By Paul Lebo, CFA and Greg Wilkins
Athersys Incorporated (Ticker: ATHX) is a biotechnology company that is focused primarily in the field of regenerative medicine and is committed to the discovery and development of best-in-class therapies designed to extend and enhance the quality of human life. ATHX has established a portfolio of therapeutic product development programs to address significant unmet medical needs in multiple disease areas. Their lead project that has the most potential is MultiStem cell therapy, a patented and proprietary allogeneic stem cell product, with several clinical stage programs. ATHX’s current clinical development programs are focused on treating neurological conditions, cardiovascular disease, inflammatory and immune disorders, certain pulmonary conditions and other conditions where the current standard of care is limited or inadequate for many patients. These represent major areas of clinical need, as well as substantial commercial opportunities and ATHX is pursuing opportunities in several potential multi-billion dollar markets.
MultiStem cell therapy
MultiStem cell therapy is a potential breakthrough in the field of regenerative medicine and stem cell therapy and could be used to treat a range of diseases. MultiStem cell therapy is a patented biologic product that is manufactured from human stem cells obtained from adult bone marrow and 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. MultiStem treatment has shown the potential to enhance tissue repair and healing in multiple ways, including reducing inflammatory damage, protecting tissue that is at risk following acute or ischemic injury, and promoting formation of new blood vessels in regions of ischemic injury. These cells appear to be responsive to the environment in which they are administered, by homing to the sites of injury and/or organs involved in injury response, and providing active disease response, while producing proteins that may provide benefit in both acute and chronic conditions. In contrast to traditional pharmaceutical products or biologics that generally act through a single biological mechanism of action, MultiStem cell therapy may enhance healing and tissue repair through multiple distinct mechanisms acting in parallel, such as by producing a range of therapeutic factors and dynamically responding to the needs of the body, resulting in a more effective therapeutic response. Like drugs, these cells may be stored for an extended period of time in frozen form and used off-the-shelf. Following administration, the cells have been shown to express multiple therapeutically relevant proteins, but unlike a traditional transplant, are subsequently cleared from the body over time, analogous to a drug or biologic.
Advantages of MultiStem versus Traditional Treatment
MultiStem treatment has a few key advantages versus traditional treatment. Currently, the only FDA-approved drug available for ischemic stroke is the anti-clotting factor, tPA, which must be administered to the patient within three to four hours of the onset of the stroke. Administration of tPA beyond this time frame is not recommended, since it can cause bleeding in the brain or even death. Given this limited therapeutic window, it is estimated that less than 5% of ischemic stroke victims currently receive treatment with tPA. However, MultiStem expands the treatment window to 36 hours after the stroke which basically includes all stroke victims.
A key aspect of MultiStem cell therapy is the ex vivo expansion capacity of the cells that comprise the product. This enables large-scale production of the clinical product, which is associated with greater consistency, specificity and cost of goods advantages over other cell therapies. MultiStem cells have the potential to be produced on a large scale, processed, and cryogenically preserved, and then used clinically in a rapid and efficient manner. Material obtained from a single donor may be used to produce hundreds of thousands, or even millions, of individual doses, representing a yield far greater than any other stem cells have been able to achieve. Additionally, MultiStem may be administered without tissue matching or the need for immune suppression, analogous to type O blood. This ability of MultiStem to be manufactured on a large scale and administered without a tissue match differentiates it from traditional bone marrow transplants and other stem cell therapies. The MultiStem product would be unique among regenerative medicine approaches because it has the potential to be manufactured on a large scale, may be administered in an “off-the-shelf” manner with minimal processing, and has the potential to augment healing by providing biological potency and therapeutic effects that other cell therapy approaches may not be able to achieve.
Furthermore, while a single infusion of MultiStem is expensive, it represents just a small fraction of the cost for retraining and maintaining a patient who is seriously disabled for the remainder of their respective lives. Early estimates show that MultiStem could potentially cost between $25,000 and $30,000 per dose. However, a study published in Stroke showed that the average lifetime cost of caring for a patient after an ischemic stroke to be $68,769 and that annually, it costs a little more than $5,000 per year in medication, facilities and medical personnel.
Market Size and Potential of MultiStem
ATHX believes the therapeutic and commercial potential for MultiStem cell therapy to be very broad, applying to many areas of significant unmet medical need, and they are pursuing opportunities in several potential multi-billion dollar markets. By applying their proprietary MultiStem cell therapy product, ATHX has established therapeutic product development programs treating neurological conditions, cardiovascular disease, inflammatory and immune disorders, and other conditions. ATHX’s programs in the clinical development stage include the following: Ischemic Stroke, Acute Myocardial Infarction, Acute Respiratory Distress Syndrome and Hematopoietic Stem Cell Transplant / GvHD.
The United States, along with many other nations, is experiencing an unprecedented demographic shift that is resulting in a significantly expanded population of older individuals. According to United States Census data, in the next few years there will be a dramatic increase in the number of individuals over the age of 65, as this segment of the population increases from 40.2 million individuals in 2010 to more than 72 million people in 2030, representing an increase of approximately 80%. Data from the National Center for Health Statistics shows that as people get older, they are more susceptible to a variety of age related conditions, including heart disease, stroke, certain forms of cancer, diabetes, progressive neurological disorders, various chronic inflammatory and immune conditions, renal disease and a range of others. As a consequence, as people get older they spend far more on healthcare. On average, they spend four to ten times more on healthcare annually at age 65 or beyond than when they were younger and more healthy. MultiStem cell therapy will give ATHX significant revenue opportunities in several multi-billion dollar markets. Furthermore as the population begins to age, there will be more patients will medical needs which will be an additional revenue driver for ATHX as the size of the market increases.
Currently, ATHX is in the process of conducting or preparing to conduct three major medical trials: the TREASURE trial in Japan, the MASTERS-2 trial in North America and Europe and the trial just recently announced at the University of Texas Health Science Center.
ATHX is supporting Healios in the conduct of the TREASURE trial in Japan, which is evaluating the administration of MultiStem therapy to patients in Japan that have suffered an ischemic stroke. Healios intends to complete enrollment of the trial sometime in 2019 and the top line data will be available several months after the last patient enrolled has been assessed at their 90-day visit. While the study will continue for approximately one year beyond the enrollment of the last patient in the trial and Healios has projected that this one year evaluation process is expected to continue until the latter part of 2020, the primary results from the TREASURE trial will be available approximately eight months earlier following the final three month visit and then several more weeks for the collection, verification and analysis of the data.
ATHX is still preparing for the initiation of the MASTERS-2 clinical trial, their pivotal Phase 3 study that will evaluate the administration of MultiStem cells to ischemic stroke patients in North America and Europe. This will be a follow up to the MASTERS-1 trial, which was a phase 2 study. ATHX has already received a Special Protocol Assessment from the FDA for this trial and the FDA has agreed to grant them a Fast Track designation. This trial is on track to start in second quarter 2018.
On April 23, 2018 ATHX and University of Texas Health Science Center announced plans to conduct a Phase 2 clinical trial evaluating Athersys' MultiStem® cell therapy for early treatment and prevention of complications after severe traumatic injury. This first-ever study of a cell therapy for treatment of a wide range of traumatic injuries will be conducted at Memorial Hermann-Texas Medical Center, one of the busiest Level 1 trauma centers in the United States. The proposed study is anticipated to be a randomized, double-blind, placebo-controlled Phase 2 clinical trial estimated to enroll approximately 150 severely-injured trauma patients within hours of hospitalization who have survived initial treatment and are admitted to the intensive care unit. These patients will be randomly assigned to receive MultiStem or placebo and both groups will receive standard care for their injuries.
ATHX has been partnering with Healios K.K., which is a leading regenerative medicine company in Japan, since January 2016 to develop and commercialize MultiStem cell therapy for ischemic stroke in Japan in exchange for a licensing agreement in Japan and Healios has been providing ATHX funding for clinical trials. In March 2018 ATHX signed a letter of intent (LOI) to significantly expand Healios’ license to develop MultiStem products in Japan and granted them an exclusive option to develop and commercialize MultiStem in China. In exchange, ATHX will receive committed payments of $35 million, Healios purchases $12 million shares of stock for $21 million ($1.76 per share), in addition to 20 million warrants that are excersiable over the next few years. The warrants give Healios the potential to own almost 20% of ATHX. Fellow SA Author Wall Street Titan recently wrote a very in depth article on the framework of the exercise schedule of the warrants in the LOI.
A few takeaways to note from this deal. Since Healios has been working with ATHX since January 2006 they almost assuredly have inside knowledge of MultiStem and its progress through medical trials that the public doesn’t have access to. If you note the strike price of the warrants, the deal increases the exercise price roughly $0.25 per quarter until it reaches $4.25 per share in 3Q 2020, which is currently more than double the current stock price. This is good news for investors as Healios would obviously want the option to buy in at a favorable price and therefore expects ATHX’s to increase to more than $4.25 by 3Q 2020. Furthermore, if all the options are exercised then ATHX will raise at minimum an additional $50 million which should negate the need to raise further outside capital so investors shouldn’t worry about further dilution as the strike price should grow per quarter with the stock price.
Additionally, in February 2018 ATHX agreed to a deal with Aspire Capital Fund that would allow ATHX to raise an additional $100 million via an equity sale at ATHX’s discretion. With these two deals in place, there should be no need for ATHX to have to raise additional outside funding.
The performance of this stock will almost assuredly be tied to the performance of MultiStem as it is the company’s flagship product. The new deal with Healios is positive news for ATHX shareholders. Since Healios has inside information on the company and its progress through medical trials in Japan, they clearly expect the stock price to continue to rise due to the structure of the warrants. The exercising of the warrants by Healios could function as a catalyst for ATHX because insider buying is a sign that the stock is undervalued. Further catalysts for the stock will come as ATHX announces updates and findings from MultiStem trials and the product moves closer to commercialization on a large scale in several multibillion dollar markets.
Disclosure: I am/we are 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.