Description

SUMMARY OF OPPORTUNITY

Athersys is a thinly traded microcap stock bordering on delisting territory just above $1, and seemingly overlooked by the investment community due to a litany of real or perceived issues; our differentiated view is that:

the company has gained expertise in a biological niche of trauma and acute injuries of humungous market potential and unmet need (especially in ischemic stroke);

its product candidate, Multistem, manufactured through a valuable off-the shelf process, shows a pristine safety profile, and signs of impressive clinical efficacy;

Multistem could expand the window of treatment of stroke from 4 to 6 hours maximum up to 36 hours, enlarging potential to treat victims by an order of magnitude compared to the current standard of care;

on positive Phase 3 data in ischemic stroke in late 2020, followed by fast approval, one could elaborate that the company could be worth $8 billion or $36 per share (diluted), then receive fast approval (the bar in Japan in particular seems particularly low) in one of the world's largest markets, with little competitive pressure (for stroke there are no current treatments that Athersys would be competing against), and powerful pricing power (such are the overall cost savings & patient quality of life implications).

Valuation wise, a binomial tree method indicates the market gives less than 5% odds of success, whereas “default” Phase 3 success rates for such indications, and our own estimate following a careful analysis of the “failed” Phase 2 are closer to 60%.

We view Athersys as a grossly mispriced lottery ticket with a phenomenal open-ended potential.

RED FLAGS ABOUND, MASKING THE OPPORTUNITY, PROVIDING MULTIPLE REASONS FOR MISPRICING

1) scandal of the very origin of the product candidate: Athersys’ Multistem uses Multipotent Adult Progenitor Cells (MAPCs) Intellectual Property licensed by the University of Minnesota and discovered by Doctor Catherine Verfaillie in 2001. She published the report on discovery in 2002, but a panel of experts concluded that four images used in the paper were intentionally altered, forcing the University of Minnesota to retract this stem cell study and provoking a response from the university researcher.
2) previous Phase 2 failures from Athersys challenge the proof of concept: in 2014 a Phase 2 clinical trial in chronic Ulcerative Colitis (UC), which was designed and run by Pfizer (NYSE:PFE) using MultiStem, failed to meet end points. Crucially to the current investment case, the MASTER 1 stroke Phase 2 trial in 2015 failed to meet the primary endpoint which was clinical improvement compared to placebo at 90 days following infusion of stem cells. There was no statistical difference between the treatment arms.
3) some critics point that Phase 3 hopes are only based on a retro-fit, post hoc Phase 2 analysis on a small sample size; post hoc sub group analysis are always a red flag, subject to a high false positive rate. Is the company desperately cherry picking the data and retro-engineering it?
4) the exact mechanism of action of the product is unknown and highly complex, involves many pathophysiological pathways, and maybe only a working hypothesis “premise” of Athersys’ researchers
5) investment fatigue for stroke and stem cell treatments. So many companies have been burned over the last 20 years trying to find a stroke treatment that they are quite cautious, or have given up trying. Stroke has proved a “cemetery” of investigational drugs for big pharma with no breakthrough approval in those 25 years, except tPA. Proven and licensed stem cell-based treatments already exist for blood and immune conditions such as leukaemia, lymphoma and myeloma, but it can be argued stem cell use in any form has not gotten a clear-cut winner so far.
6) guilty by association? Stem cell have generated a significant amount of negative press in recent years, and some investors view stem cell as “off limits”. A Wild West? There were over 432 US-based business at 716 clinics engaged in direct-to-consumer stem cells interventions in 2018; with little regulation or oversight those clinics sell experimental procedures for dozens and diseases and conditions, injecting mesenchymal stem cells, charging great fees and making equally grand claims; further afar there even exists a “stem cell tourism”, centred in Ukraine, Panama and Thailand.
7) cautiousness towards use of stem cell technology is also explained by confusion with embryonic stem cells fraught with their bio ethical considerations and problems such as abortion.
8) scepticism is also a result of past stem cell trial failures, poor hit rate, following grand expectations; even though cell therapies hold enormous promise for treating many different diseases, very few are FDA approved, and largely stuck at the research and development phase. Ongoing trials use a variety of stem cells (adipose, placental, umbilical cord, umbilical cord blood), and those stem cells seem to show immune modulatory properties like MAPCs; but some mesenchymal cells trials had to be outright stopped because bad effects were observed (due to off target proteins I believe).
9) numerous outright scientific frauds in stem cell research: Japan (and South Korea) have witnessed some spectacular lies by scientists claiming breakthrough results in stem cells: most notably Haruko Obokata, a Nobel Prize hopeful. That could explain why a Japanese partner such as Healios for the pivotal trial may not inspire great confidence to the investor community.
10) a crowded field- at the end of 2018, there were 33 ongoing phase 3 clinical trials of cell therapies and 16 of gene-modified cell therapies such as CAR T-cell therapies around the world.
11) mis-execution on partnerships (and long delays on Multistem production in Japan); a China JV route was abandoned, Europe partnership hopes have been pending since 3 years and this lack of support partly explains some severe delays (the TREASURE study is more than 2 years late now).
12) Athersys’ management claims of pursuing the holy grail of regenerative medicine and a potential paradigm shift in stroke care can seem a bit delusional; cynics would point that paradigm shift is a term that would-be unicorns put in S1 IPOs those days when they know they did not invent anything new. The term paradigm shift cannot be found in a single biomedical article before 1980; which seems fair; after all, according to the philosopher of science Thomas Kuhn, paradigm shifts marked scientific revolutions…. but fast forward in 2015 alone, there were an unprecedented 813 paradigm shifts in the academic clinical trial literature. source: "Fraud in The Lab", from Louis Nicolas Chevassus-au-Louis
13) multiple rounds of dilutive fund-raising and trial delays have left the core holders fatigued; cash was about $40 million at Q3 2019, quarterly cash burn is about $13 million; the company will have to raise meaningful equity to sustain its development.
14) no “serious” major house analyst coverage; little institutional ownership (less than 25%), or apparent support from any specialized biotech funds with the notable exception of an ATM facility run by Aspire Capital. But we could not find any involvement from the likes of the reputed Baker Brothers, Perceptive Advisors, or RA Capital Management.
15) the company was listed since 2007 and is still without any approved treatment to show for, this may not pass the smell test for a lot of experienced biotech investors who discount the CEO’s assurances that Athersys could “change the landscape of medicine” and become one day a “top commercial biotech powerhouse”.
16) Athersys is based in Ohio, which has never been a hub for successful biotech ventures like Boston or the San Francisco Bay.
Now If you still read us after all those warnings ….

COMPANY AND LEAD PRODUCT QUICK HISTORY

Athersys started to develop a stroke program in 2002, after they obtained an exclusive license to develop bone marrow derived Multipotent Adult Progenitor Cells (MAPCs) from the University of Minnesota, where Belgian Doctor Catherine Verfaillie had a ground breaking discovery this in 2001, published in 2002 in Nature to great acclaim in scientific circles; it was the first report of adult-derived stem cells to have properties previously ascribed to embryonic stem cell only. British biomedical publication New Scientist declared it as the "ultimate stem cell discovery". The grant of rights was in exchange for potential milestone payments and single-digit percentage of sales as royalty payments. Multistem is the name of their product candidate, which is off-the-shelf (allogeneic) and manufactured from MAPCs that are obtained from young healthy donors.

Athersys researchers claim that MAPCs share similarities to mesenchymal stem cells, (MSCs) essentially working on balancing the autoimmune system, but that they are very different, smaller and less sticky which helps them to migrate in the body and reach the desired areas. Athersys started to run trials and experiments, supervised by the FDA, first on animals from 2004/2006 and for almost 10 years, showing great safety, meaningful clinical benefits and efficacy. The early preclinical research that supported MultiStem as a potential ischemic stroke therapy can be traced back to a seminal paper describing pre-clinical work in rats. Both the rat version and the human version of MultiStem worked to improve neurological functions in rats (a surprising result) and neither treatment was found to require immunosuppression (great for safety). Earlier administration of Multistem was better than later administration.

DISCOVERY OF THE ROLE OF SPLEEN IN STROKE

Whilst Athersys was conducting experiments with MultiStem on stroke in rats, a NIH funded study was undertaken examining the role of the spleen in post stroke damage to the brain. In this study rats had their spleens removed two weeks before a stroke was induced. The results demonstrated the role of the spleen in exacerbating stroke related damage.
Athersys realized that the MAPCs were not really going to the central nervous system brain after acute trauma/injury but rather migrating to the spleen, calling “time out” on the inflammatory response; this realization opened the whole immune system “angle” which is their focus now. Multistem’s cells do not graft; they do not become neurons; they may not themselves directly repair damaged tissues; but they may be promoting healing and tissue repair in multiple ways. The mechanism is more about immune modulation and damage-mitigating than regeneration of tissues per se; we are past the original idea of stem cells as a toolkit for all organs here. The premise is merely that Multistem addresses the hyper-inflammatory response for many acute attacks to the body.

PRODUCTION PROCESS : off the shelf, easily manufactured, stored and injected

Stem cells production processes are usually considered a problematic limiting factor: issues include host-donor graft rejection, scalability, need to modify genetically, shelf life duration. In this respect Athersys’s Multistem appears a rather competitive technology, even though it has not been tested on a big scale and we struggle to precisely estimate the costs of goods now and how they could evolve at scale. The process is that healthy young donors become the source of a stem cell “bank of stem cells” obtained from adult bone marrow (or, rarely, other tissue sources), that requires no genetic modification, and the donor’s cells are then cultured into multiple, off the shelf doses into a standardized product, making it relatively easy (buts still very costly, my estimate based on Healios’ communication is around $8-20k) to manufacture in large scale. Multistem can be stored in frozen form until needed. The vial can be quickly thawed and administered to a patient, typically through a simple intravenous infusion. MultiStem can be administered “like Type-O blood”, as tissue matching is not required due to the nature of this special class of human stem cells, nor is administration of immune suppressive agents.

PARTNERSHIPS

Healios is paying for the Japanese trials. An initial partnership with Healios was established in January 2016 and furthered in June 2018, with a total of $43 million up front payments and > 360 million total additional potential milestone payments, subject to certain credits, plus tiered double-digit royalties. Initial therapeutic focus was ischemic stroke, the most prevalent cardiovascular disease in Japan, and later extended to ARDS. Healios holds a 8.7% stake in Athersys plus some adjustable warrants. Over the last years other partnership discussions have failed in Europe or in China, even though the CEO has long targeted and pursued those.

PIPELINE : stroke and ARDS

The emphasis is on critical care indications with substantial unmet need, high cost of care and quality-of-life burden, with a focus on stroke and ARDS: Acute Respiratory Distress Syndrome, mostly pneumonia-induced, where acute pulmonary inflammatory damage lead to a mortality rate thought to be between 30 to 50% for the diagnosed patients. ARDS afflicts approximately 500,000 patients in Europe, the United States and Japan combined annually.
Stroke: there are 2 Phase 3 ongoing trials on stroke: MASTER 2 in US/Europe, and TREASURE in Japan, run par partner Healios KK. Ischemic stroke, which represents the most common form of stroke is caused by a blockage of blood flow in the brain that cuts off the supply of oxygen and nutrients, resulting in tissue loss.

ARDS: in the US, the MUST ARDS Phase 2 is run by Athersys, with positive preliminary successful results announced in May 2019. N=30 patients, with 20 in Multistem and 10 in the placebo arm; mortality at 28 days was 25% or 5/20 in the Multistem arm compared to 40% or 4/10 the placebo arm, with a median ICU-free days of 12.5 in the Multistem treated patients against 4.5 days in the placebo leg. The subset of most severe cases looks very promising with an even greater difference in mortality rate, ventilator free and ICU free days. Final one year follow up results are expected around Year End 2019 and CEO Gil Van Bokkelen recently eluded we should expect a confirmation of the 28 days results.

In Japan, Healios started enrolling patients in the ONE-BRIDGE ARDS Phase 1/2 trial in April 2019. Expected results in late 2020.

FOCUS ON THE NEXT BIG CATALYSTS ON STROKE

Enrolments are ongoing in Japan where Healios KK runs a pivotal trial in ischemic stroke called TREASURE on N=220 patients which received priority review designation from PDMA; and simultaneously Athersys is running its own MASTER 2 study on N=300 patients trial in US+Europe , and received SPA, Fast Track and RMAT designation from FDA and Positive Scientific Advice from EMA. Expected end of enrolment followed by preliminary results read-outs are in mid to late 2020 for both trials.

Both trials are randomized, double-blind, placebo-controlled clinical trial designed to enrol patients who have suffered moderate to moderate-severe ischemic stroke. Patients will receive either the active compound or placebo at some point between 18 to 36 hours after suffering from the stroke, administered in conjunction with current standard of care treatment. The primary endpoint will compare the impact of the drug with placebo at a predefined timeframe of three months. Basically, it’s asking the question: are patients who receive this treatment after suffering strokes still suffering at three months, and if so, are the symptoms any better than those who received placebo? Both stroke trials hope to prove efficacy by demonstrating a significant p-value around two endpoints: one is a measure of disability, of mortality and other serious outcomes, and the other is the frequence of Excellent Outcomes at 3 months and 1 year.

Excellent Outcome at 90 days was the primary endpoint for only drug approved in 1996: tPA, or tissue plasminogen activator, which works by dissolving blood clots. Excellent Outcome is the Proportion of patients that achieve an excellent score in each of three established clinical rating scales: NIHSS, Barthel Index, Modified Rankin Scale. This represents the proportion of patients that achieve full recovery over clinical assessment period. Excellent Outcome is evidenced by patients achieving a score of mRS ≤1, NIHSS ≤1 and BI ≥95.

mRS = modified Rankin Scale; is an industry standard stroke severity scale; mRS Shift Analysis reflects improvement across the entire disability spectrum during the clinical evaluation period. NIHSS stands for NIH Stroke Scale and measures Neurological and motor skill deficits. BI or Barthel Index measures the ability to engage in activities of daily living (e.g., walking, dressing, feeding, toiletry, bathing).

Both trials share the same design except that the primary endpoint in the U.S. trial will be a shift analysis, and the secondary endpoint will be Excellent Outcomes; this is reversed in the Japanese trial. Those Phase 3 pivotal programs are almost identical to the original Phase 2 protocol “that failed his primary endpoint”. This begs the question, why did the company, the FDA, the EMA and the Japanese regulator (PMDA) agree to running a Phase 3?

We think the Phase 2 MASTER 1 trial analysis is the crux of the whole investment thesis. Our main research material is the 2017 report of this trial in the peer-reviewed Lancet study. MASTERS 1 was a double-blind, randomized, placebo-controlled Phase 2 study conducted at 33 leading international stroke centers across the U.S. and the U.K. between Oct 24, 2011, and Dec 7, 2015. The Multistem leg had n=65 patients, and the placebo arm n=61.

Safety and tolerability were very favourable. No infusional or allergic reactions, and no abnormal patterns in safety labs or vital signs; lower rates of pulmonary events and infections among MultiStem treated patients vs. placebo treated patients.

Mortality: a lower mortality was observed for MultiStem-treated vs Placebo treated patients: 9 deaths for placebo group versus 4 deaths for the MultiStem group.

Efficacy: the primary endpoint was the proportion of subjects achieving Excellent Outcome at 90 days. For all subjects, neither the primary endpoints nor the key secondary endpoints (mostly taken from the clinical rating scales defined above) did not meet statistical significance, thus most observers concluded the trial was a failure when released in April 2015. There were some positive signs of efficacy trends though: MultiStem treatment was associated with a reduction in hospitalization, and a higher proportion of patients receiving MultiStem achieved an Excellent Outcome.

But the perception of failure changed in February 2016 with the release of the one-year follow-up data. Expectations for a surprise were virtually non-existent, because in stroke, “time is brain” and that means all the benefits of treatment are supposed to be seen within the first 3 months; hence the choice of 90 days as the primary endpoint (standard of care tPA did not get better results after 1 year).

The 365 day follow-up data met statistical significance: among all subjects who received MultiStem treatment (n=65), 23.1% of patients achieved an Excellent Outcome at 365 days, compared to 8.2% of patients who received placebo (n=61), and the 14.9% difference was statistically significant (p=0.02) and compared favourably to the 8.8% difference at 90 days.

Athersys performed a post-hoc analysis by picking two smaller sub-groups: first, the early treatment cohort of patients (n=31) injected with Multistem up to 36 hours after stroke onset; and then an even smaller subset (n=27) excluding patients who had received both tPA and MR. tPA (tissue plasminogen activator) dissolves the clot through a drug-like mechanism, and MR is clot removal by a mechanical device. The logic behind the “retrofit” was that those groups were actually more faithful to the original protocol, which had been “perverted” during the trial.

The window of treatment, originally 36 hours, had been extended to 48 hours because the stem cells bank clinics storing Multistem to be thawed were mostly shut over the week-end, preventing a speedy enrolment and excluding a lot of stroke victims. Maybe expanding the patient inclusion criteria to speed enrolment played some role in the study's inability to meet its predetermined endpoints, as we know that time is brain in stroke?

The original inclusion criteria included tPA patients but excluded patients who received tPA in combination with the more recently approved MR treatment. “Following tPA and MR, patients that successfully respond will usually improve quickly (i.e. within the next few hours); patients that did exhibit such improvement shouldn't have been enrolled in the study” “we wanted patients that had substantial and durable deficits, since these types of patients typically have poorer outcomes” (source=interview with Gil Van Bokkelen, CEO). The study was designed to show efficacy for the more severe cases of stroke where the standard of care was insufficient. It seems the screening process for spontaneous recovery was not properly executed in the Phase 2 trial.

I would like to highlight here four rather remarkable results where Statistical Significance was achieved:

At 90 days, among “early treated” patients who received MultiStem treatment, 16.1% or 5 patients out of 31 achieved Excellent Outcomes versus 0%: 0 in the 19 “early treated” patients placebo arm.
At 90 days, among “early treated” patients excluding tPA+MR patients who received MultiStem treatment, 18.5% or 5 patients out of 27 achieved Excellent Outcomes versus 3.8% i.e 2 out of the 52 placebo arm excluding tPA+MR patients.
At 365 days, among “early treated” patients who received MultiStem treatment, 29.0% or 9 patients out of 31 achieved Excellent Outcomes versus 0% of the “early treated” 19 patients placebo arm.
At 365 days, among “early treated” patients excluding tPA+MR patients who received MultiStem treatment, 29.6% or 8 patients out of 27 achieved Excellent Outcomes versus 5.8% ie 3 out of the 52 patients placebo arm excluding tPA+MR patients.

The benchmark is tPA which was approved, based on the data of the NINDS trials , thanks to an absolute risk reduction of 11%–15% compared with placebo at 90 days using the same Excellent Outcome endpoint. Multistem showed an absolute improvement of around 9.5% when we consider early -treated patients, and 14.7% excluding tPA+MR , ie “the original protocol” design. That fact may be easily overlooked.

As already stated, tPA, contrary to Multistem, did not get better results after a longer period such as one year. Proportion of subjects achieving Excellent Outcome increases over time with Multistem. Standard of care does not show any improvement from 90 days to 1 year.

For anyone having a moderate to severe stroke, with Multistem, (following the original protocol, after 365 days) stroke patients would get 30% (8/27 as per Table 4) chances of an Excellent Outcome, or full recovery, with little or no disability: this is a multiple of the current standard of care.

Beyond this Excellent Outcome, the post-hoc numbers indicate that with Multistem there is a greater than two-fold increase in the number of patients achieving good/robust recovery. Furthermore discussions with management point to 70% of Multistem-treated victims achieving Meaningful Outcome, which qualifies as achieving an independent functional lifestyle and would still represent a meaningful health improvement.

Those strong clinical benefits forced me to pause and reflect, and may help to understand why a Phase 3 “right after a failed Phase 2” was initiated in 3 territories with the local regulators’ facilitation (special designations).

However the key limitations of this post-hoc analysis, as clearly noted in the Lancet review, is the relatively small sample size. (Remember, only 5 patients out of 31 "early-treated" achieved Excellent Outcome at 90 days; had we had just 1 less success, it is doubtful "stat sig "would have been achieved!) 
  
Let’s elaborate a bit on how we could approach p-values and the general positive effect of Multistem on a larger sample.

P-values are a function of sample size. Clinical trials should be evaluated not only on p-values but combining the overall effect of the treatment. The power of the sample matters. Looking merely at statistical significance, a p value less than 0.05, may not pay justice to the very real effects observed in Phase2.

To assess the bigger sample size effect on p values using an equivalent delta (the effect), I have plugged a few numbers into a free clinical trial simulator. I estimate that using 220 patients (the Japanese TREASURE sample size), a power of 80%, and a placebo at 3.8% (as in original trial placebo leg of n=52 at 90 days) we would only need 14.7% Excellent Outcomes occurrences to reach statistical significance, a lower bar than the 15.45%/16.1%/18.5% (depending on the subgroups) of the post-hoc analysis achieved. To put it more simply, replicating the post-hoc group effects on the larger sample size could warranty meeting the primary endpoint.

Beyond sample size, the other slight change made from Phase 2 to Phase 3 is the inclusion of the 18-24h cohort: the trial “starts sooner”. Again, if “time is brain”, this would be beneficial. Here is what the Investor Relations department of Athersys disclosed on the matter when asked. “Our prior research has shown that the earlier MultiStem treatment is administered after the occurrence of a stroke, the better the recovery. Based on this observation, we believe earlier treatment should correspond to even better outcomes. “

To summarize, I believe the shorter treatment time (18h versus 24h), larger sample size, more disciplined screening of spontaneous recoveries, and exclusion of the 36-48h cohort should enhance the odds of a successful Phase3 meeting its endpoints.

VALUATION

Any attempt to value such a nanocap pharma company with any precision is foolish. I have thus decided to spare you any elaborate risk adjusted DCF and instead I will just try to assess if the pitch looks fat.

All presently available treatments for ischemic stroke (tPA & MR) require administration within a few hours of suffering from the stroke. Of those who survive, only about 10% of patients arrive at a hospital in time to receive appropriate treatment. In the 87% of strokes that are ischemic, a treatment called tPA, a clot-breaking agent, is used. Tissue Plasminogen Activator (tPA) has to be administered within 3 to 4h ½ after the stroke. A major shortcoming of tPA, beyond the short treatment window of a few hours following onset, is that it can become deadly with later treatment.
Mechanical Thrombectomy (MR) is a more recent treatment, with a window of treatment of only 6 hours and only applies to an estimated 10% of patients (showing a proximal large artery occlusion in the anterior circulation, and present early enough to qualify for mechanical thrombectomy within 6 hours. Success is heavily reliant upon the skill of the surgeon.)

With its greatly expanded 36 hours treatment window and few limitations, Multistem could be relevant to potentially 90 to 95% of stroke patients.

Management estimate (in earnings conference calls) “within the three geographies where we are concentrating— north America, the E.U. and Japan—it’s more than 2.2 million first-time ischemic stroke victims every year”. That splits between North America (about 800k victims), Europe and Japan (about 340k victims as per Healios’ estimates). Management also indicated they could end up treating 40%, or about 1 million a year; they stated it “is not unreasonable to think you could generate numbers in the tens of billions of dollars annually”. They also noted (last Corporate presentation) that “With an expanding aging population globally (and increasing obesity in U.S.), the clinical need and commercial opportunity are expected to increase dramatically in years ahead”.

An academic paper estimated in 2004 that therapies such as tPA in stroke could justify a price tag of $45,800 based on the quality-adjusted life years (QALY) provided to patients.

Healios has indicated that ARDS reimbursement in Japan could possibly be upwards of six figures of USD. Mesoblast, a stem cell competitor, obtained a reimbursement rate for its Graft vs. Host Disease product of between $113,000 and $170,000 per treatment protocol for its stem-cell based therapy in Japan. Gil Van Bokkelen said in an earnings conference call that for Japan “a general ballpark estimate on a per patient basis would be approximately $100,000 per patient”

Maybe that’s too high, and we would need to model the royalty stream and the milestones, so let’s use a more conservative $30k per treatment and a cost of goods of $15k per dose (our guestimate) across territories for the sake of simplicity; in this case we have 1 million treated patients at 15k= USD 15 billion net revenues; we should point that Athersys sees a 20 billion market opportunity.

“Default” historical Phase 3 to NDA success is 57.4% in neurology if we use the Clinical Development Success Rates 2006-2015 Biomedtracker study

Our understanding is that the Japanese TREASURE results will be used by the FDA, together with the MASTER 2 results, in their decision process.

The PMDA in Japan has granted the Healios stroke trial the designation for an accelerated approval window. Japan has recently passed a new regenerative legislation that makes breakthrough treatments using stem cells much easier to obtain approvals (both conditional and permanent). For those therapies that have demonstrated safety and "are likely to predict efficacy", the new framework not only shortens the development timeframe, but also provides a very efficient and enhanced reimbursement system. This sets overall a lower bar in Japan, which should see the first 90 days endpoints read-out in late 2020.

Our analysis of the MASTERS 1 Phase 2, of the consequent body of research on the spleen’s impact on the immune system in acute injuries, of Multistem’s early data in other applications such as ARDS, the low bar to jump in Japan, comfort us in using a 60% odd of success.

Say Athersys could capture about 10% of what we have worked out as the potential net revenues so $ 1.5 billion, at an EBIT margin of 70%, taxed at 20%, to generate $0.84 billion in annual net profits, valued at a x10 multiple, non-present value adjusted, that would be $8.4 billion; assuming a 50% dilution (current float is 152 million shares), we could entertain a price/target of $36 per share.

Given the binary risk we should probably look at this investment using a probability tree; then it looks like the implied odds of this kind of success seem to be less than 5%. The bet seems grossly mispriced.

RISKS and CONCLUSION

As in all biotech investing, we face with Athersys a considerable amount of risks, from clinical trial, to commercial development, to financial risks, Intellectual Property challenges, and regulatory hurdles. Taking a step back, part of the appeal of equity investing is for truly open-ended long positions which can move the needle in portfolios, even when modestly sized; we strongly believe Athersys fits this profile, with market odds compellingly stacked in our favour.

APPENDIX

"Panel Finds Flawed Data in a Major Stem Cell Report", NY Times, 28 Feb 2007
www.nytimes.com/2007/02/28/science/28stem.html?_r=1&scp=1&sq=catherine%20verfaillie&st=cse

Catherine Verfaillie's response
www.mprnews.org/story/2008/10/08/verfaillie_response

"The US Direct-to-Consumer Marketplace for Autologous Stem Cell Interventions"
www.ncbi.nlm.nih.gov/pubmed/29805145

"Stem cell scientist Haruko Obokata found guilty of misconduct"
www.theguardian.com/science/2014/apr/01/stem-cell-scientist-haruko-obokata-guilty-misconduct-committee

"Pluripotency of mesenchymal stem cells derived from adult marrow"
www.nature.com/articles/nature00870

"Cell-Based Therapies in Late-Stage Clinical Trial” Featuring Dr. Robert Mays, Athersys VP
https://stemcellpodcast.com/ep-138-athersys-clinical-trial

"Safety and efficacy of multipotent adult progenitor cells in acute ischaemic stroke (MASTERS): a randomised, double-blind, placebo-controlled, phase 2 trial",
LANCET VOLUME 16, ISSUE 5, P360-368, MAY 01, 2017

"The Economic Case for New Stroke Thrombolytics"
www.ncbi.nlm.nih.gov/pmc/articles/PMC2955402/

Catalyst

TREASURE, MASTER 2, ONE BRIDGE, MUST ARDS trial read-outs
European partnership