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Summary

  • Topline data due late April for Athersys', Pfizer's phase 2 trial of MultiStem for ulcerative colitis are critical, but immediate effect on the share price of ATHX may be muted.
  • The real move may be delayed until the next tranche of data to be released 8 weeks later, and possibly until Pfizer decides how to proceed.
  • Traders anticipating the upcoming data should be prepared for a delay in any sustained move until somewhere between July-October.

Topline Data for Athersys's (NASDAQ:ATHX) and Pfizer's (NYSE:PFE) joint trial of MultiStem for ulcerative colitis is set to be released in the next few weeks. While a lot is riding on the upcoming data, and the ultimate success of this phase 2 trial will have huge implications for the stock in general either way, I believe the imminent 8-week data will move the stock less than most believe. This article is less of a bullish or bearish case for Athersys as a company than a simple analysis of what may happen following the upcoming data release, whatever it may include. The big move in the stock, whichever direction it may ultimately be, in my opinion will come in Q2 soon after the next tranche of data-the 16-week data-are released. Here's why:

This phase 2 trial can rightly be seen as representative of Athersys's entire pipeline. Athersys lists 11 candidates in its pipeline below, all the way from preclinical to this current phase 2 trial, but they are all based on the same technology, MultiStem. If it fails in one indication, it is more likely to fail in the others. The same goes for success.

(click to enlarge)

The initial results of this trial to be released late April or early May will only be the first word, reporting clinical results on subjects after 8 weeks of treatment with multipotent adult progenitor cells, otherwise known as MAPC's, branded MultiStem. The next tranche of data on 16 weeks post treatment will be released about 8 weeks later, sometime in Q2. With that in mind and these first results being the first large scale human trials on MultiStem, results will likely be mixed and less conclusive than the current level of anticipation warrants. Company president William Lehmann stressed this exact point in the latest Athersys conference call, namely that the trial is a proof of concept study, and while he is confident that Athersys will not "strike out", the trial data will be used mostly to tailor the setup of future trials of MultiStem, and to learn from them.

In Lehmann's words,

I think it is important to note is as you noted that this is a proof of principle, proof of concept study. As Pfizer went into this, the study was designed with that purpose in mind. And we built in an opportunity to learn a lot about the biological activities to sell products.

In other words, the initial 8-week data could be less conclusive than many short term traders would want to see. It is difficult to know how long it takes for MultiStem's MAPC stem cells to take effect. 8 weeks, 16 weeks? At which doses? What if continual dosage is required afterwards? How long do the effects last in humans? What if they only effect some people but not others? It is impossible to know the answers to any of these questions, which may be why the company has structured the data release and the trial itself incrementally, and billed it as a fact-finding trial.

What does this have to do with trading strategies for the data release? If you're approaching Athersys with an open mind with no biases in one direction or another, then the easiest strategy is an option straddle or a call/put spread. But even if you approach it with no hope for any specific outcome, one still has to pick a good expiration date, and on the chance that the initial phase 2 data will be mixed and inconclusive, you don't want that expiration to coincide with the initial data release. A much safer strategy would be to go out well into the second data release scheduled for about 2 months later. Many traders have already made this mistake, as close to 10,000 contracts have been traded with an April 19th expiration date. Over 3,000 have been traded on the $5 call, and over 1,700 on the $2.50 put.

Regardless of whatever the eventual results may be, all of those contracts may end up worthless if Athersys doesn't announce by April 19th, which is very possible, if not probable. But besides that, even if data are released by then, they may not move the stock that significantly overall anyway.

The July/October options are a much better move for placing a spread or straddle, October much better than July, for three reasons. First, the second tranche of data will definitely be out by October (July is cutting it very close). Second, phase 2 data for MultiStem on ischemic stroke victims could be out by July, and positive results there will be more confirmatory of results for ulcerative colitis. Most importantly, by October, Pfizer will probably have made some decision as to how to proceed with the MultiStem ulcerative colitis trials. It is Pfizer's next move rather than the upcoming 8-week data itself which could be the real mover for ATHX, and it is unlikely that Pfizer will make a move immediately when initial data come out.

What specifically to look for in the upcoming data

In that sense, the upcoming 8-week data will be important for front-running traders in terms of predicting how Pfizer may proceed. While safety data are considered a primary endpoint in the trial, nobody expects safety to be enough. Stem cells are not expected to produce serious side effects anyway, so there needs to be some evidence of efficacy, specifically endoscopic score from baseline and improvement in rectal bleeding.

As efficacy is expected to increase with increased dosage, the most important aspect of the upcoming data release will be efficacy in the highest dose cohort. Percentage of improvement in general matters less than the percentage of improvement in the highest dose cohort. If there are signs of improvement in that group of patients, there is a much higher chance that Pfizer will decide to continue with the trials, which would in turn push ATHX much higher later in the year.

Another reason I don't expect the initial results to move the stock too much is that much of that move may have already happened. Athersys is up almost 113% since November in anticipation of the completion of phase 2 and the upcoming top-line data. I do not expect the stock to drop much further from here unless the upcoming 8-week data are very discouraging (which I don't expect them to be).

Primarily though, I believe the initial results of the trial as a whole will be mixed given the various cohorts and subgroups, some even given placebo together with MultiStem at different stages. The press release is likely to be reserved in tone, and traders may be split as to what it means, having a push/pull effect on the price.

Conclusion

Those wanting to trade the upcoming catalysts in Athersys should be prepared for any major move in the stock to be delayed until July or October. These upcoming results due on April/May will nevertheless be very important specifically as regards to the highest dosage cohort. Pay attention to that specifically. Expect a carefully worded, reserved but guardedly positive press release from the company regardless of the results that may seem a bit confusing given the structure of the trial. As July comes around and ischemic stroke results become available in addition to 16-week data on ulcerative colitis, expect Pfizer to make the next move and only then for a big sustained move in the stock to occur.

Bottom line, if Pfizer decides to continue, then ATHX will rise sharply. If not, then the reverse will occur. Whether it ends up being up or down, it will likely occur between July and Ocotber rather than in April or May.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.