At the beginning of April 2020, and at height of the first wave of the coronavirus pandemic when the country was in a panic, Athersys (NASDAQ:ATHX) CEO Gil Van Bokkelen, to the delight of shareholders, appeared on FOX News. In an extended 5:47 second interview, he shared the very promising, blinded, placebo controlled, PHASE II Acute Respiratory Distress Syndrome (ARDS) results for the company’s experimental stem cell therapy called MultiStem. As everyone now knows, ARDS is a main cause of death for COVID-19 patients.
He also shared the news that at the very start of the pandemic in early in 2020, Athersys had been proactively contacted by the Biomedical Advanced in Research and Development Authority (BARDA) to explore initiating a government funded clinical trial for the treatment of COVID-19 induced Acute Respiratory Distress Syndrome (ARDS) and that Athersys also was working with the FDA on the design of this trial. It was an exciting moment for Athersys shareholders. A BARDA funded COVID-19 ARDS trial seemed imminent and such an announcement would have brought nationwide attention to this small Cleveland-based biotech with big ambitions. Not to mention a potential effective COVID-19 therapeutic that was desperately needed. In retrospect, Athersys shareholders, including this one, missed one very important clue that things were about to go south. In all the excitement, no one noticed that the compelling interview aired on April Fool’s Day.
While I’m being facetious, it was just a few weeks later that the head of BARDA, Dr. Rick Bright, who my sources tell me had been a key proponent of the Athersys application for BARDA funding, was removed from his role at BARDA. According to reports, Dr. Bright accused the Trump Administration of pushing him out due to his objections to the administration's unfounded emphasis on hydroxychloroquine as a treatment for COVID-19. BARDA funding never materialized for MultiStem as the Trump Administration de-emphasized funding for COVID-19 therapeutics and created Operation Warp Speed that focused government resources on vaccine development. Athersys and its shareholders were blindsided and thrown into a period of turbulence.
That turbulence peaked several months later when Dr. Van Bokkelen shockingly resigned from his roles as chairman and CEO during a nasty court fight with fellow board member, Dr. Hardy Kagimoto. Dr. Van Bokkelen, a founder of Athersys, had been the heart and soul of the company since its inception and was a leader in the stem cell community. Dr. Kagimoto is the CEO, founder and largest shareholder of Healios KK, the Japan-based partner of Athersys in charge of running the two most advanced pivotal trials for MultiStem in Japan. Healios also is the largest shareholder of Athersys.
The following chart illustrates the turbulence:
Crying about spilt milk is a loser’s game, but I bring up this recent history for perspective to new investors to explain why Athersys shares have performed so poorly. The primary reason for this article is to look ahead and update investors on important recent and upcoming developments out of Japan that could put Athersys on an irreversible path to fulfill its promise as a pioneering stem cell therapeutic game changer.
As this article is written in the form of an update, I refer readers who are not familiar with the company’s MultiStem platform to my many previous articles that detail company developments and history. I also will refer to some specific articles below.
The lead pipeline targets for Athersys all have one common denominator. They're serious human afflictions that result from an overactive immune system in the acute stage of injury. MultiStem (aka multipotent adult progenitor cells) has been shown to regulate a damaging overactive immune response and help create an environment of homeostasis and healing.
The pipeline below shows the current state of progress of the active lead indications of Ischemic Stroke, ARDS and trauma:
After delays in Japan for reasons that range from unrelated production problems at Athersys contract manufacturer organization Lonza to general delays in most clinical trials associated with the pandemic, positive topline ARDS data from Healios KK in Japan were recently released and enrollment was recently completed in a placebo controlled study in Ischemic Stroke, also in Japan. These are the significant upcoming catalysts that will be discussed further.
The One-Bridge Study in Japan was originally designed as a 30-patient open label study in patients with pneumonia induced ARDS. Twenty patients received MultiStem (or HLCM051 as it's referred to by Healios) and 10 patients received the standard of care (SOC). Subsequently, a five-patient cohort of COVID-19 induced ARDS patients was added. Although this is a small trial, under Japan’s regulatory framework for regenerative therapies, it's designed to lead to approval.
The topline results of the study were very promising:
Source: Healios KK.
For the sake of transparency, I want to point out that the mortality percentages reported by Healios indicate that one patient was excluded from the treated group (5/19 =26.3% ) and three patients were excluded from the SOC group (3/7 = 42.9%). Although details on these patients have not been officially disclosed, my understanding is that patients were excluded as the result of pre-determined study protocols and/or dropouts by patients.
As indicated in the chart above, the results in Cohort I were very encouraging. The median change in ventilator-free days in the first 28 days following treatment was an increase from 11 days in the SOC group to 20 days in the treated group. This was a dramatic 82% improvement. 90 Day Mortality was also markedly reduced by 39%, from 42.9% in the SOC group to 26.3% in the treated group. Athersys also has previously reported promising results in its Phase II, 30 patient, randomized, double blinded placebo controlled trial that met both primary safety endpoints:
Both of these trials are small and Athersys currently is enrolling a larger Phase III trial in the U.S. called MACHoVIA that was originally designed as a COVID-19 ARDS study until the BARDA fiasco transpired. However, consistency across two small studies is very encouraging. Moreover, the regulatory framework for regenerative medicine in Japan is more progressive than anywhere else in the world and Healios has designed its trial with the goal of achieving approval under the “Accelerated Approval System for Commercialization of Cell Therapy Products in Japan." As illustrated below, this regulatory framework opens up the door to fully reimbursed conditional approval for a regenerative therapy that has demonstrated safety and shows promise for efficacy, even in a small study. Conditional approval can last up to seven years and, during this time period, the therapy is covered under the national health care system and generates revenues to the sponsor even as confirmatory data is collected with the goal of proving efficacy to ultimately gain full approval.
This trial also has been given Orphan Regenerative Medicine Designation in Japan which will provide a supportive regulatory pathway through the regulatory process. Given Japan’s progressive regulatory environment for stem cell therapies, there's high probability that Healios will gain, at a minimum, conditional regulatory approval and eventually start the revenue flowing to Athersys through milestone and royalty payments under the expanded partnership agreement recently signed by the two companies. Aside from revised financial considerations, the new agreement (terms to be more fully disclosed in the next 10-Q filing) transferred MultiStem production responsibilities in Japan from Athersys to Healios so that Athersys could focus resources on next generation manufacturing scalability using commercial scale bioreactors:
One of the main advantages of MultiStem, over more widely used Mesenchymal Stem Cells is the cell’s inherent ability to multiply without degrading.
The additional cohort of the One-Bridge Study was an open label 5 patient enrollment of COVID-19 induced ARDS patients. Notably, there were no deaths in the first 90 days following treatment. Additionally, patients were removed from ventilators with an impressive 25 median ventilator-free days in the initial 28 day measurement period. Three patients were off the ventilator within the first three days of treatment. These results seem very encouraging, but with only five enrollees, no placebo group and no baseline data on the patients, it's impossible to draw any conclusions on the effectiveness of treatment in the COVID-19 ARDS cohort. However, if conditional or full approval is achieved I would expect that any approval will include COVID-19 induced ARDS given the strong safety data and the desperate need for a COVID-19 ARDS therapy.
Healios has provided the following table with regard to market size of ARDS in Japan on its website:
Pricing for this treatment in Japan is unknown, and since the details of the new Athersys / Healios agreement have not yet been disclosed I won’t speculate on potential revenues to Athersys. However, I will point out that competitor Mesoblast (through its Japan partner) obtained favorable pricing for a stem cell based Graft vs. Host Disease therapy in Japan. This is an excerpt from a 2015 Mesoblast (MSB) press release on the topic:
Reimbursement for TEMCELL has been authorized by NHI at ¥868,680 (A$9,767 / US$7,079) per bag of 72 million cells. In Japan, the average adult patient is expected to receive 16 or up to 24 bags of 72 million cells. On this basis, Mesoblast expects a treatment course of TEMCELL in an adult Japanese patient to be reimbursed at ¥13,898,880 (A$156,000 / US$113,000) or up to ¥20,848,320 (A$234,000 / US$170,000).
According to the American Heart Association, there were about 77.2 million ischemic strokes globally in 2019, and that was before the pandemic. Current treatments are limited to Alteplase IV r-tPA and mechanical thrombectomy. A major limitation for both of these treatments is that they can only be used within the first three to six hours post stroke for most patients. Following this short window, these treatments can become dangerous. MultiStem is positioned to open up this treatment window to 36 hours. I refer readers to one of my most in-depth articles, written in 2015, All Systems Go On Athersys Pivotal Stem Cell Stroke Trial In Japan - Exploring The Scientific Evidence, that takes a deep dive into MultiStem and the Phase II stroke results including a detailed discussion of the post-hoc analyses with the then CEO of Athersys.
Subsequent to the article that only discussed the 90-day results, impressive one year results were released that were statistically significant over the placebo for Excellent Outcome, the primary endpoint in the Healios stroke study:
On Aug. 10, 2021, Healios announced that it had completed enrollment in the TREASURE ischemic stroke study. This study is the largest, fully enrolled study to date using MultiStem with a total enrollment of 220 participants. The study has been granted SAKIGAKE designation that may shorten the approval process by up to six months. The chart below, from a recent excellent Healios video presentation, gives a great overview of the study and shows that topline results are targeted for release before the end of 2021:
Source: Healios KK
There are 230,000 to 330,000 ischemic strokes in Japan, annually. Healios has estimated that based upon severity and time of admission to the hospital, about 62,000 would be eligible to be treated by MultiStem. Again, potential pricing in Japan is unknown but, using $50,000 per treatment as an example, the total addressable market would be more than $3 billion in Japan.
I reached out to Dr. Hardy Kagimoto and asked him if he would provide more color on the approval process in Japan for this article and want to thank him for taking the time to respond.
WST: Could you give readers an inside look at the process, considerations and nature of your ongoing PMDA interactions in the process of getting HLCM051 (MultiStem) reviewed under the Regulatory Framework for Regenerative Medicine in Japan?
Dr. Kagimoto: We interact with the PMDA in various ways, but the most important component of our interaction as it relates to the path to approval is that which is taking place under the Sakigake status we have for the stroke indication. This provides us with the opportunity to file regulatory documents on a rolling basis. We have disclosed that we have already filed the non-clinical package and the CMC (chemistry, manufacturing, and controls) package for the product for stroke. These are formal submissions that provide the PMDA with a large volume of information for their review at an earlier stage than otherwise possible. Based on the submissions, we have and will continue to hold meetings with PMDA officials to answer questions and consider additional submission requirements. This is an iterative process that will take place on an ongoing basis until the PMDA is comfortable with all submitted information. There also will be a clinical data related submission when that's available. Since the non-clinical and CMC packages are similar for stroke and ARDS, the process we are going through under Sakigake is relevant to both indications.
WST: Has the urgency of global pandemic affected this process in any way?
Dr. Kagimoto: The PMDA will be appropriately thorough and diligent in their review irrespective of the pandemic. And as you know, we did not set out initially to treat COVID patients; our strategy and trial structure were directed at demonstrating the safety and efficacy in ARDS patients more generally, and in particular those with pneumonia induced ARDS. We have orphan regenerative medicine status for ARDS on this basis and our strategy remains consistent. That being said, the product’s relevance to the pandemic as a potential treatment for ARDS (of which COVID-19 may be one causative disease) may be an influencing factor when it comes to how the product is considered and the degree of focus placed on it during the review process. In light of this, it may be eligible for a faster review process than is typical, but that is really not our decision to make but instead is up to the authorities.
I opened this article on April Fool’s Day 2020 when it seemed certain that Athersys was on the verge of becoming a major player in the U.S. government’s war on COVID-19. Unfortunately, through no fault of Athersys, that path blew up. A year and a half later Athersys has finally moved much closer to reaching an important inflection point thanks to the clinical trial progress at Healios. In light of this progress over the last month, Healios shares have rallied substantially. However, Athersys shares have barely budged. The following chart illustrates the disparity:
Source: WSJ Charting Tool
For the next couple of years, the fates of Athersys and Healios are incredibly intertwined. Success toward commercialization by Healios in Japan will bring much needed credibility to Athersys through both revenue generation and, more importantly, the validation of the MultiStem platform.
Since the release of news on these two clinical trials, Healios shares have been revalued to an enterprise value over a billion dollars. Athersys shares, on the other hand, are still valued at less than one-third of Healios:
Healios has communicated a clear strategy of using revenues from MultiStem to finance its ambitious long-term goals of creating an Induced Pluripotent Stem Cell (iPSC) Universal Donor Cell Platform for immune-oncology and replacement therapies. Some might argue that this platform helps explain the disparity. However, this platform is still in the pre-clinical stage, and although it's promising, it still has a long way to go.
I would argue that Athersys shares are clearly undervalued in comparison. The general reason for this imbalance, in my view, is the disparate perceptions coming from two unique sets of investors, those in the U.S. vs. those in Japan.
Athersys shareholders have gone through a long frustrating road of unmet clinical timelines, unfulfilled promises of imminent partnerships, robotic quarterly insider selling by an interim CEO, and more directly, an at-the-money equity line that has helped keep a cap on valuation. Not to mention, the two recent shocking disappointments that I described in the opening paragraphs of this article.
Healios, on the other hand, has only been a public company since 2015 and has been making steady progress with a CEO who communicates proactively with his shareholders and has a lot of skin in the game as the largest shareholder of Healios.
Perceptions aside, Athersys completely controls the MultiStem platform outside of Japan. Logic dictates that if Healios succeeds with MultiStem in Japan, then the MultiStem platform in the United States and globally will be worth much more than reflected by the current market cap of Athersys due to the market size potential of a more mature validated MultiStem pipeline. More specifically, solid stroke results in the 220 double blinded, placebo controlled trial should open the door wide open to the deep pocked partners that Athersys management has been promising for years. I believe that there's a reasonably good possibility that the primary endpoint in stroke will be met. If the Healios stroke clinical trial does demonstrate efficacy, Athersys management will arrive at the doorstep of big pharma looking for a partnership deal in the driver’s seat of a brand new red Ferrari instead of a 10-year-old clunker.
While I painted an optimistic picture here, there's always risk. The most obvious risk in an investment like Athersys is that the clinical results fail and that's always a possibility. Furthermore, as a pre-revenue company, dilution is an ongoing issue. Athersys finished the second quarter of 2021 with $56.6 million in cash. It will need to obtain further capital within the next 12 months. If it can raise capital from a position of strength, with good results out of Japan, dilution risk will be mitigated.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of ATHX either through stock ownership, options, or other derivatives. 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.
Additional disclosure: These are the personal views of Wall Street Titan Research and should not be relied upon for your investment decisions. All investors should always do their own due diligence.