, it was not functioning, he said.

"It was sitting here until December (2001) not working, then they fixed it, but not properly," Waeterschoot said. "Workers came again in March (2002) and nearly finished, but not really. We're promised that in the near future it will be operational, which I doubt."

Waeterschoot, chief executive of the European company, said he has never stored any of his company's 6,000 customers' samples in the CCEL II. "I don't dare do that," he said. "I take my client's interest to heart."

In its October financial filing, Cryo-Cell said its European affiliate was in default of the license agreement and owed the company more than $350,000 in fees. Waeterschoot, who has been running clinical labs for 27 years, doesn't dispute that figure.

"We paid for something that doesn't work," he said. "We probably will answer them in court."


Dearth left the company in December 2001. She said she was fired after complaining to the board that she was being sexually harassed by Dan Richard; the company said she left after a disagreement over marketing strategies.

Dearth has since filed two lawsuits against the company. A breach of contract lawsuit was settled in July, with Dearth receiving $79,175. A sexual harassment lawsuit is pending; the company has denied the allegations.

Richard, who took over as chief executive after Dearth left, resigned in June. He also stepped down as chairman of the board, although he remains a company director. He received a $250,000 bonus upon resigning and a 10-year contract, at $200,000 a year, for consulting services. The agreement includes a survivor's benefit to his widow if Richard, 71, should die before the end of the contract.

Richard was replaced as chief executive by John Hargiss and as board chairman by Mercedes Walton.

Hargiss, who joined Cryo-Cell in February, refused to be interviewed for this story without Richard's approval. Richard, who lives in Boynton Beach, declined to speak without Walton's permission. Walton did not respond to an interview request.

The company, which has not reported financials since the quarter ending Aug. 31, is trading near a 52-week low. Its shares closed Friday at $1.36, down 1 cent.

In October, Cryo-Cell said it was abandoning development of the CCEL III, on which it estimated it had spent $350,000. In addition, the company said it was setting aside $120,000 for modifications to its CCEL II machine.

In November, Cryo-Cell said it will begin storing two specimens per client, with one specimen remaining in Clearwater, while the second will be shipped to Safti-Cell, a year-old company in Sedona, Ariz.

Cryo-Cell's announcement did not disclose that Safti-Cell is owned by Charles D. Nyberg, a friend of Richard's and a Cryo-Cell board member.

Nor did the announcement say whether specimens in Clearwater or Sedona would be stored in a CCEL II.

-- Kris Hundley can be reached at or (727)892-2996.

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