Upcoming Short- And Long-Term Catalysts For Athersys

| About: Athersys, Inc. (ATHX)

Summary

Athersys stroke trial in Japan should begin relatively soon.

Many other positive developments could occur as well.

The next two years should be exciting for shareholders.

Athersys (NASDAQ:ATHX) recently completed its first quarter earnings call, and most of the information presented was positive. The biggest news to come out of the call came from Athersys finally providing clarity on why the Japanese stroke trial had not yet started. The manufacturer that Athersys and Healios contracted to make Multistem for their study had an inspection by the FDA which delayed the availability of Multistem. Beyond that, the call was mostly minor updates about the company's projects. Below, I go through some of the short-term and long-term catalysts that could help boost Athersys' stock price.

Short-Term Catalysts (within six months)

First patient treated in the Japanese stroke trial

I am hoping that any day now, we will receive an update that the first patient in the TREASURE trial has been enrolled and received Multistem. The complicating factor is that the study is mostly in the hands of Athersys' partner Healios, which is running the trial in Japan. Things are handled differently in Japan, and a press release about the first patient being enrolled might go against Healios's corporate culture. A major positive during the conference call is that despite the manufacturing delay, Healios still intends to complete the trial late next year. Primary data should be available approximately 90 days after the last patient is enrolled.

Future milestone and royalty payments from RTI

Athersys received a small milestone payment of one million dollars from RTI. While not a huge sum, it is important for a couple reasons. First, Athersys is burning through cash, and every penny helps. More importantly is that RTI says that demand for their orthopedic allograft has been strong. This conveys that there is strong efficacy for Multistem, and doctors are promoting its use. Athersys's contract with RTI is not public, but if sales continue to be strong, we could see additional milestone payments which will provide a small boost to the bottom line.

Deal for stroke

Of the short-term catalysts, a deal for funding the stroke trial in the EU and United States has the most potential to boost the stock price. Athersys has been hard at work collaborating with the FDA and clinical sites in preparation for these trials. They have already yielded positive results by getting the special protocol assessment last year and just were also granted fast track designation by the FDA. The fast track designation gives Athersys a number of advantages best explained by the CEO himself to Crain's Business.

"the company can submit data as it goes through the trial; accelerated approval, making the program eligible for expedited consideration in certain respects; and priority review, which shortens the timeframe of the review cycle"

Both these developments as well as strong one year stroke data help at the negotiating table as Athersys tries to find a deep-pocketed partner to fund these Phase III trials. I think the most positive outcome Athersys can hope for is if it could retain the rights for Multistem in the United States while giving up complete control of Multistem for the use of stroke in Europe. This would involve the partnering company providing a large enough one-time payment to Athersys that it could complete the MASTERS-2 trial in the US, while the partnering company would pick up all costs associated with the trial in the EU. Athersys has recently hired a consulting company to help it find a partner, so this news could be announced any day.

Healios picking up option for ARDS

A few conference calls ago, the CEO of Athersys, Gil Van Bokkelen mentioned about the possibility of expanding their partnership with Healios in Japan. Since then, we haven't really heard much about it. Technically, this could be announced any day, but I think it's more likely that Healios has decided to focus on the stroke trial and/or wait for the results of the Phase I/II ARDS trial before it makes a decision.

Moderate to Long-term catalyst (six months to two years)

Initiation of Stroke trial in US

Athersys has been busy already working with the FDA and clinical sites to set up their MASTERS-2 trial, which will study the effectiveness of Multistem in the treatment of stroke. The company hopes to start the trial by the end of the year and include 300 patients in the study. Currently, Athersys does not have enough cash to fund the trial on its own. As mentioned above, the company is searching for a partner to help fund both this study and a similar study in the EU. I believe Athersys is in a very strong negotiating position; it has already done a lot of the clinical and regulatory work with the FDA and has enough cash to hold out for a deal that makes sense for it. If Athersys fails to make a deal by the end of the year, look for another stock offering to raise cash.

Completion of ARDS and Heart Attack trials

I was really disappointed when Athersys announced it was delaying the completion of the ARDS trial as I believe this has the highest possibility of success of any trial they are undertaking or planning. Unfortunately, Athersys was having trouble finding patients that met their inclusion criteria. It has since modified its inclusion criteria to speed up completion of the trial which sounds eerily similar to the recently failed stroke trial. However, I remain optimistic. The new completion date is scheduled for the end of the year. The study for patients suffering from Heart Attacks is supposed for finish enrolling patients this fall. Although Athersys presented positive data for its Phase I trial involving patients suffering from Heart Attacks I am not as hopeful with this trial as I am with the ARDS trial for a variety of reasons.

Conditional Approval for the treatment of ARDS

The trial Athersys is currently running for the treatment of Acute Respiratory Distress Syndrome is a Phase I/II study. Usually, a Phase III study needs to be completed before a drug can be approved. However, I think the FDA might be willing to grant Athersys a conditional approval for the treatment of ARDS if the Phase I/II data is positive. The first and most important reason is that all of the studies Athersys has completed with the use of Multistem have shown that it is incredibly safe. This is always a huge concern with the FDA for obvious reasons. Also, working in Athersys' favor is that there are very few treatment options for ARDS, and ARDS is very deadly. Lastly, the FDA seems to be more aggressive lately in approving drugs than it has in the past, all these signs lead to a possible conditional approval from the FDA while Athersys completes a larger Phase III study. Personally, I have extremely high hopes for the use of Multistem in ARDS. If Athersys can get Multistem approved for the treatment of ARDS I think the company is worth a few billion dollars completely disregarding any stroke potential. I previously wrote an article about why I think Multistem has good potential in the treatment of ARDS if you want to read more into the science.

Completion of Stroke trial in Japan

Once again, I think a more aggressive FDA could work in Athersys favor. The TREASURE trial being run in Japan is scheduled to be completed much earlier than the MASTERS 2 trial being run in the United States. It should be completed by the end of next year, but we will know more when we get an update from Healios. Beyond the possible approval in Japan, the other exciting aspect about the Japanese trial is the possibility that the FDA could approve Multistem for stroke based on data from the Japanese trial alone. The FDA did this recently for the first time that I know of with the approval of edaravone. Edaravone is used to treat ALS and is the first drug to be approved for the treatment of ALS in 22 years. Just for comparison's sake, Alteplase was approved by the FDA for the treatment of stroke 21 years ago and remains the only drug approved for the treatment of stroke.

In conclusion, Athersys has been the ultimate wait and see stock for me. I first bought shares over seven years ago and have been through the failures of the IBS and stroke trials and the surprise of the one-year data for the stroke trial. I continue to hold through all this turmoil because I believe Athersys has one the best potential returns available relative to its market cap and the possible size of a market for the treatment of stroke and ARDS. Athersys currently has about 30 million in cash and is burning through about 5 million a quarter. Management was a little vague and did not issue much guidance as far as future cash expenditures, but the company is in a decent enough position as long as it finds a partner. In my view, the next two years will make or break this company. I would not invest any money into Athersys that you can't afford to lose as it is highly speculative. I say this because if the ARDS, MI, and Stroke trials all fail, Athersys has little to no clinical programs to fall back on, and bankruptcy could be a real possibility. However, if you can tolerate some serious risk, the possible upside is extremely large.

Disclosure: I am/we are long AHTX.

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.

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