Seeking Alpha
Long only, growth, value, momentum
Profile| Send Message|
( followers)

Regenerative Medicine by definition is the process of replacing or regenerating human cells, tissues or organs to restore or establish normal function. It is my opinion that regenerative medicine is the future of medicine and it is just a matter of time before it becomes the new standard of care. The growth opportunity for companies that can show efficacy in this field is comparable to Microsoft's (NASDAQ:MSFT) introduction of Windows and Apple (NASDAQ:AAPL) selling the iPhone. It is my belief that regenerative medical therapy is at its beginning stages and this new innovative technology will evolve into mainstream medical care.

Advancements in the field of regenerative medicine by a wide variety of companies have shown results which can potentially lead to unbelievable market potential. Because of this, large pharmaceuticals are beginning to realize the significance of regenerative medicine and the implications it can have on the industry. While there is competition in the industry, it is my belief that Athersys, Inc. (NASDAQ:ATHX) is the frontrunner because of its patents, technology, advancing clinical studies, and pipeline. I believe this confirmed, in part, by the fact that Pfizer (NYSE:PFE) chose to partner with Athersys over the competition.

The two most studied adult stem cells are derived from bone marrow and they are: Mesenchymal stem cells (MSCs) and Multipotent adult progenitor cells (MAPCs). Athersys uses MAPCs in their MultiStem platform. In 2009, an indepth study performed in China compared the therapeutic potential of both cell types. The results of the study was published in Advanced Studies in Biology in 2009. The findings were that "MSCs gradually lost its multiple differentiation potential and phenotype with the increase of passages, whereas MAPCs well retained pluripotency. Therefore, MAPCs may hold a greater promise in the future of clinical application than MSCs." What does this mean for Athersys and their competition?

Athersys' main competition is Mesoblast (OTCPK:MBLTY) whose corporate headquarters is in Australia. Mesoblast has had success using their MSC platform notwithstanding that Athersys' MAPCs technology appears to be more promising. By comparison, Mesoblast has a 1.85 billion market cap while Athersys only has a market cap of 240 million. Given the technology and market cap comparison, it appears as though Athersys is significantly undervalued with Mesoblast trading at 750% premium over Athersys.

In addition to the MultiStem MAPC platform appearing more promising, Athersys' MultiStem technology allows for "off-the-shelf" administration, large scale production potential, long storage life, it has a consistent safety profile, it promotes healing and tissue repair through multiple mechanisms of action, and, like a medication, the cells are cleared from the body over time. Preclinical and clinical work conducted to date has been favorable and MultiStem appears safe.

Those following Athersys are aware the company is expecting two significant catalysts within a few months. Investors are awaiting Phase 2 data from their Inflammatory Bowel Disease (IBD) study for ulcerative colitis that is partnered with Pfizer and the other significant study is for ischemic stroke. Competitor, Mesoblast has advanced a Crohn's disease study (a form of IBD) into a Phase 3 program using their MSC technology (a potentially less effective stem cell according to the 2009 research study referenced above). As such, one would reasonably expect MultiStem to show more robust results given the pluripotency findings of MAPCs over MSCs. What is also interesting is that some patients going through the IBD study did publicly post very favorable responses. Although there are clearly never any guarantees in the biotech industry, I believe Athersys has a very good chance to show efficacy.

Athersys is also extremely anxious and excited about their stroke study. Within the last year, Athersys has worked hard to open additional sites to expedite enrollment to push for earlier results from the stroke study. One could potentially assume there was a reason for this. At the last quarterly conference call management commented on how there was a stroke trial investigator meeting "and its fair to say there was a lot of excitement at the meeting. Our enthusiasm for the study remains very high." Two Seeking Alpha articles on the ischemic stroke study can be found here and here.

This year Athersys is expected to begin a Phase 2/3 program for Graft Versus Host Disease and a Phase 2 study for Acute Myocardial Infarction. Athersys retains full rights to these and their entire pipeline aside from their partnership with Pfizer for IBD. Athersys is also conducting a study of MultiStem for solid organ transplant. During the last conference call management indicated there was a lot of interest in initiating a multiple sclerosis study. Although not publicly disclosed yet, a random search online found a job posting to "develop a polymer patch that can deliver MultiStem, a proprietary multipotent adult progenitor cell, to diabetic foot ulcers." To give you an idea of value for diabetic treatment, in August 2013, Osiris Therapeutics (NASDAQ:OSIR) announced results of their study for diabetic foot ulcers and it caused the stock to jump 125% from $10 to over $25 overnight.

What is most exciting is that recent legislative changes in Japan have been a game changer for companies in the regenerative medicine field. Japan is a huge market that has opened its arms to regenerative medicine industry allowing the opportunity to expeditiously get regenerative therapy to the marketplace. That means that with successful technology, Athersys and other regenerative medicine companies may become profitable much sooner than originally anticipated. I also believe it is just a matter of time before other countries follow Japan's lead on allowing for quicker advancement of regenerative medicine for the mere fact that no country wants to be lagging in this expanding industry.

If Athersys shows efficacy in their upcoming trials they will be in a position of power if they choose to partner MultiStem for other indications in their pipeline. I also believe if Athersys proves efficacy that there is a good chance they again partner with Pfizer for advancement of their pipeline in Japan. Pfizer already has a strong presence in Japan and they are already partnered on their IBD study. What I am keeping a watchful eye on is if Athersys expands their partnership with Pfizer to Japan for other indications.

As a long term investor in Athersys who is very interested in regenerative medicine, I am looking at this industry from both a short and long term perspective. If regenerative medicine works, companies like Athersys have the ability to quickly dwarf most other large pharmaceutical companies. For example, Athersys has the most advanced stroke study in the field of regenerative medicine and the stroke industry alone is worth over $15 billion dollars annually for which treatment options are limited. The only available treatment for ischemic stroke is tPA, a "clot buster", which only has a few hour time frame to be administered and it doesn't always work. If MultiStem helps stroke victims, because treatment options are so limited, then Athersys could be worth billions based on this market alone. The legislative changes in Japan give Athersys the potential to get their stroke therapy approved much sooner than originally anticipated assuming it shows therapeutic benefit.

If regenerative medicine works, MultiStem has the potential to treat many different disease processes, each of which are worth billions annually. The Athersys website highlights that the company has its eye on MultiStem for stroke, inflammatory bowel disease, solid organ transplant, diabetes, peripheral vascular disease, acute myocardial infarction, critical limb ischemia, artery disease, congestive heart failure, traumatic brain injury, multiple sclerosis and spinal cord injury; among others. However, if MultiStem truly works to reduce inflammation and promote the healing process through multiple mechanisms of action, then there are many other potential applications. For example, MultiStem could potentially be given to patients post operations to aid in and speed up the healing process, to emergency room patients following trauma, to treat the degeneration, and for patients suffering from cancer.

I am of the opinion that Athersys will show efficacy in the upcoming months. If I happen to be correct, Athersys would have a high probability of being acquired this year. I believe this because the market potential for regenerative medicine is just too large and the legislative changes in Japan will allow successful companies to become profitable much sooner than initially anticipated.

From a funding standpoint, Athersys has recently raised $40M and their stock price continues to appreciate. Athersys now has well over $50M in the bank to fund operations. Bristol Myers (NYSE:BMY) is also paying Athersys for use of their technology and the partnership with RTI Surgical, Inc. (NASDAQ:RTIX) should soon equate to large milestone payments and royalties.

I have written about Athersys in the last year and have provided my personal price targets that I believe should be revised. Given the recent price movement and the continued accumulation of stock, I believe we appreciate to around $6 prior to the Phase 2 results. I initially had an $8-10 price target upon favorable results and now change that to $10 which is consistent with Maxim. If Athersys is actually acquired in 2014, the buyout price would probably be $24-26. If MultiStem works, because of the changes in Japan, I see investors and institutions continue to accumulate stock similar to Celldex Therapeutics (NASDAQ:CLDX) which recently ran from $3 to $38, with a current price of $28. Also by comparison, in 2012 Inhibitex released mid-term clinical data for Hepatitis (another big market opportunity) and the stock price jumped from a few dollars to over $12, and was acquired by Bristol Myers a few weeks later for $26 per share.

While I am personally very bullish on Athersys, all investors should be reminded that there are significant risks with investing in biotech stocks. There is no such thing as a guarantee and there is the real possibility that MultiStem may not meet its primary end points. If that does happen, then shareholders have the risk of losing a significant portion of their investment, as is true for all biotech stocks.

Disclaimer: 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.

Source: Athersys, Inc. And The Future Of Regenerative Medicine