Athersys: Abundance Of Opportunity – Seeking Alpha

Athersys is a late-stage biotechnology company developing their stem cell product MultiStem for multiple critical care indications. At present, they have two programs in late-stage development, ischemic stroke and acute respiratory distress syndrome (ARDS). Their partner in Japan, Healios, is also concurrently evaluating MultiStem for the same two indications. Additionally, they have multiple mid-stage and pre-clinical programs currently in development. Their product MultiStem, is an allogeneic, off-the-shelf cellular therapy derived from the bone marrow of healthy, consenting adults. MultiStem is highly scalable and can produce vast quantities of doses from a single donor bank. In this article, I will address the major potential upcoming catalysts and opportunities for Athersys and its partner Healios, as well as the value proposition for investors.

ARDS Program

The first program I will address is the ARDS program. In 2016, Athersys initiated a phase 1/2a exploratory study (MUST-ARDS) to assess its MultiStem product candidate in patients with moderate to severe ARDS for the possibility of clinical benefit. This study completed enrollment in 2018, and promising results were announced in January 2019 here. The safety-focused primary outcome measures, taken from clinicaltrials.gov were frequency of sustained hypoxemia or hypotension within 4 hours and suspected unexpected serious adverse reactions (SUSARs) within 24 hours.

This slide from Athersys' latest company presentation clearly addresses the primary endpoints:

Source: Athersys April 2020 corporate presentation here

Though this important study was not powered for efficacy outcomes, it revealed several key positive trends, including more ventilator-free days, more ICU-free days, and a lower mortality rate among those patients receiving MultiStem than those patients receiving placebo. Athersys' ARDS program subsequently received Fast Track designation from the FDA and was added as a late-breaking presentation at the American Thoracic Society International Conference in May 2019. It is important to note that Athersys ARDS program is the only current one with FDA Fast Track designation. A video clip of MUST-ARDS study primary investigator Dr. Geoff Bellingan can see seen here, as he discusses Multistem cell therapy for ARDS at the conference.

In 2018, Athersys also expanded an existing collaboration here with its Japan partner Healios, adding the ARDS indication to the original agreement here from 2016 that included ischemic stroke. The partnership gives commercialization rights to Healios in Japan for certain indications in exchange for potential aggregate development, regulatory filing, and commercialization milestone payments, as well as sales royalties to Athersys. I will expand on these payments as potential near to mid-term financial catalysts further in the article.

After the collaboration expansion, Healios subsequently initiated an open-label, phase 2 ARDS trial (ONE-BRIDGE) in Japan to evaluate MultiStem in patients who have developed pneumonia-induced ARDS, one of the most prevalent causes of ARDS. The primary endpoint of the trial is number of ventilator-free days out of the first 28 days after MultiStem administration. Additionally, Healios has obtained Orphan Regenerative Medicine Designation in Japan for this program here, which will enable them to receive a priority review upon submission of a marketing application. Post-hoc analysis from Athersys phase 1/2a exploratory trial showed promising results in this sub-population of ARDS patients, as depicted in this slide from Athersys April 2020 company presentation.

Source: Athersys April 2020 corporate presentation here

ARDS takes on a whole new level of importance right now as the world is struggling to control the coronavirus (COVID-19) pandemic. One of the leading causes of death from coronavirus is complications from pneumonia-induced ARDS. This puts Athersys and its partner Healios in a unique and favorable position to quickly address this area of unmet need. Athersys recently announced a large, multicenter phase 2/3 pivotal clinical trial to treat patients with moderate to severe COVID-19 induced ARDS here. This important study, known as the MACOVIA (MultiStem Administration for COVID-19 Induced ARDS) trial, will evaluate approximately 400 patients with moderate to severe ARDS induced by the novel coronavirus disease (COVID-19) and is expected to begin enrolling patients in Q2 2020. Athersys Chairman and CEO Gil Van Bokkelen speaks about their ARDS program in this interview with Fox News.

Per this Form 8-K filing with the SEC, Athersys is currently in discussions with the Biomedical Advanced Research and Development Authority (BARDA) to expedite the advancement of MultiStem to treat patients with ARDS resulting from the COVID-19 epidemic and other potential pandemic outbreaks. According to the company here, MultiStem therapy was designated by BARDA as highly relevant for COVID-19 and other pathogens. This is significant when taken in the context of the BARDA BAA Medical Countermeasures Acquisition Process here. BARDA evaluates proposals using the criteria (listed in order of importance) of program relevance, overall scientific and technical merits of the proposal, and offerors capabilities and related experience, including qualifications, capabilities, and experience of the proposed key personnel. Though BARDA does not publicly list its classifications of relevance, it stands to reason that they would have their own internal method for classifying potential therapies, given that relevance is the most important criteria in the evaluation process. If Athersys and BARDA complete contract negotiations, a contract could then be awarded. This could include funding, technical assistance and core services, ranging from a clinical research organization network to Centers for Innovation in Advanced Development and Manufacturing, and a fill-finish manufacturing network. A contract with BARDA would represent a significant near-term catalyst for Athersys.

Healios recently announced the inclusion of an additional cohort of COVID-19 induced ARDS patients to their existing ARDS trial here. Importantly, the results of the five newly added COVID-19 ARDS cases could enroll quickly given the seriousness of the current pandemic, and will be verified separately from the 30 originally planned ONE-BRIDGE patients. Per the company, the addition of this COVID-19 cohort will have no effect on the progress of the originally planned clinical trial. Though the ONE-BRIDGE trial has an estimated primary completion date of December 31, 2020 on clinicaltrials.gov, Healios CEO Hardy Kagimoto stated on their most recent company update on February 20, 2020 here (at the 11:25 mark of the video) that the trial may finish early. Also, Healios Director Greg Bonfiglio recently disclosed at the Phacilitate Leaders World & World Stem Cell Summit 2020 conference that the ARDS trial should finish in May (next month) if enrollment continues as expected. The video of the conference is here, and he makes remarks about Healios from the 9:45 mark to around 11:05. An announcement by Healios that they have completed enrollment of their ARDS trial early would provide another significant catalyst to Athersys. Remember that Healios has Orphan Designation for this program in Japan and would receive priority review for approval. If the ARDS indication is approved in Japan, Athersys is entitled to success-based filing and regulatory approval milestones for ARDS aggregating up to $50 million per this Form 8-K current report filing with the SEC, which would provide a cash infusion to Athersys balance sheet. Per the same 8-K, Athersys will also be entitled to receive tiered royalties on the aggregate product sales starting in the low double digits and increasing incrementally into the high teens depending upon net sales levels, as well as potential sales milestones of up to $175 million.

The second program I will address is the acute ischemic stroke program. Acute ischemic stroke represents another tremendous area of unmet need. Athersys and Healios are both currently conducting registrational trials for acute ischemic stroke, called MASTERS-2 and TREASURE, respectively. Athersys phase 3 program is being conducted under a special protocol assessment (SPA) and has received Regenerative Medicine Advanced Therapy (RMAT) and Fast Track designations from the FDA. These important designations were awarded by the FDA after the results of Athersys phase 2 trial (MASTERS-1) were published. Healios ischemic stroke program in Japan has been awarded Sakigake designation in Japan, which qualifies the program for expedited review. This slide from the Ministry of Health, Labour and Welfare (MHLW) in Japan depicts the designation criteria and advantages for therapies utilizing Sakigake designation. Under designation criteria, #2 clearly states "prominent effectiveness can be expected". The MASTERS-1 phase 2 data set was used to make this determination. A key designation advantage is a prioritized review within 6 months of submission.

Source: MHLW summary of Sakigake strategy here

Though the primary endpoint for Athersys phase 2 study was not statistically significant at 90 days, detailed post hoc analysis found that patients who were administered MultiStem within 36 hours saw dramatic improvements over patients who received only placebo at both 90 and 365 days. Again, all the regulatory designations were awarded after the results were published. The following table from Athersys April 2020 company presentation depicts these results:

Source: Athersys April 2020 corporate presentation here

Healios phase 2/3 TREASURE trial for acute ischemic stroke was initiated in November 2017. The primary endpoint is proportion of subjects with an excellent outcome defined by the functional assessments where mRS score of 1 (scale, 0 to 6), NIHSS score of 1 (scale, 0 to 42), and BI score of 95 (scale 0-100) at day 90. The trial rationale here states by administering MultiStem within 36 hours onset, there was a significant improvement of an efficacy compared with placebo within 36 hours (Excellent outcome was 16.1% in MultiStem group and 0% in Placebo group, p=0.02). Additionally, if the group using both rt-PA and endovascular thrombectomy was excluded, the effectiveness of MultiStem compared with placebo was confirmed. The following table from Healios FY19 results presentation effectively depicts this:

Source: Healios FY2019 financial results presentation here

The TREASURE trial is due to complete enrollment sometime this summer, per recent disclosures. The most recent disclosure was from Healios Director Greg Bonfiglio at the Phacilitate Leaders World & World Stem Cell Summit 2020 conference, where he stated the TRESASURE trial should complete enrollment by September (see aforementioned video). This is significant for both Athersys and Healios as 90-day primary outcome measure data would be available by around the end of 2020. Healios annual target market in ischemic stroke is 62,000 patients. If approved in Japan, this represents a large market opportunity for Healios and a major catalyst for Athersys. Per this Form 8-K current report filed with the SEC, Athersys may be entitled to receive additional success-based development and regulatory approval milestone payments aggregating up to $30 million, as well as potential sales milestones of up to $185 million. Per the same 8-K, Athersys would also receive tiered royalties on product sales, starting in the low digits and increasing incrementally depending on net sales levels.

Athersys Phase 3 MASTERS-2 trial started in July 2018 and continues to see steady enrollment, as stated by the company. This will represent an even larger market opportunity than Japan and is tentatively projected to be completed with enrollment around the end of 2020. For a detailed listen into the science behind this important program, I recommend this podcast featuring Dr. Robert Willie Mays, the Co-founder and Vice President of Regenerative Medicine and Head of Neuroscience Programs at Athersys.

Athersys has other key MultiStem programs currently in development. Most recently, Athersys announced the FDA has authorized the initiation of a Phase 2 clinical trial evaluating MultiStem cell therapy in Trauma patients here. This trial is supported by the Medical Technology Enterprise Consortium (MTEC). MTEC is a 501c(3) biomedical technology consortium collaborating under an Other Transaction Agreement (OTA) with the U.S. Army Medical Research and Development Command (USAMRDC). Athersys also has Fast Track designation and a SPA in place for their Phase 3-ready acute graft versus host disease program, as well as Orphan Drug designation by the FDA and EMA. Another intriguing indication in which Athersys collaborator Emily R. Thompson recently completed a preclinical study is the novel delivery of cellular therapy to reduce ischemia reperfusion injury in kidney transplantation here. Ms. Thompson received the prestigious European Society for Organ Transplantation (ESOT) Leonardo da Vinci Transplant Award in 2019 for her work in this area using MultiStem cells. Athersys has also conducted extensive preclinical work in hemorrhagic stroke, traumatic brain injury here , spinal cord injury here , and many other indications, demonstrating the versatility of MultiStem cell therapy. Many of their preclinical programs have the ability to move straight to phase 2 development.

Preparing To Commercialize

Athersys and Healios are vigorously preparing for commercialization. Recently, Athersys made two important hires to their senior management team. The first was the hiring of new CFO Ivor Macleod, an experienced biotech insider that brings valuable experience from stints with prominent pharmaceutical companies such as Eisai Inc., Merck, and others. Equally as impressive is the hiring of Maia Hansen, the new Senior Vice President, Operations and Supply Chain. Ms. Hanson previously served as a Senior Partner at McKinsey & Company, a global management consulting firm, where she worked with clients around the world to develop and optimize end-to-end operations and global supply chains.

Healios recently established a marketing and sales team to rapidly develop sales activities after they apply for and receive approval for marketing, as stated in this press release. Manufacturing initiatives are also picking up. In 2017, Athersys entered into an agreement here with Nikon Cell Innovation, a subsidiary of Nikon Corporation, to manufacture MultiStem for Healios in Japan. Athersys also previously announced that it successfully transferred its intellectual property for MultiStem to Nikon Cell Innovation. On April 14, 2020, Nikon Cell Innovation disclosed in this press release that it has obtained a license for manufacturing regenerative medicine products. In my opinion, this clearly indicates that they will have a product to manufacture sooner than later.

As referenced by Athersys Chairman and CEO Gil Van Bokkelen in this earnings call from Q3 2019, Athersys has engaged in other key commercialization initiatives such as the hiring of a leading contract research organization (CRO) in 2019 to assist both Athersys and Healios in their preparations of information and materials needed to support rolling submissions and priority reviews for both ischemic stroke programs in Japan, the U.S., Europe and other relevant jurisdictions. Athersys is also developing a proprietary cryogenic storage system called SIFU that will provide many logistical advantages, as depicted in this slide from their April 2020 company presentation:

Source: Athersys April 2020 corporate presentation here

Per this new Form 8-K SEC filing , Athersys currently has approximately $37.5 million of cash and cash equivalents on the balance sheet as of April 9, 2020. This includes about $7 million of proceeds from Healios full exercise of 4 million shares from existing warrants, detailed in this recent press release. It's important to note that the large warrant exercise by partner Healios represents a major insider transaction. The Form 8-K also states that discussions between Athersys and BARDA are continuing regarding a potential collaboration, for which Athersys has submitted its formal proposal. A formal collaboration with BARDA, if achieved, could result in additional funding to Athersys. Lastly, at the time of the writing of this article, Athersys was conducting a public offering of common stock which will yield around $50 million. This offering is scheduled to close around April 20, 2020. It is my view that the recent public offering should not be seen as an indication that the BARDA deal is off the table, but instead as an effort to quickly ramp up the MACOVIA trial while the contract process finalizes.

I believe Athersys presents a favorable value proposition for potential investors. They currently have two late-stage programs in development, both with potential near and mid-term catalysts that could provide substantial value for shareholders. In my opinion, other positive indicators outlined in this article provides additional evidence that these programs are significantly de-risked. Dawson James Securities currently assigns a 1-year price target of $12, per their most recent company report dated April 15, 2020. As the time of the writing of this article, Athersys shares were trading around $2.10 per share. I believe these shares are extremely undervalued at these levels given the multiple market opportunities in critical areas of unmet need, and currently present a very compelling buying opportunity for potential investors.

As with any investment, there are certain risks to my thesis. For the ARDS clinical trials, enrollment could take longer than expected. This would move the timelines for the expected catalysts to a later date. However, I believe these trials will enroll in a timely manner given the huge need for therapeutics to treat COVID-19 induced ARDS patients. For the acute ischemic stroke clinical trials, there is the possibility that the COVID-19 pandemic could affect future enrollment rates. A recent disclosure by Athersys though indicated that the pandemic has not had a significant adverse effect on their business. Finally, BARDA could somehow choose not to initiate an alliance with Athersys. I believe this scenario is highly unlikely given the relevance of Athersys' ARDS program as it pertains to the COVID-19 pandemic.

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.

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Athersys: Abundance Of Opportunity - Seeking Alpha