Athersys, Inc.: '2014'

Nov.18.13 | About: Athersys, Inc. (ATHX)

Last week Athersys (NASDAQ:ATHX) announced their quarterly earnings. As a shareholder, I find it important to listen to the quarterly conference calls because it gives shareholders insight as to the continued progress of the company. During the call management publicly disclosed some very significant updates for the company. 2014 is clearly going to be an exciting year for Athersys.

MultiStem is Athersys' main proprietary stem cell technology. Evidence generated by "Athersys ' scientists and independent collaborators shows that MultiStem promotes healing and tissue repair through multiple mechanisms of action." According to studies, MultiStem conveys reparative effects through the expression of factors that reduce inflammatory damage, enhance new blood vessel formation, protect damaged tissue, and promotes tissue repair and healing. Favorable studies performed to date, across a wide array of disease processes, appears to be attributed to this mutifaceted mechanism of treatment.

2014 is going to be a defining year for the company for the following reasons:

MultiStem for Inflammatory Bowel Disease (IBD): This study is partnered with Pfizer (NYSE:PFE) and Phase 2 results are expected the end of 1Q14. Results were originally expected 4Q13, but due to other companies performing studies on IBD patient enrollment took a little longer. Pfizer is expecting the "last several patients to be enrolled shortly." Based on this, I would expect management to put out a press release shortly regarding enrollment completion. I believe the Phase 2 results for the study will be positive as set forth in my article Athersys: Clinical Trial for Inflammatory Bowel Disease.

A component of this study includes endoscopic evaluation meaning the clinicians actually visualize the effected bowel to see if, after treatment, there is evidence of healing, reduced lesions, or other changes. As such, although the study is blinded, the clinicians on the front line should be able to get a good feel on whether the treatment is working. Management disclosed during the conference call that there was a recent trial investigator meeting for the IBD study where leading clinicians shared their experiences "and it is fair to say there was a lot of excitement at the meeting." Management also stated "Pfizer's quite anxious to get those last several patients enrolled."

MultiStem for Ischemic Stroke: Athersys has not partnered this indication and retains all rights. Athersys has expedited enrollment in this study by opening additional centers in Europe. The results of this Phase 2 study are expected 2Q14. There is a huge unmet medical need for stroke and the market opportunity is upwards of $30B+. SeekingAlpha author, John Ginsburg, wrote article, "Athersys: A Potential Stroke Monopoly On Hand" where he discusses the significant potential value of MultiStem for ischemic stroke. Considering Athersys has a market cap of $100M, results of the study, whether positive or negative, will significantly impact shareholder value.

Based on the aforesaid, the first and second quarter of 2014 have very significant catalysts for the company. Furthermore, regulatory changes in Japan are also giving Athersys the opportunity for other significant catalysts in 2014 when it comes to stroke and other studies on its regenerative medicine platform.

Japan: Japan is quickly establishing new accelerated regulatory framework specifically for regenerative medicine therapies. According to Athersys, this framework "is intended to create a rapid new regulatory and commercialization path for stem cell therapies in Japan." During the call management discussed how this accelerated regulatory path could help "dramatically accelerate our commercialization path, resulting in substantial value creation for our shareholders." Athersys already met with leadership of the Japanese PMDA (the equivalent of the FDA) and they are returning to Japan in a few weeks (early December).

With accelerated development of MultiStem, Athersys has the potential to quickly become a revenue generating company assuming success in their clinical trials. This accelerated development process also increases the chance for Japanese and international partnerships. On point, management stated "there's tremendous interest nationally in Japan in the area of regenerative medicine. And there is a particular interest in an area like stroke, just because its such an enormous health care and clinical burden and quality-of-life burden in Japan." Management further stated "this new regulatory framework, what that means is that if you demonstrate robust clinical results, the path to commercialization and value creation for a company like Athersys could be dramatically short."

These developments in Japan are something to monitor closely in 2014.

Bristol Myers Squibb (NYSE:BMY) - Athersys also announced during their conference call that Bristol Myers is advancing a third program into clinical development using Athersys' RAGE technology platform. As such, a milestone payment was made to Athersys in November. Athersys has not yet disclosed the extent of this milestone payment so this is something to look for during their next quarterly report.

RTI Surgical (NASDAQ:RTIX) - Athersys is entitled to $30M in milestone payments and royalties from RTI for granting them the right to use Athersys' platform for bone allografts. On August 12, 2013, RTI Biologics announced that they were "Celebrating First Human Implantation of map3 Cellular Allogenic Bone Graft." In this press release, board certified orthopedic Dr. Franco Vigna stated "The future of spine surgery is biologics." The advancement of this program means that Athersys should be generating revenues soon from this partnership. I believe additional revenues from this partnership should begin to occur in 2014.

Graft versus Host Disease - During the conference call, management discussed how successful their graft versus host disease study was. Management has met with the FDA and they are working on incorporating the FDA's recommendations so they can commence a Phase 2/3 study for this unmet medical need for which they have received orphan drug status. What I particularly picked up on during the conference call was when management stated "it's highly likely that we will be getting external funding to initiate that study. We're focused on the partnering side. There are some other opportunities, but that's something we're really focused on." Athersys intends to commence this Phase 2 / 3 study in 2014.

MultiStem for Acute Myocardial Infarction - Athersys has received a SBIR Fast Track grant to advance this study. Commencement of a Phase 2 study is also expected in 2014. Management said during the call that "the cardiovascular area is an area which is attracting a lot of attention. And frankly, our long term strategy is to partner in the cardiovascular area. And I think there's some good possibilities to do that."

5HT2c - Athersys owns the rights to a 5HT2c receptor agonist compound that has the potential for treatment for weight loss, schizophrenia and other neurologic disorders. Athersys has previously stated they want to partner this compound. I believe the delay in partnering this compound has been due to the poor performance of other FDA approved drugs. On topic management stated "We've demonstrated that our compounds have a distinctive profile and are superior to other FDA-approved drugs, as well as complimentary with certain other agents. We believe these features will enable us and our partner to achieve best-in-class weight loss, as well as a superior safety and tolerability profile." Management further stated that "there's tremendous potential in this program and people that are clearly interested in it." This is another potential catalyst for 2014.

MultiStem for Multiple Sclerosis - Management indicated that the Multiple Sclerosis Society is quite excited about the potential for MultiStem. MultiStem has shown some clear evidence of remyelination according to management. Remyelination is a process that can restore conduction properties to axons (thereby restoring neurological function) and this is increasingly believed to provide neurological protection as well. Management stated that they are "excited about getting this program into clinical development as soon as we've dotted the I's and crossed the T's and we're in a position to make this happen." The extensive interest of MultiStem for Multiple Sclerosis is "driving tangible displays of support and funding that are helping us advance these programs in a cost-effective way." This is another potential catalyst for 2014.

Transplantation - Athersys has been collaborating with a leading transplantation group in Germany and they are focused on their institutional-sponsored clinical trial to explore the administration of MultiStem in patients following liver transplantation. Initial results of this study are expected in 2015. What I found fascinating during the call was management's explanation of a preclinical trial involving heart grafts. Heart grafts in untreated groups were typically rejected in less than 2 weeks. Treatment with mycophenolate alone kept the grafts in tact a few days longer. However, animals given a combination of short-term mycophenolate and MAPCs (MultiStem) exhibited 80% survival in 100 days post graft, the length of the study. Amazingly, heart grafts recovered from MAPC-treated animals were then able to be retransplanted into naive secondary recipients. Although the study was in a preclinical setting, the impact of MultiStem appears to be very favorable.

In addition to the above, MultiStem can potentially treat: spinal cord injury, diabetes, congestive heart failure, peripheral vascular disease, traumatic brain injury, limb ischemia, and artery disease; among others. Athersys' portfolio can be found here.

2014 is clearly going to be a defining year for Athersys. Favorable phase 2 studies in IBD and ischemic stroke, developments in Japan, and further development of the MultiStem portfolio can potentially significantly increase shareholder value. However, to be objective, if MultiStem fails to meet its primary endpoints in its upcoming phase 2 studies there is significant downside risk for shareholders.

Cash Position

At the present time, Athersys has a market cap of $100M. As of September 30, 2013, Athersys had $17.8M in cash. The payment from Bristol Myers in November, partnering opportunities where there is a cash payment, additional grants, and milestone payments from RTI can impact their cash position. If Athersys needs some additional funding they have the opportunity to raise up to $25M over a 2 year period with Aspire Capital. Historically, management has valued shareholders by not diluting any significant amount of stock at any given time. I also think it is safe to assume that management is aware that favorable phase 2 studies should put them in a commanding position to enter into lucrative partnerships for MultiStem. Athersys only has 50M shares in the float and 57M shares outstanding which still equates to a small float given their market potential and their market cap of $100M.

Analyst Valuation

Athersys will be valued accordingly when the results of the 2 phase 2 studies come out or if the company announces other significant news, whether positive or negative. In the interim, on November 15, 2013, Edison Investment Research put a price target of $3.40 per share (205M market cap) prior to the IBD and stroke results. Personally, I believe we see a run to around $3 prior to the IBD results 1Q and $4-5 with favorable results. Favorable results from the stroke study 2Q should equate to a $8-10 price target which would still only give Athersys around a $450- 500M market cap. To be objective, unfavorable results will probably cause the stock to drop below $1.

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.

Disclosure: I am long ATHX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.