A Comprehensive Look At Athersys

| About: Athersys, Inc. (ATHX)
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Biotechnology investors may want to take a look at Athersys, Inc. (NASDAQ:ATHX), a quiet leader in the regenerative medicine field with a meager $308 million market cap. This figure includes the two post-November 2013 offerings and it's more accurate than the lower market cap frequently posted on the web, including here under key ratios. A $3.85 share value was used in calculating the current market cap and was the closing price on January 31st, 2014.

At first glance, investors will quickly see what looks like a company that's at a distinct disadvantage compared to direct competitor Mesoblast Limited (MBLTY). Mesoblast, with its market cap of $1.84 billion, has certain financial leverage not available to Athersys in terms of ability to raise capital for new ventures and sustain current ones. This article will take a harder look at the comparison between Athersys and Mesoblast later. Despite the apparent disadvantage, Athersys is not in dire straits financially. Athersys is enjoying one of its best financial positions in years, having recently held two registered direct offerings, and announced entry into a $25-million equity facility deal with Aspire Capital that should allow Athersys added financial strength and flexibility.

On another positive note, Athersys enjoys a low-to-modest burn rate, and with alliances like the ones seen below, it is a compelling investment opportunity.

Recent coverage initiated by Edison states that they value Athersys shares at $4.85, ahead of key catalysts.

Key domestic alliances

Pfizer, Inc. (NYSE:PFE)

RTI Surgical Inc. (NASDAQ:RTIX)

University Hospitals Case Medical Center

Alliance for Regenerative Medicine

National Center for Regenerative Medicine

Medpace, Inc. - Collaborator Ischemic Stroke

European alliances

ReGenesys BVBA - European subsidiary based in Belgium

Lonza Group AG-REG (OTCPK:LZAGY) - headquartered in Basel, Switzerland

Lonza-manufactured initial clinical grade MultiStem - since that time ReGenesys scientists, with the support of Terumo BCT of Lakewood, Colorado, demonstrated that MultiStem cell therapy could be successfully manufactured in an automated bioreactor system

Alliances could boost financial outlook

RTI Surgical has recently started utilizing MAP3 cellular allogeneic bone grafts. This MAP3 technology is based on a license to use MultiStem granted to it from Athersys. The license fee paid to Athersys was $3 million, with an additional $2 million contingent upon achievement of development and commercialization milestones. An additional maximum total of $35.5 million is due Athersys when specified cumulative revenue milestones are met. Receiving the later milestone payments will reflect success of MAP3 technology in a fast-growing market. Additionally, Athersys will receive tiered royalties from the distribution of implants using MAP3 technology.

Pfizer and Athersys have an Inflammatory Bowel Disease (NYSEARCA:IBD) collaboration, where Athersys received an upfront license fee of $6 million. Athersys also receives research funding and support during the phase II trial. In addition to the license fee and research funding, Athersys is also eligible to receive milestone payments of up to $105 million upon the successful achievement of certain development, regulatory and commercial milestones. If the phase II data due out at the end of April 2014 is positive, Athersys should see milestone money start coming in. Worthy of mentioning here is the option Athersys has in lieu of royalties and certain milestones. Athersys may choose to co-develop with Pfizer, where the parties share development and commercialization expenses as well as profits/losses on an agreed basis beginning with the phase III clinical development.

Past alliance termination benefits both parties

Athersys and Angiotech negotiated an agreement to terminate a collaboration and license agreement between themselves. As a result of the termination, Athersys has regained all rights for developing its stem cell technologies and products for cardiovascular disease indications, including AMI, congestive heart failure, chronic ischemia and peripheral vascular disease, and Angiotech will no longer have any license rights or options with respect to Athersys technologies and products.

Through the termination, Angiotech will have no further funding obligations as relates to these programs. Although the termination will negatively affect Athersys's future costs of development for ongoing cardiovascular programs, such as AMI, it also removes a significant encumbrance affecting Athersys's business development opportunities with other pharmaceutical, biotechnology and medical products companies.

In the case of a new AMI collaboration, Angiotech is entitled to a future payment from Athersys equal to a percentage of the upfront cash license fees Athersys receives from the third-party partner, but will not be entitled to receive any other payments or residual economic participation such as milestones, royalties and profit-sharing. Angiotech will retain its shares of Athersys common stock acquired through the collaboration, and will cooperate with Athersys in the event Angiotech elects to pursue a disposition of its shares in the future.

The main focus

The main focus at Athersys is on MultiStem - a cryopreserved allogeneic cell product derived from bone marrow. Specifically, MultiStem that is comprised of multipotent adult progenitor cells (MAPCs), an adherent stem cell population that belongs to the mesenchymal-type progenitor cell family. MultiStem allows Athersys to pursue multiple opportunities from a single platform having the potential to treat a range of distinct disease indications including a range of orphan indications. The scope of potential applications continues growing for MultiStem. Some of the potential indications include: inflammatory bowel disease, ischemic stroke, acute myocardial infarction, autoimmune disease, certain neurological diseases, spinal cord injury, multiple sclerosis, traumatic brain injury, congestive heart failure, diabetes, solid organ transplant, graft versus host disease, periodontal regeneration, Hurlers syndrome and many more. A huge advantage with MultiStem is in its ability to be refrigerated and stored after being manufactured in an automated bioreactor. The result will be ease of use as MultiStem is stored on-site and is analogous to type "O" blood, meaning it can be used on unrelated patients without tissue matching. MultiStem reportedly has a shelf life of up to five years, making it an easy-to-use product and likely favorite among staff and physicians.

MAPCs enjoy a broad differentiation potential and extensive expansion capacity. A comparative study between human mesenchymal stem cells (hMSCs) and human MAPCs (hMAPCs) has shown that hMAPCs have clearly distinct phenotypical and functional characteristics from hMSCs. In particular, hMAPCs express lower levels of MHC class I than hMSCs, and cannot only differentiate into typical mesenchymal cell types but can also differentiate in vitro and in vivo into functional endothelial cells. Currently, the clinical grade stem cell product MultiStem made up of hMAPCs is already used in clinical trials to prevent graft-versus-host disease (GVHD), as well as for the treatment of acute myocardial infarction, ischemic stroke and ulcerative colitis. It's demonstrated that hMAPCs are nonimmunogenic for T-cell proliferation and cytokine production. In addition, hMAPCs exert strong immunosuppressive effects on T-cell alloreactivity and on T-cell proliferation induced by mitogens and recall antigens. This immunomodulatory effect was not MHC-restricted, which makes off-the-shelf use promising.

Athersys also uses random activation of gene expression (RAGE) to perform drug discovery in-house, and has formed partnerships to use this technology with some of the biggest names in the pharmaceutical industry, including Johnson & Johnson (NYSE:JNJ) and Bristol-Myers Squibb Company (NYSE:BMY). Using RAGE to activate protein production in MAPCs, Athersys will determine which proteins cause MAPCs to differentiate into specific cell and tissue types. Once it has identified these proteins, Athersys can use them in a discovery process. Identifying ways to coax MAPCs into becoming nerve cells or heart cells, for example, has enormous therapeutic potential to address many diseases, including age-related problems that are anticipated to grow in the coming years. MAPCs have also been noted to bring lasting improvements to brain injury patients.

The good news does not stop there with Athersys. Athersys, using its technology, has developed a small molecule program that is independent of the regenerative medicine side of the house. An example that's come out of the small molecule program is a new class of compounds that target the 5HT2 receptor system. Without going into detail, one specific candidate is ATH-91385. Better known as the anti-obesity drug candidate. Currently, Athersys is seeking a partnership with someone to develop this candidate.

Further, Athersys believes that there are significant opportunities for synergy between its small molecule platform plus related capabilities and its MultiStem technology.

Athersys achieved orphan drug status in 2010 for GVHD, and for Hurler's Syndrome in 2012. As Athersys continues to move its technology forward, it's starting to get noticed, as can be seen in the August, 2013 fast track grant for MultiStem in heart attack patients, supporting a phase II study for acute myocardial infarction.

Upcoming catalysts

The Pfizer/Athersys phase II trial for ulcerative colitis (UC) is pointing towards favorable results. MAPCs belong to the mesenchymal-type progenitor cell family. The mesenchymal cells have already moved to phase III, in a Crohn's disease trial conducted by Osiris Therapeutics, Inc. (NASDAQ:OSIR) without serious issue. Mesoblast, having purchased rights to the Osiris regenerative medicine platform, is now conducting the remainder of that phase III trial. MAPCs are thought equal to the mesenchymal cell type in the ways that matter for the trial, and better in certain instances. MAPCs have the same properties plus MAPCs do not induce proliferation of allogeneic T cells, consistent with their immune phenotypic characteristics. Athersys intends to announce the results from the phase II study in two parts, with the initial results expected around April or May this year. The next part results are expected to be available towards the end of the second quarter of 2014. UC is competitive, yet compelling, and positive results will be seen as validation of the entire MultiStem platform. Past results from rodent models of T cell mediated immune damage show how MultiStem treatment is able to promote the repair of inflamed and damaged GI tissue. With a strong safety profile, movement to phase III seems nearly a certainty for Athersys. A large percentage of companies see safety concerns identified in phase II trials and easily move on to a phase III trial designed to address those concerns. In the case of MultiStem, moving on to phase III is probably certain as was just mentioned. That's because the safety track record of MultiStem is nearly impeccable. The strength of the coming data will determine Pfizer's next step, and any long-term safety issue would likely be identified as a sub-population of patients with other issues.

For those further interested in the ulcerative colitis trial, see the following: Anticipating A Phase III IBD Trial.

In July of 2014, a second phase II trial for ischemic stroke will also be releasing top line data. An independent safety committee reviewed data from patients receiving MultiStem within approximately 1 to 2 days after they had experienced an ischemic stroke, finding that both of the doses evaluated were safe and well-tolerated. As a result, the committee recommended proceeding with high dose administration to patients for the remainder of the trial. The study is currently being conducted in multiple centers throughout the United States. There are signs this trial is going very well, including a Youtube video of a man enrolled in the trial. Investors can assume the man in the video is not getting MultiStem if they want, however, due to the rapid improvement seen in the CT-scan, it seems more likely he's getting MultiStem. It's a double blind study, so one can't be sure till the results are in. If the trial is successful, MultiStem could be well on its way to becoming a remarkable treatment for ischemic stroke. Investors should also consider that Athersys may have a potential stroke therapy monopoly.

Other potential catalysts

Here's a list of some other potential catalysts:

●Initiation of the GvHD phase II/III trial with potential partnering news

●Initiation of the acute myocardial infarction phase II trial

●Realization of a partnership for the obesity drug

●Realization of a partnership for ischemic stroke

●Future grants or awards

●Potential milestone payments from RTI or Pfizer

●Regulatory changes to accelerate regenerative medicine use in Japan may bring development and partnering news for rights to the Japanese market.

Potential investors may want to take a look at the Ramifications of Japanese legislation. Investors should also note, Athersys announced in early January 2014: New Patents in Japan.

Upcoming event

Athersys will be presenting at the 2nd Annual Regenerative Medicine Investor Day on March 26, 2014. This event is occurring at a time when the whole regenerative medicine community should be anxiously awaiting Athersys's phase II data release on its ulcerative colitis trial.

The initial slate of presenting companies includes: Athersys, BioTime, Inc. (NYSEMKT:BTX), Capricor Therepeutics, Inc. (NASDAQ:CAPR), Cytori Therapeutics, Inc. (NASDAQ:CYTX) Fibrocell Science, Inc. (NASDAQ:FCSC), Harvard Apparatus Regenerative Technology, Inc. (HART), ISTO Technologies, Juventas Therapeutics, Mesoblast, MiMedx Group, Inc. (NASDAQ:MDXG), NeoStem, Inc. (NBS), Pluristem Therapeutics, Organovo Holdings, Inc. (NASDAQ:ONVO) Oxford BioMedica, (OXO.F) Prima BioMed, Ltd. (PBMD), ReNeuron Group, (OTCPK:RNUGF), Sangamo BioSciences, Inc. (NASDAQ:SGMO), StemCells, Inc. (STEM) and TiGenix (OTC:TGXSF).

Competitor comparison

Mesoblast Limited

There's no doubt Mesoblast, mentioned before in this article with its $1.84 billion market cap, will be a competitor, but Athersys will compete effectively using the MultiStem platform. There's a few direct comparisons that can be drawn between MultiStem and Mesoblast's efforts, with MultiStem appearing to outperform its larger peer in function and scalability, and from early clinical results in areas like transplantation support and treating damage from heart attacks. Though the Mesoblast mesenchymal precursor cells (MPCs) sound a lot like the MAPCs used by Athersys, they are different. MAPCS, for example, have better manufacturing characteristics and a favorable potency.

Athersys and Mesoblast both enjoy some form of backing by big pharmas, with the advantage currently going to the Teva Pharmaceutical Industries Limited (NYSE:TEVA) (formerly Cephalon) relationship enjoyed by Mesoblast. If Pfizer, however, decides to expand its relationship with Athersys upon certain achievements in their collaboration, look for the Mesoblast advantage to be lessened or potentially reversed. Cephalon (now Teva) took a large stake in Mesoblast and bought the rights to market the Australian company's adult stem-cell therapies for heart and nervous system conditions in a deal potentially worth more than $2 billion. In comparison, the Pfizer commitment to Athersys is much smaller. The maximum total potential of that deal is $111 million, not including potential royalties.

What can be extrapolated from the above is how much growth Athersys really has potential for. After all, Mesoblast, like Athersys, is still in its infancy.

When Athersys enters into a phase III trial and gets its small molecule obesity drug partnered, its market value should approach, and potentially exceed the current market value of Mesoblast. In many cases, MAPCs are potentially better cells therapeutically than MPCs. Athersys is also an American company where a far greater return can be achieved long-term.

Investors who wish to make an informed decision will look at the emerging stem cell industry as a whole, including comparisons of competing companies like Athersys and Mesoblast, and Athersys's long-term potential.

Cytori Therapeutics, Inc.

Cytori Therapeutics, Inc. is another cell therapy company that engages in developing cell therapies based on autologous, adipose-derived regenerative cells (ADRCs). The focus at Cytori is to treat ischemic heart disease and other medical conditions. Cytori's autologous cells are taken from an on-site patient and processed on site. The patients then get back their own cells for treatment. Cytori also provides equipment to sites so that they can process ADRCs. The ADRCs' advantage over MAPCs is that more stem cells can be harvested from adipose tissue as opposed to bone marrow, MAPCs are harvested from the latter. While the aforementioned is true, the advantage of ADRCs is lost today because of the automated bioreactor manufacturing used to expand the number of MAPCs. It used to be that adipose tissue was less invasive and less expensive than bone marrow to obtain, however, MAPCs can now be stored on-site for up to 5 years. All a physician needs to do is walk over to a storage unit and grab a container of MultiStem. These stored MAPCs are ready to be used without the harvesting and on-site processing that Cytori's adipose tissue will require. Processing is necessary for adipose cells to ensure purity and make certain the patient is getting sterile cells back. Claims to the contrary are frequent selling points used when talking about ADRCs. Cytori markets its Celution system for the processing of adipose-derived cells, underscoring the above point.

MAPCs do not express major histocompatibiliy and express low levels of the transcription factors, likely why no tissue matching is needed and MultiStem can be used off-the-shelf in unrelated patients as can ADRCs. Though MAPCs and ADRCs can both be used to prevent the host tissue rejection seen with other cell lines, ADRCs are autologus cells and retain a slight advantage over any other cell line in prevention of tissue rejection, warranted or not.

MAPCs have the advantage in plasticity. Plasticity may in the future allow for natural differentiation to find specific properties needed to treat certain disease states. This was covered in more detail earlier in the article. The MAPCs demonstrate remarkable differentiation capability along the epithelial, endothelial, neuronal, myogenic, hematopoeitic, osteogenic, hepatic, chondrogenic and adipogenic lineages. Initial results from gene array analysis suggest that MAPCs, like embryonic stem cells, have a large number of DNA repair genes expressed. This may protect them from more frequent genetic abnormalities in view of the fact that they undergo multiple sequential symmetrical cell divisions, and have a pluripotent differentiation ability.

In the future, certain applications will likely favor one therapy over the other. The fact is room exists for multiple cell lines produced by different companies. The pipelines of Athersys and Cytori are addressing different markets and appear only to have potential competition in the future of cardiovascular conditions. Even within cardiovascular conditions, some differences are noted. Athersys has FDA permission for an acute myocardial infarction (AMI) trial, while Cytori just discontinued an advanced AMI trial in Europe to focus on the U.S. ischemic heart disease trial. The next six to twelve months should be a transformational period for both companies.

Less significant competition

Mesoblast and Cytori, while top competitors to Athersys, are not the only competition. NeoStem, Inc. has its VSEL program, however, nothing in regard to NeoStem's VSEL technology has progressed past IND or the preclinical level to date. There is speculation that VSELs may not even exist. Then, there are induced pluripotent stem cells (iPSCs) with unresolved tumorigenic issues, keeping them from being taken seriously as competition. In the same boat with iPSCs are embryonic stem cells (ESCs), with concerns about formation of tumors. ESCs also have potential to form ectopic tissue, and being embryonic, are a controversy right out of the gate.

Potential for acquisition and large partnerships

Athersys is one of the most probable candidates for future partnership, considering the ongoing search for just that in multiple areas. For example, the obesity drug candidate is often mentioned by Athersys CEO Gil Van Bokkelen as being in talks for partnership. Also, likely in the hunt for a partnership at Athersys is someone to help it develop its treatment for ischemic stroke. Athersys already has a phase II trial for ischemic stroke going on and it's nearing data release. Positive data should induce a partner relatively soon after it's released.

What makes an acquisition attempt likely in addition to partnership deals? Athersys's patented portfolio and Pfizer's current relationship with it make a buyout a real possibility on positive phase II trial data concerning UC. Other large companies like Shire plc (NASDAQ:SHPG) are also interested in the same research areas as Athersys is involved in. Athersys's main competitor, Mesoblast, is also proof positive that large pharmas see regenerative medicine as a worthy investment.


Biotechnology stocks are volatile investments and can be challenging to analyze because, unlike most other stocks, the current fundamentals aren't typically as important as the forecast potential. One only has to look at the recent action in Galena Biopharma, Inc. (GALE) to see that.

Failed clinical trials can wreak havoc on small biotechnology companies, and investors need to use extreme diligence and have an exit strategy. Investors should look at the depth of the pipeline and ask themselves, are all the company's eggs in one basket? In the case of Athersys, it's got multiple eggs in its basket, however, investors should still evaluate each individually. Even after due diligence is performed, investors should still limit exposure to any single stock. Face it, survival to invest another day is a top priority for the sane investor.


Mesoblast, Cytori and Athersys are top competitors in a vastly growing science called regenerative medicine. All three companies are pioneers in the field and have some real growth potential, with Athersys being priced below where it should be relative to its potential outlook. Just look at the size of the Teva investment in Mesoblast, and then ponder what an investment like that would do for Athersys.

With all the potential Athersys has going for it, most investors who've done due diligence will probably agree that Athersys will be trading over $10 a share at some point in 2014. A lot hinges on MultiStem's two most advanced clinical trials in getting there.

One fact that investors should all agree on, 2014 is shaping up to be an exciting year for Athersys and its investors.

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.