Athersys, Inc: The Facts

| About: Athersys, Inc. (ATHX)
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On March 27, 2013, Seeking Alpha published my article Athersys, Inc. Has Blockbuster Potential. Following that publication, I received many requests from investors regarding potential valuation for Athersys (NASDAQ:ATHX), so I wrote a follow-up article Athersys: Valuation that was published on April 12, 2013. I had no intent of publishing another article in the short term on Athersys until the article Trading Athersys: Risks and Rewards by BlackbirdAnalytics was published on Friday. While I wholly believe that people have the right to express their opinions about stocks, I believe Friday's article misstated some material facts.

BlackbirdAnalytics implied in their article that Athersys was somehow related to some type of fraud and data falsification going back to an article published in 2001 by someone who was never an employee of Athersys. According to Athersys, there have never been any fraud allegations brought against the company nor has anyone ever questioned its scientific integrity or quality. The MultiStem platform has also been modified over time and Athersys did not really begin publishing their "platform data" until around 2007. Since 2007, I believe that Athersys is one of the most published companies in highly respected peer reviewed journals in the field of regenerative medicine, having been published more than 20 times. Furthermore, MultiStem has been tested in different states and countries, with leading institutions, and each have independently concluded that MultiStem may provide therapeutic benefit.


April 17, 2013:

The Medicines and Healthcare products Regulatory Agency (MHRA) approved Athersys's request to expand its ongoing Phase II study for ischemic stroke in the United Kingdom for the purpose of expediting enrollment in the stroke trial.

April 10, 2013:

Published in Journal of Immunology on April 1, 2013: MultiStem shows potential to treat a number of inflammatory and immune-mediated conditions, including Type 1 diabetes, graft-versus-host disease, solid organ transplantation, inflammatory bowel disease, and other autoimmune diseases, such as scleroderma, lupus and rheumatoid arthritis.

Scientists from: Kings College, London and Pfizer

Published in medical journal Circulation in 2013: MultiStem treatment shows potential to treat Critical limb ischemia (CLI), an advanced form of PVD.

Scientists from: Oregon Health & Science University

October 15, 2012: MultiStem may benefit patients after Spinal Cord Injury.

Scientists from: Case Western Reserve University School of Medicine, and with grant support from Ohio Third Frontier.

October 10, 2012: MultiStem may benefit patients after Acute Brain Injury.

Published in peer-reviewed scientific journal, Journal of Neuroinflammation.

Scientists from: University of Texas Health Science Center at Houston.

October 5, 2012: MultiStem treatment could benefit Multiple Sclerosis patients.

Scientists from: Case Western Reserve University School of Medicine, and with the support of Fast Forward, a subsidiary of the National Multiple Sclerosis Society.

July 10, 2012: MultiStem treatment could benefit those with Hurler's Syndrome.

Published in journal, Cell Transplantation

Scientists from: University of Minnesota

February 3, 2012: MultiStem showed positive data for the treatment of stroke.

Scientists from: University of Texas Health Science Center.

November 4, 2011: MultiStem treatment for Acute Myocardial Infarction published in journal, Circulation Research.

Scientists from: 7 Centers in the United States including Cleveland Clinic, New York Presbyterian Hospital and Henry Ford Medical Center.

Why is the aforesaid important:

1. MultiStem has consistently shown potential medical benefit for a wide variety of therapeutic indications.

2. The results of MultiStem have been consistent while the studies were performed at different clinics and with different scientists. That eliminates any human error or any allegations of skewed data that BlackbirdAnalytics was chirping about on Friday.

MultiStem for Irritable Bowel Disease

BlackbirdAnalytics also believes that MultiStem only has a 5% chance of success for their Irritable Bowel Study, a study that includes treatment for Crohn's disease. Personally, I find it difficult to believe that Pfizer (NYSE:PFE) would enter into a $110M partnership with Athersys (not including royalties) if they believed their chance of success was only 5%. Moreover, Athersys's competitor, Osiris Therapeutics (NASDAQ:OSIR) is utilizing a stem cell technology that, like MultiStem, modulates immune responses which is key for the treatment of Crohn's and other autoimmune conditions. Osiris had positive Phase II data for Crohn's and is enrolling patients for their Phase III study. The point: another stem cell company achieved positive Phase II data for the treatment of a type of irritable bowel where the modalities of treatment were similar to MultiStem. As such, I disagree that Athersys only has a 5% chance for success. It should also be noted that Osiris's market cap is 3.5 times greater than that of Athersys; another reason why I believe Athersys is undervalued.

MultiStem is also different from Osiris's technology and is potentially better. According to the company, MultiStem has shown different potency (e.g., protein expression etc.), which in certain models has resulted in better performance. Also according to the company, MultiStem can also be produced to greater scale, given its greater expansion potential, and with better product consistency. As such, MultiStem may be better than the competition because 1.) it may be produced on an industrial scale, 2.) it can be administered without tissue matching, 3.) it exhibits a consistent safety profile, and 4.) it appears capable of delivering therapeutic benefit through multiple mechanisms.

No one knows whether the Irritable Bowel Study will show efficacy since it is a blinded study. There is also clearly a risk that MultiStem, as with all biotech stocks performing clinical research, may not work. However, consideration should be given to the fact that another stem cell company with a similar treatment modality has produced positive Phase II data for the treatment of Crohn's. I still also like to believe that Pfizer chose to partner with Athersys for IB for a reason.

MultiStem for Ischemic Stroke

BlackbirdAnalytics also unfairly compared Athersys to Aldagen (now Cytomedix).

The facts: Aldagen used autologous technology that focused on the isolation of a subpopulation called ALD bright cells. According to Athersys, Aldagen technology is different from MultiStem in multiple dimensions, and the autologous approach adds clinical complexity (e.g., bone marrow draw from patient, isolation process, and re-administration of the product into the patients) compared to MultiStem. According to the company, MultiStem's allogeneic approach that does not require these extra process steps, and ensures product consistency. Aldagen was also treating patients 13-19 days post stroke while the ongoing MultiStem study is treating patients within 36 hours of stroke onset. As with most diseases in medicine, it is believed the sooner the diagnosis and treatment, the better the potential outcome. Due to Aldagen's inferior technology, the company failed to go public twice, and ultimately ran out of money.

According to some analysts, Athersys is #1 when it comes to stem cell treatment for stroke. See #5 below.

Risk versus Reward Analysis: Why Athersys is my #1 pick for a stem cell company.

1.) At a $100M market cap, Athersys appears to be the biggest bargain when it comes to stem cell companies compared to its competitors as stated in my April 12, 2013 article. It is also extremely undervalued when you consider the potential value of their pipeline, the Pfizer partnership, and the potential for their ischemic stroke study. Fundamentally the company has no debt and good sized cash position.

2.) Athersys should begin generating revenues in 2013 with partner RTI Biologics (NASDAQ:RTIX) in addition to Athersys being entitled to $30M in milestone payments. Based on research and testing, RTI believes the following regarding Athersys's technology: "The MAP3 bone graft is a natural, safe alternative to autograft and will be available in multiple sizes and configuration ..." This is another validation regarding Athersys technology.

3.) "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." Due to multiple modalities for treatment, the potential to show efficacy may be increased.

4.) Competitor, Osiris, achieved positive Phase II data for their stem cell product for the treatment of Crohn's. Because MultiStem, like Osiris technology modulates immune responses, one can argue that MultiStem also has a good chance to achieve favorable Phase II data. Although Athersys is behind Osiris in this study, MultiStem may have greater potency and their product appears easier to be mass produced. On November 1, 2012, Athersys received a Cell Therapy Manufacturing Award for the "Technical Application of the Decade" in manufacturing. Athersys is also partnered with Pfizer for this indication and may be entitled to a large cash infusion if the Phase II data is positive.

5.) MultiStem for Stroke. MultiStem for ischemic stroke is probably the number 1 reason why I am so optimistic about Athersys and it being so undervalued. MultiStem for stroke can potentially generate $15 Billion annually as was discussed in my prior article utilizing an outside party's valuation analysis. Treatment options for stroke are severely limited as was discussed in my prior article and Athersys is expediting the stroke enrollment study. When it comes to stroke, I believe that Athersys has the greatest potential to generate effective therapy and ultimately a commercial launch. With MultiStem, physicians do not have to worry about tissue matching. The ongoing MultiStem clinical trials for ischemic stroke are being evaluated for treatment up to 36 hours post stroke, unlike other stroke studies. From a medical standpoint, it makes sense that the sooner medical treatment is instituted, the greater the chance for medical benefit. In preclinical and clinical trials MultiStem was found to regulate the immune system, protect damaged or injured cells, and promote tissue repair and healing. Analyst Jason Kolbert of Maxim also believes Athersys is #1 when it comes to MultiStem for ischemic stroke. Jason Kolbert was a panelist at the 2013 Alliance for Regenerative Medicine meeting. His video can be seen for free at: in the Athersys message board. You can fast forward to minute 10:20 of the video to hear his position on Athersys. Phase II data for stroke is expected end of 2013 or early 2014 depending on response to expedited enrollment.

6.) Athersys is clinically advancing its Graft v. Host Disease trial that has large market potential. This indication has not yet been partnered.

7.) Athersys can partner or begin to advance into Phase II, MultiStem for Acute Myocardial Infarction that has large market potential.

8.) Athersys obtained orphan drug status for Hurler's syndrome in 2012, which has large market potential, and that may be partnered soon.

9.) Athersys has more than 80 regenerative medicine patents that should significantly add value to the company.

10.) In October 2012, Athersys presented data at the Society of Neuroscience indicating that MultiStem has the potential to treat Spinal Cord Injury. This indication has not yet been partnered.

11.) In October 2012, Athersys was published wherein MultiStem may be effective in reducing inflammation and promoting healing following and acute brain injury. This indication has not yet been partnered.

12.) In October 2012, Athersys research indicated that MultiStem may be effective in treating Multiple Sclerosis. This indication has not yet been partnered.

13.) MultiStem can potentially provide therapeutic benefit for a variety of other indications including, but not limited to: 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.

14.) According to Athersys management during their conference call, "more of the bigger companies are actually starting to pay attention to the sector. Pfizer, Shire Plc (NASDAQ:SHPG), Johnson & Johnson (NYSE:JNJ), Roche (OTCQX:RHHBY), 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." This leads me to believe that the advancements in regenerative medicine are being watched much closer by large pharmaceuticals.

15.) Athersys has 5HT2c, a potentially very valuable compound for the treatment of obesity, diabetes and schizophrenia and the company has been actively engaged in a variety of partnering discussions. A partnership could mean a cash infusion and future royalties.

16.) Athersys has been actively involved in a variety of partnering discussions for MultiStem. A partnership could mean cash infusion and future royalties.

17.) If Phase II data for Irritable Bowel and/or Stroke are positive, Athersys will be in a strong position to partner those or other indications if they choose to do so.

18.) If Phase II data for Irritable Bowel and/or Stroke are positive, Athersys may be able to expedite clinical studies for other indications in their pipeline since MultiStem would have already been extensively tested for safety.

19.) Great Management. Gil Van Bokkelen, Ph.D. is the Chairman and CEO of Athersys. Dr. Van Bokkelen is the current Chairman of the Center for Stem Cells and Regenerative Medicine, and has served on a number of other boards, including the Biotechnology Industry Organization's ECS Board of Directors and the Kent State University Board of Trustees. He received his Ph.D. in Genetics from Stanford University and his B.A. in Molecular Biology from the University of California at Berkeley. Dr. Bokkelen presented at the 2013 Alliance for Regenerative Medicine. You can see his presentation for free at: in the message board for Athersys. His presentation starts at minute 56 of the video.

20.) If the Phase II data for Irritable Bowel and/or Stroke are positive, Athersys could quickly be acquired by a large pharmaceutical company.

The Risks

The biggest risk with being invested in Athersys is if MultiStem does not work. MultiStem failure would equate to a significant loss for investors. The other risk is if Athersys needed to raise cash by stock dilution. This could potentially equate to a short or long-term loss on one's investment. However, given the consistency between the preclinical and clinical trials at varying institutions, the low market cap, the large market potential, a variety of potential partnerships, the potentials for cash infusion, and all the reasons stated above, I am LONG ATHX. I see a $4 Athersys price target when placed into comparison of competitors and positive phase 2 data could easily justify a $7-8 stock price.

One final comment about Friday's article… BlackbirdAnalytics disclosed he was long ATHX stock, long ATHX April call options but he believed they would expire worthless, that he may short ATHX or he may go long. From one individual investor to another, don't ever invest in anything if you are unsure whether to go long or short, and make sure you know the facts.

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.