An Undervalued Spec Company With High Potential

 Hey Everyone,

Let me know what you think of this article before I submit it. Looking forward to seeing it (hopefully) published.

Trade it well!

Athersys, Inc. (ATHX)


Athersys, Inc. (ATHX) is a small cap biotech stock that has the potential for blockbuster returns.  The company has a deep pipeline in multiple markets all that can potentially generate billions in sales.  Pfizer(PFE) is currently a partner for one of these markets.  Before I get into specifics regarding ATHX’s potential, I want to briefly discuss ATHX’s valuation, their capital burn rate, and why the current price is cheap for investors.


ATHX’s stock price decline in fourth quarter of 2012 was attributed to a fourth quarter stock offering.  Since then stock price has been steady and trading slightly above $1.  ATHX just now appears to be rebounding off this low.  At the current price, the company’s market cap is approximately $60M with $30M of that in cash.  The company burn rate is approximately $4M per quarter so the current cash position should be sufficient to last approximately 2 more years.  With a $60M market cap and $30M is in cash, ATHX’s pipeline is only valued at the remaining $30M which is extremely low for the following reasons.


First and foremost, ATHX has a $120M deal with Pfizer plus royalties.  At the end of 2009, the Pfizer(PFE) partnership for ulcerative colitis caused ATHX to run from $1 to $5.   Phase 2 data is forthcoming mid 2013.  One would expect a significant run up into this phase 2 data.  This phase 2 data is critical because, if positive, it will validate the science and significantly impact market potential.  Ulcerative colitis medication has the potential to generate billions since Irritable Bowel Disease (IBD) affects 2.4 million people in the U.S., Europe and Japan.  ATHX’s multi-stem platform is a type of regenerative medicine that can be used on a variety of platforms for therapeutic benefit.


Second, ATHX has a partnership with RTI Biologics, Inc.(RTIX) for a bone allograft system.  Since RTI will be using ATHX’s platform, RTI will be paying ATHX royalties.  As such, ATHX should begin having a revenue stream this year.  One would expect to hear news from ATHX about the progress of this partnership and revenue generation.


Third, ATHX has an ongoing phase 2 study for ischemic stroke via their multi-stem platform.  This is another billion dollar industry with 2M people suffering from stroke annually in the U.S., Europe and Japan.  One would expect the stock price to increase in anticipation of these results as well.


Fourth, ATHX has an interesting compound in their pipeline that is a 5HT2c receptor.  This receptor is key for assisting the brain in regulating appetite and food intake.  As such, this drug has potential to treat both obesity and diabetes.  The market places high valuation on weight loss drugs as we have seen VVUS, OREX and ARNA stock prices significantly increase.  What is unique about this compound is that it can treat patients as a single mode of therapy or in conjunction with recently approved therapies.  This could potentially create a lot of interest in ATHX by the aforesaid companies.  ATHX has publicly stated during a conference call they are looking to potentially partner this compound.


Fifth, ATHX was granted orphan drug status for Hematopoietic Stem Cell Transplant / GvHD in April 2012.  Phase 1 was completed in early 2012 for patients suffering from leukemia and other blood-borne cancers.  In the highest single dose group “no cases of severe GVHD were observed and there was only one moderate grade (grade 2) that resolved with treatment. ”  There is a huge unmet clinical need for this platform and results, to date, have been extremely favorable.  ATHX is presently working with a leading clinical center in Europe on this.


Sixth, ATHX was partnered with Angiotech Pharmaceuticals to co-develop multi-stem for acute myocardial infarction.  The phase 1 study was promising, however, Angiotech fell on hard times financially so ATHX recovered all rights.  The FDA has already approved their phase 2 study, however, ATHX is deciding whether to advance this study alone or partner.  One would suspect to get an update from the company relatively soon.


Lastly, if the aforesaid wasn’t enough, the multi-stem platform has the potential to treat other neurological disorders and injuries such as traumatic brain injuries, spinal cord injury and multiple sclerosis.  Other treatment platforms for multistem include congestive heart failure, peripheral vascular disease, peripheral artery disease, and critical limb ischemia.  Each of these markets are extremely large.


ATHX has a “Fact Sheet” and “Corporate Overview” regarding the above on their website.  I would highly recommend reviewing those to get a better understanding as to the significance of their platform.


ATHX has about 50M shares in the float.  If ATHX is able to enter into additional significant partnerships, their multi-stem platform is validated, they start generating revenues this year from their bone allograft partnership, or other anything else of significance happens, one would expect ATHX to have a market cap of at least $250M.  With around 50M shares outstanding that puts ATHX’s stock price of $5.  ATHX has the opportunity to further partner with Pfizer for their other platforms since that relationship already exists.  Furthermore, at the current valuation, ATHX could be a potential buyout target of Pfizer(PFE).  Since Pfizer has a $120M deal with ATHX, and ATHX’s pipeline is only valued at $30M, Pfizer could buy ATHX for $4 per share which equates to the $120M they will need to pay in royalties and own the entire company.


Clearly this is a small cap biotech with a lot of potential.  As with all small cap biotech stocks, there are always investment risks.  Please do your own due diligence before investing.


Disclosure:  LONG $ATHX


Comments ( 2 )

  • juddcc says:

    Exciting article. I’ll be even more patient with my holdings. I hope this write up gets published outside of this site too!

  • Squirkler says:

    Any indication of when to expect results from the ongoing phase 2 study for ischemic stroke?

    Have they enrolled/started phase II trial for Hematopoietic Stem Cell Transplant / GvHD? And word on when to expect results?

    Very informative and reads well