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Athersys, Inc. (ATHX) is a small cap biotech stock that appears to have significant potential. What is initially intriguing about Athersys is that it holds proprietary Cell-Based Biology Platforms that aids in expediting drug discovery. One platform, Random Activation of Gene Suppression (RAGE) "can be used to produce human cell lines expressing virtually any protein encoded in the human genome, without requiring the cloning and isolation of individual genes." The RAGE technology portfolio includes 11 issued U.S. patents, pending patents, and international patents. Their other platform, Genome-wide, Cell-based Knock-out (GECKO) is a compliment to RAGE in that GECKO is proprietary, genetic technology that leads to the rapid identification of gene function, directly linking the gene to its role in the cell's biology and acceleration the functional validation of human genes. One does not need to be a scientist to understand the importance and value of having platforms that expedite drug discovery.

MultiStem:

What is at the forefront of Athersys is MultiStem. MultiStem is a proprietary stem cell therapy that can potentially be utilized across a wide variety of platforms. "MultiStem consists of a special class of human stem cells that have the ability to express a range of therapeutically relevant proteins and other factors, as well as form multiple cell types. Factors expressed by MultiStem have the potential to deliver a therapeutic benefit in several ways, such as reducing inflammation, protecting damaged or injured tissue, and enhancing the formation of new blood vessels in regions of ischemic injury. These cells exhibit a drug-like profile in that they act primarily through the production of multiple factors that regulate the immune system, protect damaged or injured cells, promote tissue repair and healing, and the cells are subsequently cleared from the body over time." Athersys states "MultiStem represents a potential best-in-class stem cell therapy because it exhibits each of the following characteristics based on research and development to date: (1) it may be produced on an industrial scale, in a well validated and reproducible manner; (2) it may be administered without tissue matching, making it analogous to type O blood; (3) it exhibits a consistent safety profile; and (4) it appears capable of delivering therapeutic benefit through multiple mechanisms of action."

What makes MultiStem a potential blockbuster:

What makes Athersys a potential blockbuster? Since MultiStem has shown potential therapeutic benefit through a variety of mechanisms (regulate the immune system, protect damaged or injured cells, and promote tissue repair and healing) it can potentially be used for treatment throughout the body. To date, Athersys has identified the potential benefit of MultiStem for gastrointestinal diseases, stroke, spinal cord injuries, multiple sclerosis, traumatic brain injuries, acute myocardial infarction, congestive heart failure, vascular and artery disease, critical limb ischemia, neonatal hypoxic ischemia, and organ transplantation; among others. Each of the aforesaid alone has the ability to generate billions if MultiStem works. At the present time there are a several indications currently in clinical trials.

Pipeline Status:

1.) Inflammatory Bowel Disease: Athersys has a MultiStem partnership with Pfizer (PFE) worth over $100M for Inflammatory Bowel Disease. The two most common types of inflammatory bowel disease are ulcerative colitis and Crohns disease. Inflammatory Bowel Disease represents a billion dollar market opportunity with over 800,000 people having Crohns disease and around 1.6 million having uclerative colitis in the United States, Europe and Japan. Phase 2 results of this study are conservatively expected second half of 2013, but most likely 3rd quarter of 2013.

2.) Ischemic Stroke: Athersys has an ongoing MultiStem study for Ischemic Stroke. At the present time there are limited treatment options for ischemic stroke with the only approved treatment by the FDA being tPA which is a clot buster that must be administered within 4 hours of stroke onset. The ongoing study of Athersys is evaluating MultiStem for therapeutic benefit from the onset of stroke up to 36 hours post onset. "Ischemic stroke represents a major unmet need - and annual market opportunity of more than $15 billion" according to the company. In October 2012 Athersys reported an update of the clinical study where the Independent Safety Committee reviewed data and determined the doses of MultiStem were safe and well tolerated, therefore recommending the continuation of the study. Results are expected early 2014, however, management indicated during their March 12, 2013 conference call "we are doing some things to actually expedite enrollment of the trial" by getting more sites set up in the U.S. and U.K. One could speculate that the company is aware of positive clinical response as the reason for expediting the clinical trial.

3.) Graft v. Host Disease: Athersys also has their graft-versus-host disease (GvHD) study for which the company was granted orphan drug status. Athersys is targeting patients with leukemia or related hematologic cancers who have been treated with radiation or chemotherapy followed by donor-derived stem cell transplant to restore the patients blood and immune system. Phase 1 results were very favorable and the company is currently working with the FDA to obtain criteria to initiate their phase 2 study. Athersys obtained another patent last year for GvHD. GvHD represents another very significant market opportunity for Athersys.

4.) Bone Allograft for Orthopedics: Athersys partnered with RTI Biologics, Inc. (RTIX) wherein RTI Biologics is using Athersys technology for bone allografts in orthopedic indications. RTI Biologics is a company focused on medicine that repair and support the natural healing of the human bone and tissues. It is believed that this partnership should start generating recurrent revenues for Athersys starting this year.

5.) Acute Myocardial Infarction: Athersys completed a phase 1 study with Angiotech Pharmaceuticals for acute myocardial infarction but recovered all rights when Angiotech ran out of resources. The FDA has already approved a phase 2 study for acute myocardial infarction. "According to AHA estimates, direct costs from cardiovascular disease will grow from $273 billion annually (2010) to more than $818 billion annually (2030) as a result of an aging and increasing obese population." During the March 12, 2013 conference call, management indicated "right now, we're evaluating partnering opportunities in several different areas around MultiStem across different therapeutic indication areas…" It is possible that Athersys will be partnering their acute myocardial infarction in the short term.

6.) 5HT2c for obesity, diabetes and schizophrenia: Athersys also has the rights to 5HT2c. 5HT2c is a receptor compound that has the potential to treat obesity since the compound stimulates a key receptor in the brain for the regulation of appetite and food intake. It is well known that weight loss reduces the risk for heart disease, diabetes, and other factors that cause premature death or injury. What is interesting is that this compound can potentially be used alone or in conjunction with other new weight loss drugs such as those by Vivus (VVUS), Orexigen Therapeutics (OREX), and Arena Pharmaceuticals (ARNA). More importantly, "Atheresys' lead compounds exhibit superiority over Lorcaserin and other agents" in preclinical models according to Athersys. Weight loss drugs are estimated to generate billions annually. During the March 12, 2013 conference call, Athersys indicated they continue to advance partnering discussions that would include 5HT2c solely for the obesity, solely for schizophrenia, or a partnership for both.

7.) Hurler's Syndrome: Athersys received Orphan Drug Status for Hurler's Syndrome in 2012. This indication has not yet been partnered and it is presently unknown the extent of the market potential.

8.) Spinal Cord Injury: In October 2012, Athersys presented preclinical data at the Society of Neuroscience indicating that MultiStem demonstrated potential benefit after Spinal Cord Injury. Spinal cord injuries represent another billion dollar market opportunity. Athersys has not yet announced whether they are going to advance MultiStem for Spinal Cord Injury alone or partner.

9.) Acute Brain Injury: In October 2012, the Journal of Neuroinflammation published an article indicating the MultiStem treatment may reduce inflammation and promote reparative processes following acute brain injury. Athersys has also received grant funding for Stem Cell Product Development for the use of MultiStem in Traumatic brain injuries. Acute brain injuries represent another billion dollar market opportunity. Athersys has not yet announced whether they are going to advance MultiStem for Acute Brain Injury alone or partner.

10.) Multiple Sclerosis: In October 2012, Athersys provided an update of MultiStem for the treatment of Multiple Sclerosis. In the preclinical studies MultiStem "displayed sustained and statistically significant improvement in functional testing compared to placebo treated animals. This functional improvement correlated with a statistical decrease in demyelinated lesions in the nervous system of cell treated animals compared to placebo as well as increased remyelination in cell treated animals, and this result has been confirmed in a second animal model of MS, suggesting that MultiStem treatment may accelerate the process of axonal remyelination." Multiple Sclerosis represents another billion dollar market opportunity. Athersys has not yet announced whether they are going to advance MultiStem for Multiple Sclerosis alone or partner.

11.) Additional Indications: Congestive Heart Failure, Solid Organ Transplant, Critical Limb Ischemia, Peripheral Vascular Disease, Peripheral Artery Disease, and Neonatal Hypoxic Ischemia are other areas where MultiStem may provide therapeutic benefit. During the March 12, 2013 conference call, Athersys stated "and right now, we're evaluating partnering opportunities in several different areas around MultiStem across different therapeutic indication areas…"

Management:

Management has impressive credentials with the Chairman and CEO, Executive Vice President and Chief Scientific Officer, and President and Chief Operating Office all having graduated from Stanford. Management has extensive knowledge and experience in the regenerative medicine field and has shown their leadership by entering into partnerships and advancing their pipeline while being cognizant of its shareholders.

What is also exciting is that, according to management, "more of the bigger companies are actually starting to pay attention to the sector. Pfizer (PFE), Shire Plc (SHPG), Johnson & Johnson (JNJ), Roche, and quite a few other companies have started to make strategic bets in the area because they recognize that this is an area that may actually transform medicine in a lot of different ways."

Fundamentals:

Athersys has a market cap of $80M at its current level. It ended year 2012 with $25.5M in cash or cash equivalents. Athersys has very little debt and burns approximately $4M per quarter. At its current levels, the company has enough funding for over a year assuming it receives no additional grants, cash infusion from partnerships, or a case raise through dilution. The market potential for MultiStem will depend on which products make it to the marketplace. As stated above, each market represents a potential to generate literally billions of dollars. Since Athersys only has an $80M market cap, the upside potential is very significant if they are able to get MultiStem to the marketplace. The likelihood that Athersys will be able to generate revenues from MultiStem will depend on the efficacy of its upcoming studies, positive findings from phase 3 studies, and FDA approval.

Risk versus Reward & the Significance of Phase 2 studies:

The phase 2 results of MultiStem for the Inflammatory Bowel Disease and Stroke studies are very significant events for Athersys. If the phase 2 studies are favorable, Athersys is one step further to advancing a treatment for what could be a dozen different indications each worth in the billions. Favorable phase 2 results will also put Athersys in a strong position to partner other indications in their pipeline. The potential market opportunity is massive for a company whose market cap is presently $80M. The low market cap and large market potential for MultiStem could mean that Athersys gets acquired by a large pharmaceutical willing to bet that MultiStem eventually gets FDA approval. To be objective, if the phase 2 studies of MultiStem do not show efficacy then that would be a significant blow to a company who is clearly focused on advancing MultiStem.

Additional information can be obtained on the Athersys website.

My personal stock evaluation:

I am long ATHX for the following reasons: First and foremost is market potential. Athersys has an $80M market cap, $25M in cash and a strong pipeline whose indications could each be worth billions of dollars. From a technical analysis I believe Athersys has based in the $1.40-$1.60 range so downside risk is limited. With the phase 2 Stroke trials now being expedited and the results of the phase 2 study for Inflammatory Bowel Disease most likely in the third quarter of 2013, I would expect the interest in Athersys to increase. The company has also publicly stated, as stated in the article above, they are in a variety of partnership discussions which, if successful, could also be another catalyst for investors.

This article is intended for informational and entertainment uses only and should not be construed as professional investment advice. The aforesaid is solely my opinion based on my personal due diligence. As with all stocks there is risk of suffering financial losses. Do your own due diligence and/or consult with a professional financial advisor before investing in any stock including ATHX.

Source: Athersys, Inc. Has Blockbuster Potential