Athersys: Approaching Clinical Validation

Multipotent stem cells
The near-term investment case for Athersys Inc, (ATHX) rests on the outcome of two Phase II studies of its novel, off-the-shelf, stem cell therapy product, MultiStem. Trial results in Q114 for ulcerative colitis (UC) and Q214 for ischaemic stroke have the potential to re-rate the stock and enhance the company’s options for fresh finance, although a newly secured two-year, $25m equity agreement with Aspire Capital provides financial flexibility. We value Athersys at $205m, or $3.40 per share, ahead of the key catalysts.


A novel and differentiated approach
Athersys is developing allogeneic (off-the-shelf), multipotent adult progenitor cells (MAPCs), derived from adult bone marrow. Similar to mesenchymal stem cells (MSCs), the company believes its MAPCs are substantially differentiated from MSCs and deliver enhanced anti-inflammatory effects. MAPCs are also highly proliferative, enabling the production of millions of clinical doses from a single adult donor. The cells can be frozen and stored for five years. The cell volumes can also be significantly higher than MSCs, with c 1bn cells administered in a single dose.

Approaching clinical validation
To date, two Phase I studies, in acute myocardial infarction (AMI) and graft-versus-host-disease (GvHD) have been completed with MultiStem. These trials provided encouraging signs of MultiStem’s safety and efficacy, but the outcome of the Phase II studies in UC and ischaemic stroke will go a long way to determining the validity of the MultiStem technology. A third Phase II trial, in AMI, is expected to start in mid-2014, supported by a $2.8m NIH grant, while the design of a Phase II/III study in GvHD is under discussion with the FDA.

Pfizer on board already
Pfizer has been a partner since 2009, for the use of MultiStem for inflammatory bowel disease (particularly UC and Crohn’s disease). Pfizer paid $6m upfront and the deal allows for a further $105m in milestones. Positive UC Phase II data could encourage Pfizer to conduct pivotal studies in UC and/or Crohn’s disease. The outcome of the stroke trial, a classical high-risk/high-reward indication, could also help attract new partners.

Valuation: $205m/$3.40 per share, ahead of catalysts
We value Athersys at $205m, or $3.40 per share, based on a sum-of-the-parts DCF valuation. This includes end-Q313 net cash of $18m. This represents upside to its market cap of $105m and $1.75 share price, ahead of the key catalysts in Phase II data for MultiStem in UC (Q114) and stroke (Q214). The new Aspire equity deal removes a financing overhang, but full draw-down could result in 20% dilution.

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