Athersys (ATHX) is a clinical-stage biotechnology company focused on developing its proprietary off-the-shelf stem-cell product Multistem, as well as other therapeutic medicines. Founded in 1995, Athersys has created a very diverse pipeline of therapies that the company says could "extend and enhance the quality of human life" and, for its investors, potentially deliver an extraordinarily lucrative return. Its main product, Multistem, is composed of MAPCs (multipotent adult progenitor cells), a member of the Mesenchymal stem-cell family. These cells have been tested in multiple clinical and preclinical trials, and appear to have a distinct advantage over other stem cells. They can be harvested from one consenting adult bone marrow donor, cultivated into millions of doses, and stored on site, providing a potentially liberating method of treatment for patients and clinicians. Multistem is an allogeneic stem-cell method that does not require donor matching, thus creating another advantage for Athersys. I believe Athersys has a strategic advantage over its competitors, and will bring about a substantial return in this upcoming year.
Below are a number of reasons why I endorse Athersys, and firmly believe that it is a strong buy at its current price:
1. Its management team is one of the best ones out there. They could easily be grouped in together with any multibillion dollar company. Gil Van Bokkelen is the chairman and chief executive officer of Athersys. He received his Ph.D. in Genetics from Stanford University, and served as the chairman of the Alliance for Regenerative Medicine. This position has helped make him a recognizable figure in the regenerative medicine world, and has also enabled him to develop great relationships with the FDA. Chief Scientific Officer John Harrington received his Ph.D. in Cancer Biology from Stanford University. He was named one of the top international young scientists by MIT Technology Review, and is a listed inventor on 20 issued or pending U.S. patents. Every other executive has similar credentials. For example, Manal Morsy obtained her PhD, MBA, and MD all from noteworthy universities. Each executive member is well-educated, inherently confident, and has experience with emerging companies. Here are a few of the CEO's recent comments:
However, we intend to be very systematic and patient as we move forward to achieving our goal of building value for our shareholders and establishing Athersys as the leading biopharmaceutical company." (Aug. 13, 2013)
... I think we are grossly undervalued right now. I've made no secret about that. I think that any analysis that can be done, that objectively looks at the upside potential around a program like the stroke program or IBD or some of the other programs, leads one to conclude that if we demonstrate robust results in any of those programs, it's going to have a major impact on the stock. That's my belief, and I think it's founded on a lot of analysis that we've conducted that I think supports the notion that we are meaningfully undervalued. And I think part of it is because the market, or a large segment of the market, really doesn't understand what's happening in the field of regenerative medicine and, I think, in some cases, maybe some people have been burned a little bit in the past because the enthusiasm didn't translate in a way that they were hoping, into tangible impact in certain areas because of poorly designed studies or because of other flaws and limitations that I think people may have been facing. That's exactly why we've taken so much time, care and effort to make sure that we're doing things the right way. (Nov. 14, 2013)
2. The company has an exceptionally diverse pipeline.
Inflammatory and Immune
- IBD: Phase ll study partnered with Pfizer for evaluating the efficacy of Multistem in patients with Ulcerative Colitis. There are a number of factors that hint towards positive results for this study. For one, Athersys demonstrated positive preclinical results in this indication. Additionally, Osiris Therapeutics already had positive Phase ll and Phase lll results for Chron's disease (another form of IBD) using a less primitive type of stem cell (MSCs) when compared to MAPCs. Enrollment in this study just recently completed, and results are expected around the first quarter of 2014.
- GVHD: Orphan drug designated indication in both the U.S. and now Europe. A favorable Phase l study has already been completed. Results showed that patients who were given Multistem as a part of their treatment of leukemia or other hematological conditions demonstrated a clean safety profile, and while the study wasn't meant to demonstrate efficacy, Athersys observed clinically meaningful improvement in medically important parameters.
Neurological
- Ischemic Stroke: Phase ll study is currently being conducted around the world. Dr. Van Bokkelen revealed that not long ago, Athersys held a trial investigator meeting with the clinicians and study site coordinators and stated, "During the meeting, leading clinicians from a couple of the highest-enrolling sites shared their experience with the other study site investigators and site coordinators, and it's fair to say there was a lot of excitement at the meeting. Our enthusiasm for the study remains very high. We believe that this approach has tremendous potential and could represent a major advance in stroke clinical care." The stroke market represents a $15 to $20 billion market opportunity annually, and Multistem has a good chance of being therapeutically beneficial to this indication. Athersys' preclinical work had intriguing results. Inside a published press release, they noted that "Researchers observed that intravenous administration of MultiStem one day after a stroke resulted in a substantial reduction in brain tissue loss 28 days post-stroke." Additionally, this interesting video is public knowledge and also helps keep optimism at a high level.
- TBI: There is exciting preclinical work in this indication. After analyzing their pre-clinical results, they released a press release titled "Athersys Announces Groundbreaking Data Showing Neuroprotective Effects of Multistem Therapy for Traumatic Brain Injury." Findings indicate that "The idea that the administration of MultiStem after a traumatic brain injury could potentially act to modulate the body's systemic immunologic and inflammatory response via other organ systems is both exciting and groundbreaking."
- MS: Again, exciting preclinical work and findings here. Athersys notes that "Multiple sclerosis presents as a neurological disorder, but a central component underlying the disease is immune system dysfunction. The results of our latest preclinical studies confirm that the immunomodulatory and regenerative properties of MultiStem therapy could have relevance for treatment of this disease." Additionally, Athersys entered into a collaboration in 2011 with Fast Forward, LLC, to receive up to $640,000 to pursue possibilities in treating MS with Multistem based on stimulating data.
- Spinal Cord Injury: After performing preclinical work and presenting data, they released an article titled "Athersys Presents New Data Demonstrating Potential Benefits From Multistem After Spinal Cord Injury." Athersys was given a $1 million grant through the Ohio Third Frontier Biomedical Program to explore possible use of Multistem in SCI.
- Even more preclinical programs are being pursued in the neurological branch -- neonatal hypoxic ischemia, Parkinson's disease, etc.
Cardiovascular
- Acute Myocardial Infarction: Phase l study has already been completed with favorable results. Nineteen patients were given Multistem in different dosage levels, and results were positive in all levels. "Athersys, Inc. announced the online publication today in Circulation Research of results from a Phase l clinical study that found that the delivery of MultiStem® was safe and well tolerated in patients who had recently suffered an acute myocardial infarction (AMI). The data also suggest improved cardiovascular performance, particularly among patients with severely compromised heart function." Athersys was awarded the SBIR fast track grant of 2.8 million dollars to explore this indication. A Phase ll trial is expected to be initiated in 2014.
- Peripheral Vascular Disease: Positive preclinical findings in this indication -- there have been articles published in two peer-reviewed scientific journals regarding the significance of Multistem benefiting PVD.
- Congestive Heart Failure: Preclinical findings suggest that Multistem may provide therapeutic benefits in this indication. In 2008 alone, the estimated total cost of heart failure in the United States was $37.2 billion.
Other Therapies
- 5HT2c Drug Compound: This has the potential to treat obesity and other problems like schizophrenia. The company has revealed that they are developing compounds designed to treat obesity that act by stimulating a key receptor in the brain which regulates appetite and food intake- the 5HT2c receptor. Also, previous studies have shown that some 5HT2c agonists may have relevance for the treatment of particular types of neurological conditions. Management has shown great enthusiasm for this compound, as Dr. Van Bokkelen stated in the last call that he is "absolutely convinced" that Athersys is going to deliver a top-notch clean, safety profile, with an absence of some of the limitations that other approaches have shown, as well as robust, compelling weight loss. Athersys has been in partnership discussions with this compound and are being exceptionally selective with its choice.
- RAGE: This is a gene expression system developed by Athersys' scientists that provides the unique ability to produce protein from virtually any gene in the human genome, without requiring the cloning of individual genes or use of cDNA libraries. They have had a long standing partnership with Bristol-Myers Squibb (BMY), a leading biopharmaceutical company, utilizing the RAGE technology.
3. New regulatory laws in Japan regarding stem cells may provide the sector with dramatic possibilities. The new law allows the government to approve such products (regenerative medicines) conditionally if their safety in clinical trials is confirmed, even if their efficacy is not yet verified. Athersys has the most clinically advanced regenerative medicine stroke trial. Japanese officials may be keenly interested in Multistem as stroke is also the leading cause of death in Japan. Athersys has already developed relationships with professionals and regulators in Japan. Members from Athersys had another visit to Japan this past month, and we are waiting for feedback from Athersys about the meetings. Japan is clearly excited about regenerative medicine, and in my opinion, anxious to commercialize Multistem.
4. There is a relatively small short interest. As of Dec. 15 only 1.71% of the shares are being shorted, indicating a generally positive outlook from investors.
5. Athersys is in collaboration with RTI Biologics (RTIX) to use Multistem to isolate and preserve cells from organ donors. Athersys has been awarded payments for reaching milestones already, and should be receiving additional payments in the future. In August 2013, RTI announced completion of the first human implantation of the company's map3 Cellular Allogeneic Bone Graft implant. Map3 incorporates MAPC based technology, which is licensed from Athersys for this orthopedic application. This work further validates the safety, toleration, and potential of MAPCs in humans.
6. As a publicly traded company, Athersys is extremely undervalued and underappreciated. Analyzing the market capitalizations of other regenerative medicine companies with less-diverse pipelines (Mesoblast (MSLTY), Cytori Therapeutics (CYTX), and Osiris Therapeutics (OSIR)) shows that it is not properly valued. When considering the potential market for each of these neurological, cardiovascular, inflammatory and immune indications, the unfair valuation is even more evident.
Common Concerns
Recent insider selling from executives like John Harrington, who sold 30,000 shares on Sept. 20, 2013, brought up concerns among many investors. One should not worry however, as this was a relatively small number of his shares -- only 30,000 of his then 621,576, and occurred for taxation purposes.
There is a common fear in small-cap biotechnology companies about running out of funds, and diluting shares in order to raise capital. However, I believe that Athersys is in a great financial position, and can easily sustain its business operations for at least the next two years. It is important to note that there was a financing agreement recently made with Aspire Capital to raise up to $25 million of funds if needed. The agreement represents an additional tool for accessing capital to complement business collaborations, grants and traditional fundraising. This deal will allow Athersys to continue extensive research and development on Multistem, and will enable them to further pursue other programs as well.
Along with the Aspire deal, Athersys did a direct offering on Nov. 27, and raised another $20 million in capital. At the 25th Annual Piper Jaffray Healthcare Conference, William (B.J.) Lehmann provided additional details about the offering. It is important to note that Athersys was contacted first about this deal by existing shareholders, eager to accumulate more shares. I see this as a benefit across the board for Athersys. It reinforces my belief in Athersys' management, as I believe they were smart to make this deal. It gives them added financial strength, and it strengthens the generally positive investor sentiment toward this company.
"The stock price won't increase until results are released." This is a common misconception held among a number of retail and institutional investors of companies in the biotechnology sector. There is an abundance of ways this stock could go up, and not just necessarily on the release of critical data. Also, I believe that there is going to be a run-up in anticipation of results being released. In fact, Edison Investment Research, a leading international investment research firm, values Athersys at $3.40 per share, ahead of key catalysts.
Stem cells have traditionally been a rather controversial issue because of the use of embryonic stem cells harvested from human embryos. This practice has become near prehistoric in regard to the current methods of harvesting and cultivating stem cells. Athersys' method of obtaining stem cells from consenting adult bone marrow donors eliminates any ethical concerns, and is finally bringing back the excitement to the world of regenerative medicines.
I believe that Athersys is a very undervalued company, with exceptional potential. It is for the reasons aforementioned, an impressive list of explosive catalysts, that I feel this way. Though the two main drivers for the company this year will be the results of the two Phase II clinical studies, one should not belittle the other catalysts that Athersys has. An update from the Japan visit or a partnership in one of the many indications represent just a few of the ways that Athersys' undervalued share price could be significantly shifted in the right direction.
Many feel as if 2014 may be the year for regenerative medicine, and I am confident that Athersys will hold its place among the top companies in this field. Though investing in small-cap biotech stocks is often thought of as a risky idea, when one does true due diligence in investing, that risk can be greatly reduced. I wholeheartedly believe that Athersys will be a significant winner for many years to come, and that this year will go down as one of the most pivotal in its history.
Disclosure: I am long ATHX. 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.
