Athersys Progress on all fronts Regulatory update Pharma & biotech Recently, Athersys reported progress with both US and Japanese regulatory authorities. The company reached a deal with the FDA for the design of its pivotal Phase III trial for MultiStem in ischemic stroke under a Special Protocol Assessment (SPA) and should be able to file with just one 300-patient Phase III trial run in North America and Europe. Other clinical data, including the results of its trial in Japan (the design of which has just been accepted by the PMDA), will be used to support the NDA. Year end Revenue ($m) PBT* ($m) EPS* ($) DPS ($) P/E (x) Yield (%) 12/14 1.6 (28.9) (0.37) 0.0 N/A N/A 12/15 11.9 (17.2) (0.21) 0.0 N/A N/A 12/16e 17.2 (15.3) (0.18) 0.0 N/A N/A 12/17e 0.0 (33.8) (0.39) 0.0 N/A N/A Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. 27 October 2016 Price US$1.93 Market cap US$164m Net cash ($m) at 30 June 2016 24 Shares in issue 85.0m Free float 98% Code ATHX Primary exchange NASDAQ Secondary exchange N/A Share price performance Timeline for FDA approval accelerated Due to the agreement with the FDA on the SPA, only one 300-patient trial will be needed instead of two, which had been the previous expectation. The trial, dubbed MASTERS-2, should launch in 2017 and we believe would be able to provide data by 2019, enabling a 2020 approval for MultiStem in the US, instead of 2021 as we had previously expected. mrs shift analysis is primary endpoint The primary endpoint for MASTERS-2 will be disability, as measured by the shift in modified Rankin Scale (mrs) scores at three months. The mrs is an overall disability score ranging from 0 to 6 and is not sensitive to small improvements. In the Phase II trial, the mrs shift analysis for those treated within 36 hours had a p- value of 0.127 at day 90, but was p=0.028 if excluding patients who received both tissue plasminogen activator (t-pa) and mechanical reperfusion (MR). Moving forward in Japan The PMDA gave the green light for the commencement of the ~200-patient pivotal trial in Japan, which is to be conducted by Healios. The primary endpoint will be the proportion of patients achieving an Excellent Outcome, which requires almost full recovery across three different stroke scales, at day 90. In the Phase II trial, Excellent Outcome achieved a p=0.03 at day 90 when excluding patients who received both t-pa and MR. Valuation: $404m or $4.75 per basic share Our valuation has increased to $404m or $4.75 per basic share ($4.69 per diluted share) from $394m or $4.68 per basic share ($4.57 per diluted share). This is driven by moving forward our expected launch in the US from 2020 from 2021 and was partly offset by a lower cash position. We forecast an additional $135m (down from $150m) in capital needs (including $50m through to year-end 2017) before profitability in 2020. % 1m 3m 12m Abs (1.5) (11.1) 78.7 Rel (local) (1.2) (9.8) 73.0 52-week high/low US$2.6 US$1.0 Business description Athersys is a US biotech company developing MultiStem (allogeneic, bone marrow-derived stem cells). The designs of pivotal trials with MultiStem in ischemic stroke have recently received regulatory approval in the US and Japan. The company has ongoing Phase II clinical trials for AMI and ARDS. Next events Japan stroke trial initiation Q416 US stroke trial initiation 2017 Analysts Maxim Jacobs +1 646 653 7027 Nathaniel Calloway +1 646 653 7036 healthcare@edisongroup.com Edison profile page Athersys is a research client of Edison Investment Research Limited
Moving forward in the US and Japan Athersys announced agreement with the FDA with regard to an SPA for its Phase III MASTERS-2 trial of MultiStem in ischemic stroke. It will be a randomized, double-blind, placebo-controlled 300- patient trial where MultiStem treatment will be administered within 18-36 hours post-stroke. If approved, it will be a major improvement over the current standard of care, tpa, which requires treatment within 3-4.5 hours of a stroke and leads to the vast majority of patients being untreated. The primary endpoint will be disability, as measured by the shift in mrs scores at three months. The mrs clinical assessment evaluates overall patient disability using a score ranging from 0 to 6 (see Exhibit 1). Exhibit 1: mrs grading and descriptions Grade Description 0 No symptoms 1 No significant disability: ability to carry out all usual duties and activities 2 Slight disability: unable to perform all previous activities but able to look after own affairs without assistance 3 Moderate disability: requiring some help but able to walk without assistance 4 Moderately severe disability: unable to walk without assistance and unable to attend to own bodily needs with assistance 5 Severe disability: bedridden, incontinent and requiring constant nursing care and attention 6 Death Source: Banks et al., Stroke, 2007 March; 38(3):1091-6 In contrast to endpoints that only evaluate patients achieving good or excellent recovery, the mrs shift analysis focuses on evaluating patient improvement across the disability spectrum. When assessing patients in the 126-patient MASTERS-1 trial, the mrs shift analysis was not significant on an intent-to-treat basis. However, it was significant at day 90 (p=0.028) when assessing patients under the original trial protocol, which included patients treated with MultiStem up to 36 hours, and excluded patients receiving the combination of both tpa and mechanical reperfusion therapy. Improvement among patients treated with MultiStem within 36 hours, including those who received a combination of tpa and mechanical reperfusion therapy, was significant at day 7 and day 30, but only trended at day 90 (p=0.127) and was not statistically significant (see Exhibit 2). In the MASTERS-2 trial, 300 patients will be enrolled, randomized 1:1 MultiStem to placebo and patients will be treated in the 18- to 36-hour post-stroke window, a time frame that should increase the chance of success of the trial based on the MASTERS-1 data. Athersys 27 October 2016 2
Exhibit 2: mrs shift analysis from Phase II trial Source: Athersys analysis of the improvement in disease severity (mrs) at 7, 30, and 90 days. Note: Columns represent all patients treated with MultiStem within 36 hours after stroke (left) and the same population but excluding patients that received both tpa and MR per the original trial protocol (right). We currently expect the trial to launch in 2017 with data in 2019, enabling an approval for MultiStem in 2020 in the US instead of 2021 as we had previously expected. In Japan, the PMDA successfully completed the review of the Clinical Trial Notification (CTN), the Japanese equivalent of the IND, which will allow the ~200-patient pivotal study to start. We expect recruitment to commence officially sometime before the end of 2016, with an approval in 2019. The primary endpoint will be the proportion of patients achieving Excellent Outcome, which requires an mrs score of 1, a National Institutes of Health Stroke Scale (NIHSS) score of 1 and a Barthel Index score of 95, reflecting essentially an almost full recovery at day 90. NIHSS focuses on neurological impairment and measures 11 items (eg level of consciousness/awareness, body movement issues) and the output is a score between 0 and 42 (higher integers signify a more severe stroke). The Barthel Index is also a widely used scale that judges the ability of patients to function in activities of daily living through questions on bowel/bladder control, grooming, feeding, bathing etc. In total, 10 items are scored with each item scored in five-point increments for a total potential score of 100, which signifies no disability at all (see Exhibit 3). Exhibit 3: Barthel Index interpretation Score Interpretation 80-100 Independent 60-79 Requires minimal help 40-59 Partially dependent 20-39 Very dependent <20 Totally dependent Source: National Institutes of Health In the Phase II trial, on an ITT basis, 15.4% of patients in the treatment arm achieved an Excellent Outcome compared to 6.6% in the placebo arm (p=0.10) which, while trending positive, is not statistically significant. However, significance was achieved when excluding patients who were not treated within 36 hours of their stroke and those who received both t-pa and MR in a post-hoc analysis (p=0.03). Athersys 27 October 2016 3
Excellent outcomes Exhibit 4: Excellent Outcomes in MultiStem Phase II trial at 90 days and one year 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% p=0.1 p=0.03 p=0.02 p<0.01 0.00% All Patients <36h, no tpa + MR*, 90 days All Patients, 1 year <36h, no tpa + MR*, 1 year MultiStem Placebo Source: Athersys. Note: *Excluding patients receiving tissue plasminogen activator and mechanical reperfusion. Based on discussions with management, we expect that the lessons from the prior clinical trial are being applied to optimize the design of the trial in Japan and the MASTERS-2 study. In Japan, we do not expect the inclusion of patients that receive treatment with both tpa and MR. In the MASTERS-2 trial, we anticipate that if those subjects are included it will be limited to a small percentage, and stricter screening and characterization criteria will be applied to address any of the issues observed in the prior trial. Since both trials are larger in size than the Phase II study and the focus will be on treating patients within the 18- to 36-hour treatment window, it should make hitting the endpoints more achievable. Valuation Our valuation has increased to $404m or $4.75 per basic share ($4.69 per diluted share) from $394m or $4.68 per basic share ($4.57 per diluted share). This is driven by moving forward our expected launch in the US to 2020 from 2021 and was partly offset by a lower cash position. We expect to update our valuation on further regulatory clarity from the EMA, the inclusion/exclusion criteria for the pivotal trials (especially whether those who receive both tpa and MR will be allowed in the trials), as well as potential partnering activity in the US and EU. Exhibit 5: Athersys valuation MultiStem indication Status Prob. of Launch Peak sales ($m) Patent/Exclusivity Royalty rnpv success year Protection Ischaemic stroke (US) Phase II 25% 2020 1,798 2032 15% $111 Ischaemic stroke (EU) Phase II 25% 2021 1,298 2030 15% $63 Ischaemic stroke (Japan) Phase II 40% 2019 533 2028 18% $90 AMI (USA) Phase II 25% 2022 2,142 2032 15% $92 ARDS (US/EU) Phase IIa 15% 2024 1,342 2032 15% $24 Total $380 Cash and cash equivalents (Q216) ($m) $24.0 Total firm value ($m) $404 Total basic shares (m) 84.98 Value per basic share ($) $4.75 Stock options and Warrants (6/2016, m) 1.1 Total number of shares 86.1 Diluted value per share ($) $4.69 Source: Edison Investment Research Athersys 27 October 2016 4
Financials Athersys reported operational spending of $7.8m in Q216 compared to $8.7m in the previous quarter, mainly due to lower R&D expenses, and ended the quarter with $24.0m in cash and available for sale securities. We forecast an additional $135m (down from $150m) in capital needs (including $50m through to year-end 2017) before profitability in 2020. The company currently has an equity purchase agreement with Aspire Capital in which Aspire is committed to purchasing up to $30m in common stock through the end of 2018. Combined with the current cash level, this should be enough for Athersys to meet its near-term capital needs even if it does not sign a partnership or a separate capital raise. Athersys 27 October 2016 5
Exhibit 6: Financial summary $'000s 2014 2015 2016e 2017e Year end 31 December US GAAP US GAAP US GAAP US GAAP PROFIT & LOSS Revenue 1,623 11,948 17,243 0 Cost of Sales 0 0 0 0 Gross Profit 1,623 11,948 17,243 0 Research and development (23,366) (21,316) (24,700) (25,441) Selling, general & administrative (6,909) (7,536) (7,837) (8,072) EBITDA (29,336) (17,499) (15,608) (34,541) Operating Profit (before GW and except.) (28,976) (17,232) (15,342) (33,782) Intangible Amortisation 0 0 0 0 Exceptionals/Other 0 0 0 0 Operating Profit (28,976) (17,232) (15,342) (33,782) Net Interest 50 0 0 10 Other (change in fair value of warrants) 6,591 772 (1,880) 0 Profit Before Tax (norm) (28,926) (17,232) (15,342) (33,772) Profit Before Tax (IFRS) (22,335) (16,460) (17,222) (33,772) Tax 253 38 48 48 Deferred tax 0 0 0 0 Profit After Tax (norm) (28,673) (17,194) (15,294) (33,724) Profit After Tax (IFRS) (22,082) (16,422) (17,174) (33,724) Average Number of Shares Outstanding (m) 77.0 82.1 85.7 86.7 EPS - normalised ($) (0.37) (0.21) (0.18) (0.39) EPS - IFRS ($) (0.29) (0.20) (0.20) (0.39) Dividend per share ($) 0.0 0.0 0.0 0.0 BALANCE SHEET Fixed Assets 1,470 1,312 2,717 3,123 Intangible Assets 0 0 0 0 Tangible Assets 1,270 1,135 2,530 2,936 Other 200 177 187 187 Current Assets 27,248 23,817 32,647 33,437 Stocks 0 0 0 0 Debtors 694 361 648 648 Cash 26,127 23,027 31,000 31,742 Other 427 429 999 1,047 Current Liabilities (4,692) (4,756) (6,745) (8,645) Creditors (4,692) (4,566) (6,745) (8,645) Short term borrowings 0 (190) 0 0 Long Term Liabilities (3,131) (649) (22,369) (52,369) Long term borrowings (183) 0 (20,000) (50,000) Other long term liabilities (2,948) (649) (2,369) (2,369) Net Assets 20,895 19,724 6,250 (24,454) CASH FLOW Operating Cash Flow (25,791) (13,764) (11,538) (28,103) Net Interest 0 0 0 10 Tax 0 0 0 0 Capex (297) (132) (1,137) (1,165) Acquisitions/disposals 0 0 0 0 Financing 20,267 10,796 874 0 Dividends 0 0 0 0 Other 0 0 0 0 Net Cash Flow (5,821) (3,100) (11,801) (29,258) Opening net debt/(cash) (31,772) (25,944) (22,837) (11,000) HP finance leases initiated 0 0 0 0 Exchange rate movements 0 0 0 0 Other (7) (7) (36) 0 Closing net debt/(cash) (25,944) (22,837) (11,000) 18,258 Source: Company accounts, Edison Investment Research Athersys 27 October 2016 6
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