®
ADVANC I NG MEDI C I N E
2013 AnnuAl Rep ORt
company profile
company profile
Athersys, Inc. is an international biotechnology company that is focused primarily on the field of regenerative medicine.
We are committed to the discovery and development of best-in-class therapies designed to extend and enhance the
quality of human life. We have established a portfolio of therapeutic product development programs to address significant
unmet medical needs in multiple disease areas. MultiStem®, our patented and proprietary allogeneic stem cell therapy,
is currently being evaluated in five clinical-stage programs and multiple preclinical programs. Our current development
programs are focused on treating inflammatory and immune disorders, neurological conditions, cardiovascular disease,
and other conditions. We are also applying our pharmaceutical discovery capabilities to identify and develop small
molecule compounds with potential applications in indications such as obesity, related metabolic conditions and certain
neurological conditions. Our product development opportunities represent major areas of clinical need, as well as
substantial commercial opportunities.
Athersys has forged a network of strategic alliances and collaborations with leading pharmaceutical and biotechnology
companies, as well as world-renowned research and clinical institutions and other organizations in the united States,
europe and Japan to further develop its platform and products. More information is available at www.athersys.com.
Development StatuS of Key programS
PRECLINICAL
IND/CTA
PHASE 1
PHASE 2
PHASE 3
PHASE 3
NDA/BLA
COMMERCIAL
Orphan Designation Granted (FDA & EMA)
Enrollment
completed
Phase 2/3
design pending
Enrollment
ongoing
$2.8M Grant
for Phase 2
INFLAMMATORY & IMMUNE
Inflammatory Bowel Disease*
HSC Transplant/GvHD
Solid Organ Transplant
Other (Pulmonary, Diabetes)
NEUROLOGICAL
Ischemic Stroke
Traumatic Brain Injury
Multiple Sclerosis
Spinal Cord Injury
CARDIOVASCULAR
Acute Myocardial Infarction
PVD/PAD/CLI
Congestive Heart Failure
METABOLIC
5HT2c Agonist (obesity, other)
ORTHOPEDIC
Bone Allograft (MAPC® technology)**
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* In a partnership with Pfizer Inc. ** In a partnership with RTI Surgical, Inc.
gil van BoKKelen, ph.D.
Chairman and Chief Executive Officer
to my felloW ShareholDerS:
In 2013, Athersys made substantial progress in advancing multiple key programs in the development of
MultiStem®, our patented allogeneic stem cell therapy under development for the treatment and prevention
of diseases and conditions for which there is a significant unmet medical need.
We see particular relevance and clinical potential for regenerative medicine to address chronic diseases and
conditions, as well as acute events that may result in long-term damage or disability. effective treatments
for many of these types of conditions remain elusive, and regenerative medicine could enable patients to
recover faster and more completely than current medical care may allow. In addition to improving clinical
outcomes, regenerative medicine has the potential to meaningfully enhance patient quality of life (and, in
some instances, family quality of life by lessening the burden of supportive care), as well as reduce related
healthcare costs. these goals could be achieved by helping patients recover faster and more effectively,
thereby reducing time in both intensive care and overall hospitalization, reducing serious complications (and
the need for additional follow-up care to deal with them), and minimizing rehabilitative care needs, all of
which reduce time and expense.
We believe that MultiStem cell therapy and our related technologies represent a powerful form of
regenerative medicine that could have an impact in a range of important areas. As I have said before,
while we do not expect to be successful in each and every opportunity we explore, we have positioned the
Company to advance multiple programs in parallel and in a cost-effective manner. We believe that successful
development in any of the areas we are pursuing would bring new treatment options to patients and create
substantial shareholder value.
Our most advanced program in the inflammatory and immune area is being conducted in partnership with
pfizer Inc. under a global agreement that began in 2009. this program is evaluating MultiStem cell therapy
for the treatment of inflammatory bowel disease (IBD). IBD is a group of inflammatory and autoimmune
conditions that affect the colon and small intestine, typically resulting in severe abdominal pain, weight
loss, vomiting and diarrhea. the most common IBD conditions are ulcerative colitis (uC) and Crohn’s disease,
which are estimated to affect four million people or more in the united States, europe and Japan. While
there are a number of treatments currently available for patients suffering from IBD, in many instances
patients become resistant or refractory with continued use, and the disease gets worse over time. IBD can
be a severely debilitating condition; advanced cases may require surgery to remove the affected region of
the bowel to alleviate the pain and suffering and may also require temporary or permanent colostomy or
ileostomy. However, in many cases, surgery does not achieve permanent or durable relief, because it does not
address the underlying cause of the condition, and patients suffer a return of the disease.
Athersys is concentrating initially on uC via a randomized, double-blind, placebo-controlled phase 2 clinical
trial that is being conducted by pfizer at sites in the united States, Canada and europe. the study involves
administering MultiStem intravenously to refractory uC patients—those for whom prior treatment has
failed or to which they have developed a resistance. In addition to safety, the study is designed to evaluate
MultiStem’s therapeutic activity in this patient population and its potential to bring about an amelioration
of the condition. Approval of this therapy would require a number of subsequent studies to optimize a
treatment approach, as well as to evaluate MultiStem’s ability to maintain improvement over time.
ADVA NC I NG M E DIC I N E
2 0 1 3 A n n u A l R e p O R t 1
neurological inJury
anD DiSeaSe
We are conducting a Phase 2 clinical study evaluating administration of MultiStem cell therapy to ischemic stroke
patients. This double-blind, placebo-controlled trial will involve approximately 136 patients and is being conducted at
leading stroke centers across the United States and the United Kingdom. We anticipate completing enrollment for
the study around the end of summer 2014. In contrast to the current standard of care, which is treatment with a clot
dissolving agent (thrombolytic) that must be administered within three to four hours after a stroke, we are treating
patients one to two days after the stroke. If MultiStem is shown to be safe and effective, this would significantly extend
the treatment window for patients and we believe could create an annual market opportunity of $15 to $20 billion or
more. We are also exploring the application of MultiStem cell therapy for traumatic brain injury (TBI), the leading cause
of disability among children and young adults. We and our collaborators have published results from preclinical studies
of TBI that have shown administration of MultiStem dramatically reduces the extent of damage caused by TBI and
promotes accelerated healing of the blood-brain barrier.
enrollment of this study was completed in December 2013. We
believe study data, which is expected soon, will demonstrate
a favorable safety and tolerability profile for MultiStem cell
therapy, as well as provide meaningful evidence of therapeutic
activity in those patients suffering from chronic uC and, as
such, will represent an important step forward.
Another of our advanced programs is focused on treating
patients that have suffered ischemic stroke, which is caused
by a blockage of blood flow to the brain. A leading cause of
death and disability globally, each year more than 15 million
people are estimated to suffer a stroke, including more than
two million people in the united States, Japan and european
union combined. According to the American Heart Association,
ischemic strokes comprise more than 85% of all strokes. Current
standard of care for ischemic stroke involves the administration
of a thrombolytic (clot dissolving) agent within three to
four hours after a stroke has occurred, a narrow window
that results in only a small percentage of patients receiving
such treatment.
In an ongoing phase 2 trial being conducted by Athersys,
patients who have suffered an ischemic stroke are administered
MultiStem cells intravenously one to two days after the event.
previous preclinical studies demonstrated significant and
durable recovery, even when treatment with a single dose of
MultiStem cells occurred several days or a week following the
stroke. If this ongoing clinical study demonstrates that the
administration of MultiStem cell therapy is safe and effective,
the treatment window could be significantly expanded, from
hours under the current standard of care to days with stem
cell therapy. this would provide an important new therapeutic
option for stroke patients—potentially changing stroke
medicine as we know it.
Active enrollment is underway at leading stroke clinical
centers in the united States and the united Kingdom, with
approximately 30 sites participating. Based on recent patient
screening and enrollment activity, we plan to complete study
enrollment around the end of summer and report preliminary
results of this clinical trial in late 2014.
treatment using stem cells has recently received important
support that could benefit patients suffering from stroke
and other neurological conditions. Recent legislation enacted
by Japan’s parliament has established a novel regulatory
framework and development path for regenerative medicine
therapies. this new system provides the potential for rapid
clinical development and conditional product approval,
enabling commercial entry into the Japanese market for
therapies that demonstrate safety and meaningful evidence
of therapeutic benefit. Demonstrating clinical proof of concept
and achieving expedited approval could help many patients in
Japan, where stroke has long been a leading cause of death and
serious disability. It could also provide an accelerated path to
commercialization for Athersys.
In anticipation of the expected growth in demand for more
effective treatments of aging- and lifestyle-related diseases
and conditions
is actively exploring
opportunities to commercialize MultiStem cell therapy in stroke
and other potential indications in this market. We were very
pleased that the Japan patent Office recently issued several
in Japan, Athersys
2 At He R S Y S
key patents covering our proprietary cell therapy technology
that closely align with our advanced therapeutic programs,
such as treatment of inflammatory and immune disorders and
neurological conditions, as well as our established intellectual
property in the united States and other parts of the world.
Including the patents just mentioned, Athersys has been
issued more than 50 patents on three continents during 2013,
growing our intellectual property estate to more than 130
issued patents.
one-year follow-up data suggested that the meaningful
benefits observed in several clinically relevant parameters
were sustained over time.
In the area of transplant support, clinical data suggest that the
administration of MultiStem cells can have significant benefits,
particularly for patients suffering from leukemia or other
blood-borne cancers and receive radiation or chemotherapy to
destroy cancerous cells. these treatments impair the patient’s
blood forming capability and immune system.
Other MultiStem clinical programs have also progressed during
2013 and will continue to move forward this year. In 2014, we plan
to advance our acute myocardial infarction program into
phase 2 clinical development, in part supported by a grant we
were awarded last year by the national Heart lung & Blood
Institute, part of the national Institutes of Health. Acute
myocardial infarction (AMI), or heart attack, is caused by the
blockage of one or more arteries that supply blood to the
heart. According to Datamonitor and other sources, there are
an estimated 1.7 million heart attacks combined in the united
States, european union and Japan each year. the aftermath of
an AMI is frequently significant injury to the heart muscle and
diminished quality of life or, worse, death.
We are currently completing preparations for the planned study
and intend to begin patient enrollment sometime in the fall
of 2014. this new study will build upon the promising phase 1
study data we published previously, which demonstrated a
favorable safety profile and encouraging signs of improvement
among patients that had exhibited severely compromised
heart function prior to treatment with MultiStem therapy.
While the phase 1 trial was designed as a small safety study,
to reconstitute the immune system and restore the ability
to fight infection and any remaining malignancy, radiation
and chemotherapeutic procedures are typically followed by
a hematopoietic stem cell transplant (HSCt). It is estimated
that over 25,000 allogeneic HSCt procedures are conducted in
developed countries each year.
patients undergoing HSCt are at risk for serious complications.
these include graft-versus-host disease (GvHD), which may
be triggered by transplanted immune cells that attack the
patient’s cells as foreign tissue. GvHD can be painful, severely
debilitating and life-threatening, as well as both costly and
difficult to treat.
phase 1 data suggest that MultiStem cell therapy may have
both a safe and beneficial effect in reducing the incidence
and severity of GvHD. these encouraging results build on the
prior work of Athersys scientists and collaborators, which
demonstrated that MultiStem cells suppress undesired t-cell-
mediated immune responses, which are an important factor
underlying GvHD, and support tissue repair and regeneration,
leading to a significant increase in survival in preclinical models.
2 At He R S Y S
carDiovaScular
DiSeaSe
We previously published results from a Phase 1 clinical study of the administration of MultiStem cell therapy to patients
who suffered serious damage from a heart attack (acute myocardial infarction). This trial demonstrated a favorable safety
profile and encouraging signs of improvement in heart function among patients who exhibited severely compromised
heart function prior to treatment. One-year follow-up data suggested that the benefit to patients was sustained over
time. In 2013, the NIH awarded us a grant for up to $2.8 million in funding to support a Phase 2 clinical study
of MultiStem administration to heart attack victims, which we plan to initiate in late 2014.
2 0 1 3 A n n u A l R e p O R t 3
immunological
DiSorDerS
Results from our Phase 1 clinical trial of intravenously delivering MultiStem cells to bone marrow or hematopoietic stem cell
(HSC) transplant patients demonstrated the safety of MultiStem in this indication and suggested that the MultiStem therapy
may have a beneficial effect in reducing the incidence and severity of graft-versus-host disease (GvHD), as well as providing
other benefits. The FDA and EMA have granted us orphan drug designation for MultiStem treatment in the prevention of
GvHD, and we are currently preparing for a Phase 2/3 study of MultiStem for GvHD prophylaxis and HSC transplant support.
MultiStem cell therapy now has orphan drug designation
for this indication in both europe and the united States,
which provides us with meaningful benefits and potential
commercial exclusivity for an extended period of time.
We intend to pursue an accelerated development pathway for
MultiStem in this indication and are planning for a phase 2/3
study. We intend to complete the regulatory planning and
preparations for the trial in 2014 so that the study can be
initiated when appropriate resources are available.
We have also collaborated with our partner, RtI Surgical,
Inc., on the development of products for certain orthopedic
applications in the bone allograft graft market using our
stem cell technology. In 2013, RtI completed the first human
implantation of its map3™ Cellular Allogeneic Bone Graft
implant, which incorporates Athersys’ multipotent adult
progenitor cell-based (MApC®-based) technology. RtI’s product
commercialization activities are progressing, and we expect to
receive royalty payments from product sales and may receive
potential commercial milestones in the future.
Other pipeline projects include our novel small molecule
therapies to treat obesity and other conditions such as
schizophrenia that act through stimulation of a specific
receptor in the brain, the 5Ht2c serotonin receptor. preclinical
studies exhibit favorable attributes such as outstanding
receptor selectivity and potency. Moreover, we have
demonstrated that our compounds have a distinctive profile
and are superior in these measures to some approved drugs,
as well as complementary with certain other agents. Based
on these promising results, we are committed to exploring
partnering opportunities to advance the development of our
5Ht2c agonist program, either for obesity, schizophrenia, or
both indications.
early in 2014, our cash position was approximately $50 million,
enabled in part through successful financings around the end
of the year. We also put in place a new equity facility to provide
us with additional financial flexibility. As a result, we believe
we can execute our global business plan and pursue new
partnering opportunities from a position of financial strength,
creating significant value for our shareholders.
Finally, Athersys’ public profile has been enhanced by our
presentations at key industry events, as well as publications
in leading scientific journals. these achievements illustrate
the depth of our scientific knowledge and the distinctive
characteristics of our technologies, and also underscore our
leadership in the field of regenerative medicine. In addition, for
the third year in a row, we are pleased to note that Athersys
was ranked on Deloitte’s technology Fast 500, a list of the
fastest growing technology, media, telecommunications, life
sciences and clean technology companies in north America.
We look forward to the achievement of some important
milestones in 2014 as we continue to advance our clinical
programs and pursue other opportunities. Regulatory
advances in the regenerative medicine space provide a tailwind
from which Athersys can benefit, and we look forward to
continued progress toward making our Company a leader in
the biopharmaceutical industry.
Sincerely,
Gil Van Bokkelen, ph.D.
Chairman and Chief Executive Officer
Athersys, Inc.
April 21, 2014
4 At He R S Y S
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
⌧
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(cid:2)
For the fiscal year ended December 31, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-33876
Athersys, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
3201 Carnegie Avenue,
Cleveland, Ohio
(Address of principal executive offices)
20-4864095
(I.R.S. Employer
Identification No.)
44115-2634
(Zip Code)
Registrant’s telephone number, including area code (216) 431-9900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Name of each exchange on which registered
NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
(cid:0)
No
⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes
(cid:0)
No
⌧
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes
No
⌧
(cid:0)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes
No
⌧
(cid:0)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229 of this chapter) is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
(cid:0)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of
“accelerated filer,” large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
(cid:0)
(cid:0)
⌧
⌧
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
(cid:0)
⌧
The aggregate market value at June 28, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, of shares of the registrant’s common stock
(based upon the closing price per share of $1.66 of such stock as quoted on the NASDAQ Capital Market on such date) held by non-affiliates of the registrant was approximately
$89.4 million.
The registrant had 76,633,698 shares of common stock outstanding on March 1, 2014.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
PART IV
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PART I
ITEM 1.
BUSINESS.
We are an international biotechnology company that is focused primarily in the field of regenerative medicine. We are committed to the
discovery and development of best-in-class therapies designed to extend and enhance the quality of human life. We have established a
portfolio of therapeutic product development programs to address significant unmet medical needs in multiple disease areas. Our MultiStem
®
cell therapy, a patented and proprietary allogeneic stem cell product, is our lead platform product and has been evaluated in two completed
Phase 1 clinical trials and is currently being evaluated in two ongoing Phase 2 clinical trials, as well as an investigator-led Phase 1 trial. Our
current clinical development programs are focused on treating inflammatory and immune disorders, neurological conditions, cardiovascular
disease, and other conditions. We are also applying our pharmaceutical discovery capabilities to identify and develop small molecule
compounds with potential applications in indications such as obesity, related metabolic conditions and certain neurological conditions. These
represent major areas of clinical need, as well as substantial commercial opportunities.
We believe our MultiStem therapy represents a breakthrough in the field of regenerative medicine and stem cell therapy and could be used to
treat a range of disease indications. MultiStem treatment enhances tissue repair and healing in multiple ways, including reducing inflammatory
damage, protecting tissue that is at risk following acute or ischemic injury, and promoting formation of new blood vessels in regions of
ischemic injury. These cells appear to be responsive to the environment in which they are administered, by homing to sites of injury and
providing active disease response, while producing proteins that may provide benefit in both acute and chronic conditions. In contrast to
traditional pharmaceutical products or biologics that generally act through a single biological mechanism of action, MultiStem therapy can
enhance healing and tissue repair through multiple distinct mechanisms acting in parallel, such as by producing a range of therapeutic factors
and dynamically responding to the needs of the body, resulting in a more effective therapeutic response.
The MultiStem product is unique among regenerative medicine approaches because it can be manufactured on a large scale, may be
administered in an “off-the-shelf” manner with minimal processing, and can augment healing in multiple ways, providing biological potency
and therapeutic effects that other cell therapy approaches may not be able to achieve. Additionally, MultiStem treatment has demonstrated a
consistent safety profile in both preclinical and clinical studies. Like drugs and biologics, the product is cleared from the body over time,
enhancing product safety relative to other types of stem cell therapy. While the product does not permanently engraft in the patient, the
therapeutic effects of treatment with MultiStem cells appear to be quite durable.
We believe the therapeutic and commercial potential for MultiStem therapy to be very broad, applying to many areas of significant unmet
medical need. We are pursuing opportunities in several potential multi-billion dollar markets. While traditional pharmaceuticals and traditional
biologic therapies typically may be used to treat only a single disease or a narrowly defined set of related conditions, MultiStem cells appear to
have far broader potential and could be developed in different formulations and with different delivery approaches to effectively treat a range
of disease indications.
We have evaluated the use of MultiStem cells as a potential treatment in several disease areas. Working with an international network of
leading investigators and prominent research and clinical institutions, and through our own internal efforts, we have explored the potential for
MultiStem therapy to be used as a treatment of acute and chronic forms of inflammatory and immune disorders, neurological conditions,
cardiovascular disease, certain pulmonary conditions and other areas of unmet medical need.
To date, we have successfully advanced MultiStem therapies into five clinical stage programs, which address areas of significant medical need
and represent major commercial market opportunities. MultiStem cells have been evaluated as a potential treatment for heart attack patients in
a completed Phase 1 clinical trial. We are preparing to initiate a Phase 2 clinical study late in 2014 for the administration of MultiStem cells to
patients that have suffered a myocardial infarction. In 2013, we were awarded a grant from the National Institutes of Health for up to $2.8
million to support funding this clinical program. Additionally, we have evaluated in a completed Phase 1 clinical study the potential for
MultiStem therapy to prevent or reduce graft-versus-host disease, or GvHD, and other complications, and to provide supportive care to
patients undergoing a hematopoietic stem cell transplant to treat leukemia or related conditions. We are preparing to advance our GvHD
program into the next phase of clinical development and have had several interactions with the United States Food and Drug Administration,
or FDA, and similar international agencies regarding study design and the potential to accelerate the path to product approval. Based on
current plans, we are preparing to start this Phase 2/3 study in 2014, but the initiation will depend on the progress in other clinical trials and
the achievement of certain business development and financial objectives. Our MultiStem therapy for GvHD has been designated an orphan
drug by both the FDA and the European Medicines Agency, or EMA, which may provide market exclusivity and other substantial potential
incentives and benefits.
MultiStem therapy is also being evaluated in several other ongoing clinical trials. Our partner, Pfizer Inc., or Pfizer, is conducting a Phase 2
clinical study of MultiStem cells administered to patients with ulcerative colitis, or UC, a common form of inflammatory bowel disease, or
IBD. We announced enrollment completion in December 2013, and we anticipate that preliminary results will be announced in the spring of
2014. In another Phase 2 trial, we are evaluating the potential for MultiStem treatment of patients who have suffered neurological damage
from an ischemic stroke. We are targeting to complete enrollment, which is taking place in the United States and Europe, around the end of
summer 2014 and release of the preliminary results as soon as they are available. Finally, a research collaborator and leading transplantation
center in Europe is conducting a small, exploratory institutional-sponsored Phase 1 study to evaluate the administration of MultiStem cells to
patients undergoing a liver transplant.
3
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Our development approach has historically involved establishing collaborative relationships with leading research and clinical centers
in the United States and internationally. This has enabled us to methodically advance multiple programs in areas of defined unmet
medical need in a resource efficient manner. Furthermore, by emphasizing the potential application of our technologies in areas of
significant clinical need, we believe we are well positioned to utilize recent regulatory initiatives that are designed to promote the
rapid and cost effective development of innovative new therapies. These include recent initiatives in the United States being
implemented by the FDA involving the broadened application of the accelerated approval pathway, and the new Breakthrough
Therapies framework, as well as the new accelerated Regenerative Medicine regulatory framework in Japan that could enable rapid
conditional authorization of regenerative medicine therapies. We believe such initiatives could accelerate the development and
commercialization of products like MultiStem cells, if clinical results demonstrate appropriate safety and therapeutic effectiveness,
thereby increasing shareholder value.
In addition to our MultiStem programs, we have applied our pharmaceutical discovery capabilities to identify and develop novel
pharmaceuticals to treat obesity, related metabolic conditions such as diabetes, and certain neurological indications such as
schizophrenia. Further, small molecule compounds that may be used to enhance the production or therapeutic effectiveness of
MultiStem or related products are under development. These compounds may increase biological potency for certain indications and
lead to second or third generation products in the regenerative medicine area. Our 5HT2c agonist program for obesity works by the
same mechanism as Lorcaserin , which was approved by the FDA in 2012 for the treatment of obesity. We believe our compounds
may have the potential for providing superior weight loss performance, while also achieving a superior safety and tolerability profile.
In addition, we have demonstrated that our compounds are complementary with other agents that have been approved by the FDA for
treating obesity. Furthermore, we have evaluated certain compounds in preclinical models of schizophrenia that exhibit an attractive
selectivity profile and also observed that these compounds exhibit potent effects. We may elect to enter into a partnership to advance
the development of our 5HT2c agonist program, either for the treatment of obesity, schizophrenia, or both indications, as well as for
certain programs involving MultiStem.
®
We were incorporated in Delaware on October 24, 1995. On June 8, 2007, we merged with a wholly owned subsidiary of BTHC VI,
Inc., a Delaware corporation, and, on August 31, 2007, BTHC VI, Inc. changed its name to Athersys, Inc.
Business Strategy
Our principal business objective is to discover, develop and commercialize novel therapeutic products for disease indications that
represent significant areas of clinical need and commercial opportunity. The key elements of our strategy are outlined below:
•
•
•
Efficiently Conduct Clinical Development to Establish Clinical Proof of Concept and Biological Activity with our Lead
Product Candidates. We are conducting a number of clinical studies with the intent to establish proof of concept and/or
proof of biological activity in a number of important disease areas where the cell therapies would be expected to have
benefit – inflammatory and immune system dysfunctions, neurological conditions and cardiovascular disease. Our focus is
on conducting well-designed studies early in the clinical development process to establish a robust foundation for
subsequent development, partnering activity and expansion into complementary areas. We are committed to a rigorous
clinical and regulatory framework, which we believe has helped us to advance our programs efficiently, providing high
quality, transparent regulatory submissions. Our discussions with the FDA have resulted in a successful regulatory
partnership that has helped to advance our programs efficiently.
Continue to Refine and Improve our Manufacturing and Related Processes and Deepen our Understanding of Therapeutic
Mechanisms of Action. A key aspect of MultiStem cells is their expansion capacity ex vivo relative to other cell types. This
allows for large scale production of the clinical product, which enables greater consistency, specificity and cost of goods
advantages over other cell therapies. We plan to build on this intrinsic biological advantage by continuing to advance and
optimize our production and process development approaches, further developing new manufacturing techniques including
our bioreactor platform, and optimizing the plant-to-bedside supply chain to support late-stage development and
commercialization of MultiStem therapy. Additionally, we will continue to refine our understanding of our products’
activities and mechanisms of action to enable optimization of administration and dosing and to prepare the foundation for
product enhancements and next generation opportunities.
Enter into Arrangements with Business Partners to Accelerate Development and Value Creation. In addition to our internal
development efforts, an important part of our product development strategy is to work with collaborators and partners to
accelerate product development, reduce our development costs, and broaden our commercial access. We have entered into
licensing and product co-development arrangements with qualified commercial partners to achieve these objectives. We
anticipate that this strategy will help us to develop a portfolio of high quality product development opportunities, enhance
4
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•
•
our clinical development and commercialization capabilities, and increase our ability to generate value from our
proprietary technologies. Over the past decade, we have entered into technology licensing arrangements and established
product commercialization and co-development partnerships with companies such as Pfizer, Bristol-Myers Squibb
Company, or Bristol-Myers Squibb, Johnson & Johnson, Wyeth Pharmaceuticals, Inc., Angiotech Pharmaceuticals, Inc., or
Angiotech, and RTI Surgical, Inc., or RTI. Licensing partnerships generate revenue and provide capital that allows us to
advance our programs further in development.
Efficiently Explore New High Potential Therapeutic Applications, Leveraging Third-Party Research Collaborations and
our Results from Related Areas. Our product candidates have shown promise in multiple disease areas, including in
treating inflammatory and immune disorders, neurological conditions, cardiovascular disease, and other areas. We are
committed to exploring potential clinical indications where our therapies may achieve best-in-class profile, and where we
can effectively address significant unmet medical needs. In order to achieve this goal, over the past decade, we have
established collaborative research relationships with investigators from many leading research and clinical institutions
across the United States and Europe, including the Cleveland Clinic, Case Western Reserve University, University of
Minnesota, Georgia Regents University, the University of Oregon Health Sciences Center, the University of Texas Health
Science Center at Houston, the University of Pittsburgh Medical Center, the Katholieke Universiteit Leuven, or KUL,
University of Regensburg, and other institutions. Through this network of collaborations, we have studied MultiStem
therapy in a range of preclinical models that reflect various types of human disease or injury in the cardiovascular,
neurological, and immunological areas. These collaborative relationships have enabled us to cost effectively explore where
MultiStem cells may have therapeutic relevance, and how it may be utilized to advance treatment over current clinical care.
Additionally, we have shown that we can leverage clinical safety data and preclinical results from some programs to
support accelerated clinical development efforts in other areas, saving substantial development time and resources
compared to traditional drug development where generally each program is separately developed.
Continue to Expand our Intellectual Property Portfolio. We have a broad intellectual property estate that covers our
proprietary products and technologies, as well as methods of production and methods of use. Our intellectual property is
important to our business and we take significant steps to protect its value. We have ongoing research and development
efforts, both through internal activities and through collaborative research activities with others, which aim to develop new
intellectual property and enable us to file patent applications that cover new applications of our existing technologies or
product candidates, including MultiStem cells and other opportunities. We currently have approximately 130 patents
related to our stem cell technologies and cell therapy applications providing protection in the United States, Europe, Japan
and other areas, and we have 53 patents associated with our other technologies and small molecule programs.
Our Current Programs
By applying our proprietary MultiStem cell therapy product, we have established therapeutic product development programs treating
inflammatory and immune disorders, neurological conditions, cardiovascular disease, and other conditions. To date, we have
advanced five programs to the clinical development stage, including the following:
• Inflammatory Bowel Disease: MultiStem therapy is being evaluated in a Phase 2 clinical study involving
administration of MultiStem to patients suffering from UC, the most common form of IBD. This double blind, placebo
controlled trial being conducted with our partner, Pfizer, in UC patients that have an inadequate response or are refractory
to current treatment, completed enrolling patients in December 2013. We expect to report with Pfizer the initial results in
the spring of 2014.
• Ischemic Stroke: In our ongoing Phase 2 clinical study, we are evaluating the administration of MultiStem cell
therapy to patients that have suffered an ischemic stroke. In contrast to treatment with thrombolytics, which must be
administered within 3 to 4 hours after a stroke, we are treating patients one to two days after the stroke has occurred. In
preclinical studies, administration of a single dose of MultiStem cells, even several days after a stroke, resulted in
significant and durable improvements. This double blind, placebo-controlled trial is being conducted at leading stroke
centers across the United States and Europe. The study is expected to enroll approximately 136 patients. We are targeting
to complete enrollment around the end of summer 2014 and release the preliminary results as soon as they are available.
• Acute Myocardial Infarction: We have evaluated the administration of MultiStem to patients that have suffered an
acute myocardial infarction, or AMI, in a Phase 1 clinical study. In 2010, we announced preliminary results for this study,
demonstrating a favorable safety profile and encouraging signs of improvement in heart function among patients that
exhibited severely compromised heart function prior to treatment. This data was published in a leading peer reviewed
scientific journal in 2012. One-year follow-up data suggested that the benefit observed was sustained over time. We are
preparing for a Phase 2 clinical study of MultiStem administration to heart attack victims and are planning to initiate late
2014. In 2013, we were awarded a grant for up to $2.8 million to support funding this clinical program.
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• Hematopoietic Stem Cell Transplant / GvHD: We completed a Phase 1 clinical study of the administration of MultiStem
cells to patients suffering from leukemia or certain other blood-borne cancers in which patients undergo radiation therapy and
then receive a hematopoietic stem cell, or HSC, transplant. Such patients are at significant risk for serious complications,
including GvHD, an imbalance of immune system function caused by transplanted immune cells that attack various tissues and
organs in the patient. In 2011 and in 2012, we released data from the study, which demonstrated the safety of MultiStem cells in
this indication and suggested that the MultiStem therapy may have a beneficial effect in reducing the incidence and severity of
GvHD, as well as providing other benefits. The MultiStem therapy has been designated an orphan drug by both the FDA and
EMA, which may provide market exclusivity and other substantial potential incentives and benefits. We have had several
interactions with the FDA and international agencies regarding study design and the potential to accelerate the path to product
approval. Based on current plans, we intend to be ready to start this study in 2014, but study initiation will depend on the progress
in our other clinical trials and the achievement of certain business development and financial objectives.
We are also collaborating with a leading transplant group at the University of Regensburg in Germany that has initiated a small institutional
sponsored clinical trial exploring the administration of MultiStem cells in patients following a liver transplant. We are providing the clinical
product and some financial support to conduct the trial.
In addition to our current and anticipated clinical development activities, we are engaged in preclinical development and evaluation of
MultiStem therapy in other inflammatory and immune, neurological and cardiovascular disease areas, as well as certain other indications.
We conduct such work both through our own internal research efforts and through a broad network of collaborations we have established
with investigators at leading research institutions across the United States and in Europe.
We are in discussions with third parties about collaborating in the development of MultiStem therapy for certain programs and may enter
into one or more business partnership(s) to advance these programs.
We have also collaborated with RTI on the development of products for certain orthopedic applications using our stem cell technologies in
the bone graft substitutes market. RTI’s product commercialization activities are underway in 2014, and we will receive royalty revenue
from product sales and other payments upon the successful achievement of certain commercial milestones.
We are also engaged in the development of novel small molecule therapies to treat obesity and other conditions, such as schizophrenia.
Currently, we are focused on the development of potent, highly selective compounds that act through stimulation of a specific receptor in the
brain, the 5HT2c serotonin receptor. We are conducting preclinical evaluation of novel compounds that we have developed that exhibit
favorable attributes, including outstanding receptor selectivity, as well as greater potency and activity than other 5HT2c agonists. We have
also demonstrated our compounds are complementary with other agents that have been approved by the FDA and believe these compounds
could achieve best in class weight loss, along with a superior safety and tolerability profile. Furthermore, we have evaluated certain
compounds in preclinical models of schizophrenia that exhibit an attractive selectivity profile and also observed that these compounds
exhibit potent effects. We may elect to enter into a partnership to advance the development of our 5HT2c agonist program, either for the
treatment of obesity, schizophrenia, or both indications, as well as for certain programs involving MultiStem.
Regenerative Medicine Programs
MultiStem — A Novel Therapeutic Modality
We are developing our MultiStem therapy, a proprietary non-embryonic, allogeneic stem cell product candidate, that we believe has
potential utility for treating a broad range of diseases and could have widespread application in the field of clinical regenerative medicine.
Unlike traditional bone marrow transplants or other stem cell therapies, MultiStem cells may be manufactured on a large scale and may be
administered without tissue matching or the need for immune suppression, analogous to type O blood. Potential applications of MultiStem
therapy include the treatment of cardiovascular disease, neurological disease or injury and conditions involving the immune system,
including autoimmune disease and other conditions. We believe that the MultiStem therapy represents a significant advancement in the field
of stem cell therapy and could have broad clinical application. We currently have open Investigational New Drug applications, or INDs, for
the study of MultiStem administration in distinct clinical indications, and a collaborating institution recently obtained authorization in
Europe to initiate a clinical program through an investigator sponsored clinical trial application, obtained with our permission and support.
The MultiStem product is a patented biologic product that is manufactured from human stem cells obtained from adult bone marrow,
although these cells may alternatively be obtained from other tissue sources, which are also covered under our intellectual property. The
product consists of a special class of human stem cells that have the ability to express a range of therapeutically relevant proteins and other
factors, as well as form multiple cell types. Factors expressed by the cells have the potential to deliver a therapeutic benefit in several ways,
such as the reduction of inflammation, regulation of immune system function, protection of damaged or injured tissue, the formation of new
blood vessels in regions of ischemic injury and augmentation of tissue repair and healing in other ways. Like drugs, these cells may be stored
for an extended period of time (in frozen form) and used off-the-shelf. Following administration, the cells have been shown to express
multiple therapeutically relevant proteins, but unlike a traditional transplant, are subsequently cleared from the body over time, analogous to
a drug or biologic.
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The therapeutic benefit of bone marrow transplantation has been recognized for decades, and its clinical use has grown since
Congress passed the National Organ Transplant Act in 1984 and the National Marrow Donor Registry was established in 1990.
However, widespread bone marrow or stem cell transplantation has yet to become a reality. Some of the limitations that have
prevented broader clinical application of bone marrow or stem cell transplantation include the requirement for tissue matching
between donor and recipient, the typical need for one donor for each patient (a reflection of the inability to expand cells in a
controlled and reproducible manner), frequent use of immune suppressive drugs to avoid rejection or immune system complications,
the inability to efficiently produce significant quantities of stem cells and a range of potential safety issues.
A stem cell therapy that has the potential to address the challenges mentioned above could represent a breakthrough in the field of
regenerative medicine, since it could greatly expand the clinical application of stem cell therapy or other forms of regenerative
medicine. In 2003, we acquired technology originally developed at the University of Minnesota related to a novel stem cell type,
Multipotent Adult Progenitor Cells, or MAPC , that may be isolated from adult bone marrow as well as other tissue sources. Over the
past several years, we have further developed this technology and the manufacturing of these cells for use in ongoing clinical trials.
We refer to the lead cell therapy as the MultiStem product platform. During several years of preclinical work, MultiStem cells have
demonstrated the potential to address many of the fundamental limitations observed with traditional bone marrow or hematopoietic
stem cell transplants.
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We believe that MultiStem represents a potential best-in-class stem cell therapy because it exhibits each of the following
characteristics based on research and development conducted to date:
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Broad plasticity and multiple potential mechanisms of action. MultiStem cells have a demonstrated ability in animal
models to form a range of cell types and also appear to be able to deliver therapeutic benefit by producing factors that
protect tissues against damage and inflammation, as well as enhancing or playing a direct role in revascularization or tissue
regeneration.
Large scale production. Unlike conventional stem cells, such as blood-forming or hematopoietic stem cells, mesenchymal
stem cells, or other cell types, MultiStem cells may be produced on a large scale, processed, and cryogenically preserved,
and then used clinically in a rapid and efficient manner. Material obtained from a single donor may be used to produce
hundreds of thousands or millions of individual doses, representing a yield far greater than other stem cells have been able
to achieve.
“Off-the-shelf” utility. Unlike traditional bone marrow or hematopoietic stem cell transplants that require extensive genetic
matching between donor and recipient, MultiStem administration does not require tissue matching or immune suppressive
drugs. The MultiStem product is administered as a cryogenically preserved allogeneic product, meaning that these cells are
not genetically matched between donor and recipient. This feature, combined with the ability to establish large MultiStem
banks, could make it practical for clinicians to efficiently deliver stem cell therapy to a large number of patients.
Safety. Other stem cell types, such as undifferentiated embryonic stem cells or induced pluripotent stem cells have shown
the capacity to form ectopic tissue or teratomas, which are tumor-like growths. These could pose serious safety risks to
patients. In contrast, MultiStem cells have shown a consistent and outstanding safety profile that has been compiled over
several years of preclinical study in a range of animal models by a variety of investigators and that is supported by
emerging clinical data.
At each step of the MultiStem production process, cells are analyzed according to pre-established criteria to ensure that a consistent,
well characterized product candidate is produced. Cells are harvested from a pre-qualified, healthy, consenting donor and these cells
are then expanded to form a master cell bank from which we subsequently produce clinical grade material. We have demonstrated the
ability to harvest cells that meet our rigorous criteria from healthy donors with a high degree of consistency. Furthermore, in multiple
animal models, MultiStem has been shown to be non-immunogenic, and is administered without the genetic matching that is typically
required for conventional bone marrow or stem cell transplantation.
The distinctive profile of the MultiStem product allows us to pursue multiple high value commercial opportunities from a single
product platform. Based upon work that we and independent collaborators have conducted over the past several years, we believe that
MultiStem cells have the potential to treat a range of distinct disease indications, including ischemic injury and cardiovascular
disease, certain types of neurological conditions or injury, autoimmune disease, transplant support (including in oncology patients and
solid organ transplant areas), and a range of orphan disease indications. As a result, we believe we will be able to leverage our
foundation of safety and efficacy data to add clinical indications efficiently, enabling us to reduce development costs and timelines
substantially.
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MultiStem for Treating Immune System Disorders, Neurological Conditions and Cardiovascular Disease
Healthcare represents a significant part of the global economy. In the United States, it represented approximately 17.2% of all economic
activity in 2012, or about $2.8 trillion dollars annually. However, the United States, along with many other nations, is experiencing an
unprecedented demographic shift that is resulting in a significantly expanded population of older individuals. According to United States
Census data, in the next few years there will be a dramatic increase in the number of individuals over the age of 65, as this segment of
the population increases from 40.2 million individuals in 2010 to more than 72 million people in 2030, representing an increase of
approximately 80%. The aging of the population will create enormous financial pressure on the healthcare system in the United States
and other countries around the world, resulting in significant clinical challenges, but also resulting in substantial commercial
opportunities.
Data from the National Center for Health Statistics shows that as people get older, they are more susceptible to a variety of age related
conditions, including heart disease, stroke, certain forms of cancer, diabetes, progressive neurological disorders, various chronic
inflammatory and immune conditions, renal disease and a range of others. As a consequence, as people get older they spend far more on
healthcare— on average they spend three to seven times more on healthcare annually at age 65 than when they were younger and more
healthy. According to the Alliance for Aging Research, 83% of healthcare spending is associated with chronic conditions, and other
research shows that 62% of healthcare spending is associated with multiple chronic conditions. Traditional medical approaches have
failed to adequately address this problem.
We have worked with independent investigators at a number of leading institutions, such as the Cleveland Clinic, Case Western Reserve
University, University of Minnesota, the National Institutes of Health, the Georgia Regents University, the University of Oregon Health
Sciences Center, the University of Texas Health Science Center at Houston, KUL, the University of Pittsburgh Medical Center,
University of Regensburg and other institutions. Through this network of collaborations, we have studied MultiStem cells in a range of
preclinical models that reflect various types of human disease or injury in the cardiovascular, neurological, and immunological areas. To
date, we and our collaborators have published research results illustrating the potential benefits of MultiStem therapy in a range of
indications including myocardial infarction, vascular disease, ischemic stroke, traumatic brain injury, or TBI, brain damage due to
restricted blood flow in newborns, spinal cord injury, and bone marrow transplant support/GvHD. In addition, we have explored and
intend to further explore MultiStem administration in the treatment of a range of other conditions, including other forms of
cardiovascular disease, neurological conditions, and immune related disorders.
As stated above, we have consistently observed that MultiStem cells are safe and effective in animal models. As a result, we have
advanced MultiStem therapy to clinical development stage in four clinical indications or disease areas: treatment of IBD (initially
focused on UC); support in the hematologic malignancy setting to reduce certain complications associated with traditional bone marrow
or HSC transplantation; treatment for stroke caused by a blockage of blood flow in the brain; and treatment of damage caused by
myocardial infarction. Additionally, in collaboration with a leading transplant center in Europe, a fifth program in the solid organ
transplant area has been advanced to clinical development.
We may expand to other clinical indication areas as results warrant and resources permit.
Immunological Disorders — MultiStem for IBD and HSC Transplant Support
Inflammatory and immune disorders represent a significant burden to society. There are over 80 recognized autoimmune disorders,
which are conditions caused by an acute or chronic imbalance in the immune system. In these conditions, cells of the immune system
begin to attack certain tissues or organs in the body, resulting in tissue damage and loss of function. Some inflammatory and immune
conditions are associated with age-related conditions (e.g., rheumatoid arthritis), but some are due to other causes that may be genetic,
environmental or a combination of both (e.g., Type 1 diabetes, IBD). Still other conditions may reflect complications associated with the
treatment of other conditions (e.g., GvHD, a frequent complication associated with transplant procedures used to treat leukemia or
related blood-borne cancers). Each of these conditions shares certain biological characteristics, in that the immune system imbalance
results from the inappropriate activation of certain populations of immune cells that subsequently results in significant tissue damage and
destruction. This immune imbalance may result in a complex cascade of inflammation that can result in pain, progressive tissue
deterioration and loss of function. While currently available immunomodulatory drugs have proven to be effective for some patients,
they have failed to adequately address the needs of many other patients that suffer from inflammatory and immune disorders.
In multiple studies, MultiStem cells have shown potent immunomodulatory properties, including the ability to reduce active
inflammation through various modes of action, stimulate tissue repair and restore immune system balance. Accordingly, we believe that
MultiStem therapy could have broad application in the area of treating immune system disorders, including certain autoimmune diseases
and other conditions, including GvHD, which is a frequent immunological complication associated with bone marrow or HSC
transplantation.
In 2009, we entered into a collaboration agreement with Pfizer to develop and commercialize MultiStem therapy for the treatment of
IBD for the worldwide market. IBD is a group of inflammatory and autoimmune conditions that affect the colon and small intestine,
typically resulting in severe abdominal pain, weight loss, vomiting and diarrhea. The most common forms of the disease include UC
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and Crohn’s disease, which are estimated to affect four million people or more in the United States, five major European markets
(United Kingdom, Germany, France, Italy and Spain) and Japan. Chronic IBD can be a severely debilitating condition, and advanced
cases may require surgery to remove the affected region of the bowel, and may also require temporary or permanent colostomy or
ileostomy. In many cases, surgery does not achieve a permanent cure, and patients suffer a return of the disease. In 2011, enrollment
commenced in our double-blind, placebo-controlled Phase 2 clinical study evaluating MultiStem administration to patients suffering
from UC, and enrollment was completed in December 2013. We anticipate reporting initial trial results in the spring of 2014.
Another area of focus is the use of MultiStem cells as adjunctive treatment for HSC/bone marrow transplant used as therapy in
hematologic malignancy. For many types of cancer, such as leukemia or other blood-borne cancers, treatment typically involves
radiation therapy or chemotherapy, alone or in combination. Such treatment can substantially deplete the cells of the blood and
immune system, by reducing the number of stem cells in the bone marrow from which they arise. The more intense the radiation
treatment or chemotherapy, the more severe the resulting depletion is of the bone marrow, blood, and immune system. Other tissues
may also be affected, such as cells in the digestive tract and in the pulmonary system. The result may be severe anemia,
immunodeficiency, substantial reduction in digestive capacity, and other problems that may result in significant disability or death.
One strategy for treating the depletion of bone marrow is to perform a peripheral blood stem cell transplant or a bone marrow
transplant. This approach may augment the patient’s ability to form new blood and immune cells and provide a significant survival
advantage. However, finding a closely matched donor is frequently difficult or even impossible. Even when such a donor is found, in
many cases there are immunological complications, such as GvHD, which may result in serious disability or death.
Working with leading experts in the stem cell and bone marrow transplantation field, we have studied MultiStem in animal models of
radiation therapy and GvHD. In multiple animal models, MultiStem cells have been shown to be non-immunogenic, even when
administered without the genetic matching that is typically required for conventional bone marrow or stem cell transplantation.
Furthermore, in animal model systems testing immune reactivity of T-cells against unrelated donor tissue, MultiStem has been shown
to suppress the T-cell-mediated immune responses that are an important factor in causing GvHD. MultiStem-treated animals also
displayed a significant increase in survival relative to controls. As a result, we believe that MultiStem administration in conjunction
with or following standard HSC transplantation may have the potential to reduce the incidence or severity of complications and may
enhance gastrointestinal function, which is frequently compromised as a result of radiation treatment or chemotherapy.
We completed a Phase 1 clinical trial examining the safety and tolerability of a single dose or repeat dosing of MultiStem cells
administered intravenously to patients receiving a bone marrow or hematopoietic stem cell transplant as part of their treatment of
leukemia or other hematological condition. The trial was an open label, multicenter trial that involved leading experts in the field of
bone marrow transplantation. In February 2012, we announced the top-line results from the trial. We observed a consistent safety
profile in both the single and multiple dose arms of the study, and at all dose levels tested. Although the trial was not specifically
designed to demonstrate efficacy, we also observed clinically meaningful improvement in medically important parameters relative to
historical clinical experience, including reduced incidence and severity of acute GvHD, improved relapse free survival, no graft
failures, and enhanced engraftment rates relative to other forms of treatment.
We have been granted orphan drug designation by the FDA and EMA for MultiStem treatment in the prevention of GvHD. We met
with the FDA to review the results from the Phase 1 trial and discuss plans for the next phase of clinical development, which we
intend to be a Phase 2/3 study of MultiStem for GvHD prophylaxis and HSC transplant support. Based on FDA feedback, we are
currently working to finalize our trial design as we plan and prepare for trial initiation. Based on current plans, we intend to be ready
to start this study in 2014, but the initiation of the trial will depend on the progress in our clinical trials and the achievement of certain
business development and financial objectives.
Neurological Injury and Disease — MultiStem for Ischemic Stroke
Another focus of our regenerative medicine program is MultiStem administration for the treatment of neurological injury as a result
of acute or chronic conditions. Neurological injury and disease represents an area of significant unmet medical need, a major burden
on the healthcare system, and also represents a huge commercial opportunity.
Many neurological conditions require extensive long-term therapy, and many require extended hospitalization and/or institutional
care, creating an enormous cost burden. Stroke represents an area where the clinical need is particularly significant, since it represents
a leading cause of death and significant long term disability. Currently, there are approximately 800,000 individuals in the United
States that suffer a stroke each year, more than two million stroke victims in the United States, Europe and Japan, combined, and
approximately 15 million people that suffer a stroke each year globally. The vast majority of these (approximately 85% to 90%) are
ischemic strokes, that are caused by a blockage of blood flow in the brain, that cuts off the supply of oxygen and nutrients, and can
result in tissue loss and neurological damage, as well as long term or permanent disability. The remaining 10% to 15% are
hemorrhagic strokes, which occur when a blood vessel bursts and bleeding into the brain ensues.
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Studies show that in recent years there has been a dramatic rise in ischemic strokes among young adults (i.e., individuals in the 25 to 45 age
group), which is likely due to a combination of rising rates of obesity and other factors. Unfortunately, current therapeutic options for ischemic
stroke victims are limited, as the only available therapy, a clot dissolving agent or “thrombolytic,” must be administered within several hours
of the occurrence of the stroke. As a consequence of this limited time window, only a small percentage of stroke victims are treated with the
currently available therapy—most simply receive supportive or “palliative” care. The long-term costs of stroke are substantial, with many
patients requiring extended hospitalization, extended physical therapy or rehabilitation (for those patients that are capable of entering such
programs), and many require long-term institutional or family care. Similarly, there are other acute and progressive neurological conditions
that require substantial healthcare resources, with limited existing treatment options that are only marginally clinically effective.
We have published research with independent collaborating investigators that demonstrates that MultiStem administration conveys biological
benefits in preclinical models of ischemic stroke, as well as other models of neurological damage and injury, including TBI, neonatal hypoxic
ischemia (a cause of neurological damage in infants), and spinal cord injury. We have also conducted preclinical work in other neurological
areas, and have been awarded grants to support work in areas such as the indications described above and for evaluating the potential of
MultiStem cells to address chronic conditions such as Multiple Sclerosis, or MS, or Parkinson’s disease. Our research has shown that
MultiStem cells convey benefits through distinct mechanisms, including reducing inflammatory damage, protecting at risk tissue at the site of
injury, and through direct neurotrophic effects that stimulate the recovery of damaged neurons. As a result, we believe that MultiStem therapy
may have relevance to multiple forms of neurological injury and disease.
Our initial clinical focus in the neurological area involves evaluating MultiStem administration to treat ischemic stroke. Ischemic stroke is a
leading cause of death and disability globally, and accounts for approximately 85% of all strokes. Recent progress toward the development of
safer and more effective treatments for ischemic stroke has been disappointing. Despite the fact that ischemic stroke is one of the leading
causes of death and disability in the United States, there has been little progress toward the development of treatments that improve the
prognosis for stroke victims. The only FDA-approved drug currently available for ischemic stroke is the anti-clotting factor, tPA. According to
current clinical guidelines, tPA must be administered to stroke patients within several hours after the occurrence of the ischemic stroke to
remove the clot while minimizing potential risks, such as bleeding into the brain. Administration of tPA after three to four hours is not
recommended, since it can cause cerebral bleeding or even death. Given this limited therapeutic window, it is estimated that less than 5% of
ischemic stroke victims in the United States currently receive treatment with tPA.
In preclinical studies conducted by investigators, including at the University of Minnesota, the Georgia Regents University, and the University
of Texas Health Science Center at Houston, significant functional improvements have been observed in rodents that have undergone an
experimentally induced stroke, or that have incurred significant neurological damage due to similar types of ischemic events, such as a result
of neonatal hypoxic ischemia or TBI, and then received MultiStem treatment. Published research has demonstrated that MultiStem
administration even one week after a surgically induced stroke results in substantial long-term therapeutic benefit, as evidenced by the
improvement of treated animals compared with controls in a battery of tests examining mobility, strength, fine motor skills, and other aspects
of neurological functional improvement.
Based on the research conducted by us and our collaborators, we believe MultiStem treatment conveys significant benefits through several
mechanisms, including reduction of inflammation and immune system modulation in the ischemic area, and the protection and rescue of
damaged or injured cells, including neuronal tissue. Research results presented at the 2011 and 2012 American Heart Association International
Stroke Conference by collaborators from the University of Texas Health Science Center at Houston demonstrated that MultiStem
administration 24 hours following a stroke reduced inflammatory damage in the brain and resulted in significant functional improvement, and
that some of these results were achieved by reducing the inflammatory response emanating from the spleen. These results confirm that
MultiStem treatment is well tolerated, does not require immunosuppression and results in a robust and durable therapeutic benefit, and are
consistent with prior results that show MultiStem can provide significant benefits even when administered up to one week after the initial
stroke event.
We are currently enrolling patients in the United States and Europe in a 136-patient, double-blind, placebo-controlled Phase 2 clinical trial
exploring the administration of MultiStem to patients that have suffered an ischemic stroke. In this trial, MultiStem is administered one to two
days after a stroke has occurred. If shown to be safe and effective, this would represent a significant extension of the treatment window
relative to existing standard of care and could provide an important new therapeutic option for stroke patients. We believe that the potential
market for a new therapy to treat stroke could be $15 to $20 billion or more annually.
We are also interested in the application of MultiStem for other neurological indications that represent areas of significant unmet medical
need, such as TBI, which represents the leading cause of disability among children and young adults, and a leading cause of death.
Approximately 1.7 million cases of TBI are seen in the United States each year, nearly half a million cases of which are children age 0 to 14
years old. The United States Center for Disease Control and Prevention, or CDC, estimates that more than 5.3 million individuals are living
with a disability and have a long-term or lifelong need for help to perform activities of daily living as a result of a TBI. The annual direct and
indirect costs for TBI are approximately $60 billion a year, according to the National Institute of Neurological Disorders and Stroke, which is
part of the National Institutes of Health. In preclinical studies of TBI, administration of MultiStem dramatically reduced the extent of damage
caused by a TBI, and promoted accelerated healing of the blood-brain barrier.
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In 2012, we announced grant funding of up to $3.6 million to further advance our MultiStem programs and cell therapy platform,
including further development of MultiStem therapy for the treatment of TBI and further development of our cell therapy
formulations and manufacturing capabilities. We received authorization in 2013 to advance our TBI program into the second phase of
the two-stage federal grant award.
We are also conducting preclinical work exploring the application of MultiStem treatment in other neurological indications. In 2010,
we and collaborators at the Center for Stem Cell and Regenerative Medicine and Case Western Reserve University were awarded
$1.0 million through the Ohio Third Frontier Biomedical Program to support preclinical and translational research into the MultiStem
treatment of spinal cord injury, or SCI. In 2012, we presented data at the Annual Society for Neuroscience meeting that demonstrated
that intravenous MultiStem administration one day after SCI results in statistically significant and sustained improvements in gross
locomotor function, fine locomotor function and bladder control compared to control treated animals.
In 2011, we announced the award of grant funding of up to $640,000 to investigate the potential for MultiStem treatment for chronic
progressive MS based on initial results in preclinical models. In 2012, in collaboration with scientists from Case Western Reserve
University, and with the support of Fast Forward and the National Multiple Sclerosis Society, we reported research results that
demonstrate the potential benefits of MultiStem therapy for treating MS. In standard preclinical models of MS, researchers observed
that MultiStem administration results in sustained behavioral improvements, arrests the demyelination process that is central to the
pathology of MS, and supports remyelination of affected axons. We have advanced our MS program with Fast Forward into the
second phase of the two-stage grant in 2013.
Cardiovascular Disease — Evaluating MultiStem for Treating Damage from a Heart Attack
Cardiovascular disease is an area of significant clinical need that is expected to expand significantly in the years ahead. Despite
treatment advances in recent years, cardiovascular disease remains the leading cause of death, and represents one of the leading
causes of disability around the world. In the United States, approximately 915,000 people suffer a heart attack each year, and
approximately 5.1 million individuals in the United States are currently suffering from heart failure in 2009, according to the
American Heart Association 2013 Statistical Update. Another 8.5 million people suffer from peripheral arterial disease, which is
associated with significant morbidity and mortality. In addition, there were approximately 788,000 deaths that occurred from all
forms of cardiovascular disease, including 443,000 individuals that died as a result of coronary heart disease or heart failure.
According to projections published recently by the American Heart Association in February 2011 in the journal Circulation,
aggregate costs for treating heart disease in the United States are expected to soar in the coming years. In 2010, annual direct costs for
treating cardiovascular disease were $273 billion, but by 2030 these are expected to nearly triple, to a projected $818 billion per year.
This increase will occur primarily as a result of the aging population, and may not fully reflect the impact of the dramatic escalation in
obesity rates that has occurred for both adults and children in recent years, which could further exacerbate the long-term challenges
and increase costs associated with cardiovascular disease and other conditions.
In a Phase 1 clinical trial, we have explored MultiStem treatment for damage caused by AMI. Myocardial infarction is one of the
leading causes of death and disability in the United States and is caused by the blockage of one or more arteries that supply blood to
the heart. Such blockages can be caused, for example, by the rupture of an atherosclerotic plaque deposit. A variety of risk factors are
associated with an elevated risk of myocardial infarction or atherosclerosis, including age, high blood pressure, smoking, sedentary
lifestyle and genetics. While advances in the diagnosis, prevention and treatment of heart disease have had a positive impact, there is
clearly room for improvement—myocardial infarction remains a leading cause of death and disability in the United States and the rest
of the world.
MultiStem treatment has been studied in validated animal models of AMI, including at both the Cleveland Clinic and the University
of Minnesota. Investigators demonstrated that the administration of allogeneic MultiStem cells into the hearts of animals damaged by
experimentally induced heart attacks resulted in significant functional improvement in cardiac output and other functional parameters
compared with animals that received placebo or no treatment. Furthermore, the administration of immunosuppressive drug was not
required and provided no additional benefit in this study, and supports the concept of using MultiStem cells as an allogeneic product.
Working with a contract research organization, we completed additional preclinical studies in established pig models of AMI using
catheter delivery and examining various factors such as the route and method of MultiStem administration, dose ranging, and timing
of treatment. We conducted a multicenter, open-label Phase 1 clinical trial in this indication and announced in 2010 the preliminary
results, which showed that MultiStem treatment was well tolerated at all dose levels and exhibited a favorable safety profile. In
addition, patients that received MultiStem treatment exhibited meaningful improvements in cardiovascular function, including left
ventricular ejection fraction, wall motion scores, and other parameters. These results were published by Circulation Research in 2012.
We are preparing for a Phase 2 clinical study of MultiStem administration to patients that have suffered a myocardial infarction and
are planning to initiate the study in 2014. In 2013, we were awarded a grant from the National Institutes of Health for up to $2.8
million to support funding the program.
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Pharmaceutical Programs
Novel 5HT2c agonists for the treatment of obesity and other conditions
Obesity is a substantial contributing factor to a range of diseases that represent the major causes of death and disability in the developed
world today. Individuals that are clinically obese have elevated rates of cardiovascular disease, stroke, certain types of cancer and
diabetes. According to the CDC, the incidence of obesity in the United States has increased at an epidemic rate during the past 20 years.
CDC now estimates that almost 70% of all Americans are overweight, including more than one-third that are considered clinically
obese. The percentage of young people that are overweight has more than tripled since 1980. There has also been a dramatic rise in the
rate of obesity in Europe and Asia. Despite the magnitude of this problem, current approaches to clinical obesity are largely ineffective,
and we are aware of relatively few new therapeutic approaches in clinical development.
We are developing novel pharmaceutical treatments for obesity, which are compounds designed to act by stimulating a key receptor in
the brain that regulates appetite and food intake—the 5HT2c receptor. The role of this receptor in regulating food intake is well
understood in both animal models and humans. In 1996, Wyeth launched the anti-obesity drug Redux (dexfenfluramine), a non-specific
serotonin receptor agonist that was used with the stimulant phentermine in a combination commonly known as fen-phen. This diet drug
combination was shown to be highly effective at regulating appetite, reducing food intake, and causing significant weight loss.
Unfortunately, in addition to stimulating the 5HT2c receptor, Redux also stimulated the 5HT2b receptor that is found in the heart, and
Redux was withdrawn from the market in 1997.
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Since the withdrawal of Redux, several groups have published research and clinical data that implicate stimulation of the 5HT2b
receptor as the underlying cause of the cardiovascular problems. These findings suggest that highly selective compounds that stimulate
the 5HT2c receptor, but that do not appreciably stimulate the 5HT2b receptor, could be developed that maintain the desired appetite
suppressive effects without the cardiovascular toxicity. Recent clinical data supports this hypothesis and also suggests that the 5HT2c
agonists may also cause a statistically significant reduction in the amount of sugar in the blood, as measured by fasting blood glucose
and HbA1c levels, which are both clinically relevant measures for patients suffering from diabetes.
In 2012, the FDA approved Lorcaserin, a 5HT2c agonist, for the treatment of obesity. We believe this represents a significant event for
our program because it illustrates that the FDA recognizes and agrees with the concept that 5HT2c agonists that display appropriate
selectivity, biological activity and clinical safety are approvable for indications such as obesity.
Our drug development program is focused on creating potent and selective orally administered compounds that stimulate the 5HT2c
receptor, but that avoid the 5HT2b receptor and other receptors, such as 5HT2a, or other receptors that could cause adverse side effects.
Based on extensive preclinical studies that we have conducted with compounds that we have generated, we have demonstrated the
ability to develop compounds that are highly potent and selective for the 5HT2c receptor, and that lack activity at either 5HT2a or
5HT2b. We believe that clinical trials will demonstrate that this achievement represents a significant advance in the field, and that the
potency and selectivity profile displayed by compounds we are developing will result in substantially better efficacy and a cleaner safety
and tolerability profile, as well as a more convenient dosing schedule than other 5HT2c agonist programs including Lorcaserin. We also
evaluated certain of our compounds when administered as a monotherapy or in conjunction with other weight loss agents, and have
observed effectiveness with both approaches. We are conducting preclinical evaluation of novel compounds that we have developed that
exhibit outstanding receptor selectivity and are working toward the selection of a clinical development candidate for this program.
Certain potent and highly selective compounds that we have developed display a profile that we believe may have utility in treating
schizophrenia. We evaluated some of these compounds in preclinical models of schizophrenia and have observed that they exhibit
efficacy in these models.
We may elect to enter into a partnership to advance the development of our 5HT2c agonist program, either for the treatment of obesity,
schizophrenia, or both indications.
Other Small Molecule Programs & Key Technologies
In addition to our other programs, we believe that there are significant opportunities for synergy between our small molecule platform
and related capabilities and our MultiStem technology. Specifically, we believe that substantial opportunities exist for identifying and
utilizing small molecule modulators of therapeutically relevant biological activity exhibited by MultiStem or other stem cell types. We
believe that applying our capabilities in both areas could lead to next generation product development opportunities, including more
potent stem cell based therapies that have been optimized for use in specific indication areas.
In addition to our current product development programs, we developed our patented RAGE technology that provides us with the
ability to produce human cell lines that express specific, biologically well validated drug targets without relying upon cloned and
isolated gene sequences. While our RAGE technology is not a therapeutic product, it is a commercial technology that we have
successfully applied for the benefit of our partners and that we have also used for our own internal drug development programs. Modern
drug screening approaches typically require the physical isolation and structural modification of a gene of interest, an
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approach referred to as gene cloning, in order to create a cell line that expresses a drug target of interest. Researchers may then use the
genetically modified cell line to identify pharmaceutical compounds that inhibit or stimulate the target of interest. The RAGE
technology enables us to turn on or amplify the expression of a drug target without having to physically clone or isolate the gene. In
effect, the technology works through the random insertion of tiny, proprietary genetic switches that randomly turn genes on without
requiring their physical isolation, or any advance knowledge of their structure. This technology provides us with broad freedom to
work with targets that may be otherwise unavailable as a result of intellectual property restrictions on the use of specific cloned and
isolated genes. In recent years, we have produced cell lines that express drug targets in a range of disease areas such as metabolic
disease, infectious disease, oncology, cardiovascular disease, inflammation, and central nervous system disorders. Many of these were
produced for drug development programs at major pharmaceutical companies that we have collaborated with, such as Bristol-Myers
Squibb, and some have been produced for our internal drug development programs.
Collaborations and Partnerships
Pfizer
In 2009, we entered into a collaboration agreement with Pfizer to develop and commercialize MultiStem therapy for the treatment of
IBD for the worldwide market. Under the terms of the agreement, we received a non-refundable up-front cash payment of $6.0
million from Pfizer and research funding during the initial phase of the collaboration that ended in 2012. In addition, we are also
eligible to receive milestone payments of up to $105 million upon the successful achievement of certain development, regulatory and
commercial milestones, though there can be no assurance that we will achieve these milestones, and no significant milestone
payments were received as of December 31, 2013. We are responsible for manufacturing and Pfizer pays us for manufacturing
product for clinical development and commercialization purposes. Pfizer has responsibility for development, regulatory and
commercialization and will pay us tiered royalties on worldwide commercial sales of MultiStem IBD products. Alternatively, in lieu
of royalties and certain commercialization milestones, we may elect to co-develop with Pfizer and the parties will share development
and commercialization expenses and profits/losses on an agreed basis beginning at Phase 3 clinical development.
The Pfizer collaboration does not have a specific termination date, but will terminate upon the last to expire royalty term, unless
terminated earlier by either party. Either party can terminate the agreement for an uncured material breach or default. Pfizer is
permitted to terminate the agreement upon advance written notice to us if we sustain certain turnover levels for employees working on
the program, if our license with the University of Minnesota is terminated, if we experience a specified change of control event, or in
its sole discretion. We can terminate the agreement if a certain milestone event has not occurred by a defined period of time, or if we
reasonably believe that Pfizer has failed to satisfy its obligations to progress the development of the program. Following termination
of the agreement by us, all licenses granted to Pfizer to develop and commercialize MultiStem for IBD will terminate, other than
certain more limited research licenses, and ownership of regulatory and clinical data will revert to us. Following termination of the
agreement by Pfizer, the licenses granted to Pfizer will remain in effect according to their terms, unless the termination is due to our
breach, employee turnover or termination of the license with University of Minnesota, in which case payments to us will be reduced
from what was otherwise payable. Also, if Pfizer terminates in its sole discretion, then Pfizer retains its obligation to fund our
research and development costs as set forth in the agreement.
RTI
In 2010, we entered into an agreement with RTI to develop and commercialize MAPC technology-based biologic implants for certain
orthopedic applications in the bone graft substitutes market. Under the terms of our RTI agreement, we received $5.0 million of
license fees in installments during 2010-2012. In accordance with the agreement, we are also eligible to receive an additional $35.5
million in cash payments upon the successful achievement of certain commercial milestones, though there can be no assurance that
such milestones will be achieved, and no significant milestone payments were received as of December 31, 2013. In addition, we will
receive tiered royalties on worldwide commercial sales of implants using our technologies beginning in 2014, since RTI recently
commenced its commercialization activities.
Angiotech
In 2011, we reached an agreement with Angiotech to terminate the collaboration agreement and license between the parties, reflecting
a change in Angiotech’s business and financial strategy. As a result of the termination, we regained ownership of all rights for
developing our stem cell technologies and products for cardiovascular disease indications, including AMI, congestive heart failure,
chronic ischemia, and peripheral vascular disease, and Angiotech no longer has any license rights or options with respect to our
technologies and products. As part of the termination agreement, if we enter into a new AMI collaboration before November 14,
2014, and at the time of the collaboration, we have made certain progress in development, Angiotech could be eligible for 10% of any
third-party license fees up to a maximum of $5.0 million. Angiotech is not entitled to other downstream payments, such as milestone
payments, royalties or any profit-sharing payments.
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Bristol-Myers Squibb
In 2000, we entered into a collaboration with Bristol-Myers Squibb to provide cell lines expressing well validated drug targets
produced using our RAGE technology for compound screening and development. This initial collaboration was expanded in 2002 and
again in 2006, and was in its final phase as amended in 2009. Bristol-Myers Squibb uses the cell lines in its internal drug development
programs and, in exchange, we receive license fee and milestone payments and will be entitled to receive royalties on the sale of any
approved products. Depending on the use of a cell line by Bristol-Myers Squibb and the progress of drug development programs
benefiting from the use of such a cell line, we may receive as much as approximately $5.5 million per cell line in additional license
fees and milestone payments, though we cannot assure you that any further milestones will be achieved or that we will receive any
additional milestone payments. In 2008, Bristol-Myers Squibb successfully advanced into Phase 2 clinical development a drug
candidate discovered using a target provided by us, thereby triggering a clinical development milestone payment to us. As of
December 31, 2013, we received an aggregate amount of $2.1 million in milestone payments and $9.8 million in license fees since the
inception of our collaboration with Bristol-Myers Squibb.
The Bristol-Myers Squibb collaboration does not have a specific termination date, but will terminate when Bristol-Myers Squibb no
longer has an obligation to pay us royalties, which obligation generally continues until the later of the expiration of the Bristol-Myers
Squibb patent covering an approved product and ten years after commercial sales of that product began. If either party breaches its
material obligations and fails to cure that breach within 60 days after notice from the non-breaching party, the non-breaching party
may terminate the collaboration.
Competition
We face significant competition with respect to the various dimensions of our business. With regard to our efforts to develop
MultiStem as a novel stem cell therapy, currently, there are a number of companies that are actively developing stem cell products,
which encompass a range of different cell types, including embryonic stem cells, umbilical cord stem cells, adult-derived stem cells
and processed bone marrow derived cells.
Mesoblast Limited, or Mesoblast, is currently engaged in clinical trials evaluating the safety and efficacy of Revascor, an allogeneic
stem cell product based on mesenchymal stem cell precursors that are obtained from healthy consenting donors. These cells also
appear to display limited expansion potential and biological plasticity. Additionally, Mesoblast is developing Prochymal, a
mesenchymal stem cell product candidate that it acquired from Osiris Therapeutics, Inc. in 2013. In 2010, Mesoblast announced a
partnership with Cephalon, Inc., or Cephalon, now owned by Teva Pharmaceuticals, Inc., in which Cephalon paid an upfront license
fee of $130 million, and agreed to invest an additional $220 million in equity for a 19.9% stake in Mesoblast. In addition, total
regulatory milestone payments to Mesoblast could reach $1.7 billion, assuming that the agreement results in commercial treatments
for conditions including congestive heart failure, AMI, Parkinson’s disease and Alzheimer’s disease.
Other public companies are developing stem-related therapies, including Aastrom Biosciences, Inc., or Aastrom, Stem Cells Inc.,
Johnson & Johnson, Celgene Corporation, or Celgene, Advanced Cell Technology, Inc., CRYO-CELL International, Inc., Pluristem
Therapeutics, Inc., or Pluristem, and Cytori Therapeutics, Inc., or Cytori. In addition, private companies, such as Gamida Cell Ltd.,
Plureon Corporation, NeoStem, Inc., Tigenix NV and others, are also developing cell therapy related products or capabilities. Given
the magnitude of the potential opportunity for stem cell therapy, we expect competition in this area to intensify in the coming years.
We also face competition in our efforts to develop compounds for the treatment of obesity. In 2012, two new treatments were
approved by the FDA for the treatment of obesity, Belviq (Lorcaserin), which was developed by Arena Pharmaceuticals, Inc., or
Arena, and Qsymia (a proprietary combination of phentermine and topiramate), which was developed by Vivus, Inc., or Vivus. Prior
to these recent approvals, there was one approved therapeutic product on the market for obesity, Xenical (also known as Alli), which
is marketed by F. Hoffman—LaRoche Ltd., or Roche. Potential side effects associated with taking Xenical / Alli include cramping,
intestinal discomfort, flatulence, diarrhea, and leakage of oily stool. Another obesity drug, Meridia, was approved for clinical use and
marketed by Abbott Pharmaceuticals, but was withdrawn from the market due to concerns regarding increased risk of cardiovascular
disease and stroke among patients taking the drug.
There are many other companies that have previously attempted or are attempting to develop novel treatments for obesity, and a wide
range of approaches are being taken. Some of these companies include large, multinational pharmaceutical companies such as Bristol-
Myers Squibb, Merck & Co., Inc., Roche, Sanofi, GlaxoSmithKline plc, or GlaxoSmithKline, Eli Lilly and Company and others.
There are also a variety of biotechnology companies developing treatments for obesity, including Orexigen Therapeutics,
Neurosearch, Amgen Inc., or Amgen, Regeneron Pharmaceuticals, Inc., Nastech Pharmaceutical Company, Alizyme plc, Amylin
Pharmaceuticals, Inc., Neurocrine Biosciences, Inc., Shionogi & Co., Ltd., Metabolic Pharmaceuticals Limited, Kyorin
Pharmaceutical Co., Ltd., and others. It is likely that, given the magnitude of the market opportunity, many companies will continue
to focus on the obesity area, and that competition will remain high. If we are successful at developing a 5HT2c agonist as a safe and
effective treatment for obesity, it is likely that other companies will attempt to develop safer and more effective compounds in the
same class, or will attempt to combine therapies in an effort to establish a safer and more effective therapeutic product.
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We believe our most significant competitors are fully integrated pharmaceutical companies and biotechnology companies that have
substantially greater financial, technical, sales, marketing, and human resources than we do. These companies may succeed in
obtaining regulatory approval for competitive products more rapidly than we can for our products. In addition, our competitors may
develop technologies and products that are cheaper, safer or more effective than those being developed by us or that would render our
technology obsolete. Furthermore, some of these companies may feel threatened by our activities and attempt to delay or impede our
efforts to develop our products or apply our technologies.
Intellectual Property
We rely on a combination of patent applications, patents, trademarks, and contractual provisions to protect our proprietary rights. We
believe that to have a competitive advantage, we must develop and maintain the proprietary aspects of our technologies. Currently, we
require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers,
and other advisors to execute confidentiality agreements in connection with their employment, consulting, or advisory relationships
with us, where appropriate. We also require our employees, consultants, and advisors that we expect to work on our products to agree
to disclose and assign to us all inventions conceived during the work day, developed using our property, or which relate to our
business. We currently have over 180 patents for our technologies.
We have a broad patent estate with claims directed to compositions, methods of production, and methods of use of certain non-
embryonic stem cells and related technologies. We have developed, acquired and exclusively licensed intellectual property covering
our cell therapy product candidates and other applications in the field. Our broad intellectual property portfolio consists of more than
130 issued patents (of which seventeen are United States patents) and more than 170 global patent applications around our stem cell
technology and MultiStem product platform. This includes fourteen United States patents and more than 90 international patents that
apply to MAPC and related products, such as MultiStem. The current intellectual property estate, which incorporates additional
filings and may broaden over time, could provide coverage for our stem cell product candidates, manufacturing processes and
methods of use through 2030 and beyond. Furthermore, an extended period of market exclusivity may apply for certain products (e.g.,
exclusivity periods for orphan drug designation or biologics).
We have established a broad intellectual property portfolio related to our small molecule product candidates and functional genomics
technologies. We have a broad patent estate with claims directed to compositions, methods of making, and methods of using our
small molecule drug candidates. We have six United States patents and three patent applications with broad claims directed to
selective 5HT2c agonists discovered at Athersys that currently provide patent coverage through as late as 2029. From our Histamine
H3 program, we have six United States patents with broad claims directed to compounds discovered at Athersys from two distinct
chemical series that currently provide patent coverage through as late as 2028. In addition, we currently have 36 issued patents (16
United States patents and 20 international patents) relating to compositions and methods for the RAGE technology that currently
provide patent coverage through as late as 2020, and five United States patents relating to human proteins and candidate drug targets
that we identified through the application of RAGE and to our other technologies that currently provide patent coverage through as
late as 2022. The RAGE technology was developed by Dr. John Harrington and other Athersys scientists internally in the mid-1990s.
We believe that we have broad freedom to use and commercially develop our technologies and product candidates. However, if
successful, a patent infringement suit brought against us may force us or any of our collaborators or licensees to stop or delay
developing, manufacturing, or selling potential products that are claimed to infringe a third party’s intellectual property, unless that
party grants us rights to use its intellectual property. In such cases, we may be required to obtain licenses to patents or proprietary
rights of others to continue to commercialize our products. However, we may not be able to obtain any licenses required under any
patents or proprietary rights of third parties on acceptable terms, or at all. Even if we were able to obtain rights to the third party’s
intellectual property, these rights may be non-exclusive, thereby giving our competitors access to the same intellectual property.
Ultimately, we may be unable to commercialize some of our potential products or may have to cease some of our business operations
as a result of patent infringement claims, which could severely harm our business.
Research and Development
Our research and development costs, which consist primarily of costs associated with external clinical trial costs, preclinical study
fees, manufacturing costs, salaries and related personnel costs, legal expenses resulting from intellectual property application
processes, and laboratory supply and reagent costs, were $20.5 million in 2013, $19.6 million in 2012 and $18.9 million in 2011.
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Government Regulation
Any products we may develop and our research and development activities are subject to stringent government regulation in the
United States by the FDA and, in many instances, by corresponding foreign and state regulatory agencies. The European Union, or
EU, has vested centralized authority in the EMA and Committee on Proprietary Medicinal Products to standardize review and
approval across EU member nations. In Japan, the Pharmaceuticals and Medical Device Agency, or PDMA, a division of the Ministry
of Health, Labour and Welfare, or MHLW, regulates the development and commercialization of medical therapies. Recently, Japan’s
parliament enacted new legislation to promote the safe and accelerated development of treatments using stem cells. The new
regenerative medicine law and revised pharmaceutical affairs law define products containing stem cells as regenerative medicine
products and allow for the conditional approval of such products if safety has been confirmed in clinical trials, even if their efficacy
has not been fully demonstrated. The legislation creates a new, faster pathway for cell therapy product approval, and offers the
potential to enable more rapid entry in the Japanese market. The MHLW has been directed to develop and adopt new rules and
procedures to implement this legislation.
These regulatory agencies enforce comprehensive statutes, regulations and guidelines governing the drug development process. This
process involves several steps. Initially, a company must generate preclinical data to show safety before human testing may be
initiated. In the United States, a drug company must submit an IND to the FDA prior to securing authorization for human testing. The
IND must contain adequate data on product candidate chemistry, toxicology and metabolism and, where appropriate, animal research
testing to support initial safety.
A Clinical Trial Agreement, or CTA, is the European equivalent of the IND. CTA requirements are issued by each competent
authority within the European Union and are enacted by local laws and Directives.
Any of our product candidates will require regulatory approval and compliance with regulations made by United States and foreign
government agencies prior to commercialization in such countries. The process of obtaining FDA or foreign regulatory agency
approval has historically been extremely costly and time consuming. The FDA regulates, among other things, the development,
testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale, and distribution of
biologics and new drugs.
The standard process required by the FDA before a pharmaceutical agent may be marketed in the United States includes:
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preclinical tests in animals that demonstrate a reasonable likelihood of safety and effectiveness in human patients;
submission to the FDA of an IND, which must become effective before clinical trials in humans can commence. If Phase 1
clinical trials are to be conducted initially outside the United States, a different regulatory filing is required, depending on
the location of the trial;
adequate and well controlled human clinical trials to establish the safety and efficacy of the drug or biologic in the intended
disease indication;
for drugs, submission of a New Drug Application, or NDA, or a Biologic License Application, or BLA, with the FDA; and
FDA approval of the NDA or BLA before any commercial sale or shipment of the drug.
Preclinical studies can take several years to complete, and there is no guarantee that an IND based on those studies will become
effective to permit clinical trials to begin. The clinical development phase generally takes five to seven years, or longer, to complete
(i.e., from the initiation of Phase 1 through completion of Phase 3 studies), and such sequential studies may overlap or be combined.
After successful completion of clinical trials for a new drug or biologic product, FDA approval of the NDA or BLA must be obtained.
This process requires substantial time and effort and there is no assurance that the FDA will accept the NDA or BLA for filing and,
even if filed, that the FDA will grant approval. In the past, the FDA’s approval of an NDA or BLA has taken, on average, one to two
years, but in some instances may take substantially longer. If questions regarding safety or efficacy arise, additional studies may be
required, followed by a resubmission of the NDA or BLA. Review and approval of an NDA or BLA can take up to several years.
In addition to obtaining FDA approval for each product, each drug manufacturing facility must be inspected and approved by the
FDA. All manufacturing establishments are subject to inspections by the FDA and by other federal, state, and local agencies, and
must comply with good manufacturing practices, or GMP, requirements. We do not currently have any GMP manufacturing
capabilities, and will rely on contract manufacturers to produce material for any clinical trials that we may conduct.
We must also obtain regulatory approval in other countries in which we intend to market any drug. The requirements governing
conduct of clinical trials, product licensing, pricing, and reimbursement vary widely from country to country. FDA approval does not
ensure regulatory approval in other countries. The current approval process varies from country to country, and the time spent in
gaining approval varies from that required for FDA approval. In some countries, the sale price of the drug must also be approved. The
pricing review period often begins after market approval is granted. Even if a foreign regulatory authority approves a drug product, it
may not approve satisfactory prices for the product.
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In addition to regulations enforced by the FDA, we are also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other present
and potential future federal, state, or local regulations. Our research and development involves the controlled use of hazardous
materials, chemicals, biological materials, and various radioactive compounds. Although we believe that our safety procedures for
handling and disposing of such materials currently comply in all material respects with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such
an accident, we could be held liable for any damages that result and any such liability could exceed our available resources.
Employees
We believe that our success will be based on, among other things, the quality of our clinical programs, our ability to invent and
develop superior and innovative technologies and products, and our ability to attract and retain capable management and other
personnel. We have assembled a high quality team of scientists, clinical development managers, and executives with significant
experience in the biotechnology and pharmaceutical industries.
As of December 31, 2013, we employed 56 full-time employees, including 17 with Ph.D. degrees. In addition to our employees, we
also use the service and support of outside consultants and advisors. None of our employees is represented by a union, and we believe
relationships with our employees are good.
Available Information
We use the Investors section of our web site, www.athersys.com, as a channel for routine distribution of important information,
including news releases, analyst presentations and financial information. We post filings as soon as reasonably practicable after they
are electronically filed with, or furnished to, the SEC, including our annual, quarterly, and current reports on Forms 10-K, 10-Q, and
8-K; our proxy statements; and any amendments to those reports or statements. All such postings and filings are available on the
Investors section of our web site free of charge. In addition, this web site allows investors and other interested persons to sign up to
automatically receive e-mail alerts when we post news releases and financial information on our web site. The SEC also maintains a
web site, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. The content on any web site referred to in this annual report on Form 10-K is not incorporated by
reference into this annual report unless expressly noted.
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ITEM 1A. RISK FACTORS
The statements in this section, as well as statements described elsewhere in this annual report, or in other SEC filings, describe risks
that could materially and adversely affect our business, financial condition and results of operations, which could also cause the
trading price of our equity securities to decline. These risks are not the only risks that we face. Our business, financial condition and
results of operations could also be affected by additional factors that are not presently known to us or that we currently consider to be
immaterial to our operations.
We have incurred losses since inception and we expect to incur significant net losses in the foreseeable future and may never
become profitable.
Since our inception in 1995, we have incurred significant losses and negative cash flows from operations. We incurred net losses of
$31 million in 2013, $15 million in 2012 and $14 million in 2011. As of December 31, 2013, we had an accumulated deficit of $264
million and anticipate incurring additional losses for at least the next several years. We expect to spend significant resources over the
next several years to enhance our technologies and to fund research and development of our pipeline of potential products. To date,
substantially all of Athersys’ revenue has been derived from corporate collaborations, license agreements and government grants. In
order to achieve profitability, we must develop products and technologies that can be commercialized by us or through our existing or
future collaborations. Our ability to generate revenues and become profitable will depend on our ability, alone or with potential
collaborators, to timely, efficiently and successfully complete the development of our product candidates. We have never earned
revenue from selling a product and we may never do so, as none of our product candidates have been approved for sale, since they are
currently being tested in humans and animal studies. We cannot assure you that we will ever earn revenue or that we will ever become
profitable. If we sustain losses over an extended period of time, we may be unable to continue our business.
We will need substantial additional funding to develop our products and for our future operations. If we are unable to obtain the
funds necessary to do so, we may be required to delay, scale back or eliminate our product development activities or may be unable
to continue our business.
The development of our product candidates will require a commitment of substantial funds to conduct the costly and time-consuming
research, which may include preclinical and clinical testing, necessary to obtain regulatory approvals and bring our products to
market. Net cash used in our operations was $23 million in 2013, $18 million in 2012 and $14 million in 2011.
At December 31, 2013, we had $32 million of cash, cash equivalent and investments, and we will need substantially more to advance
our product candidates through development. Furthermore, we will need to add additional capital to fund our operations through the
completion of our current clinical trials. Our future capital requirements will depend on many factors, including:
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our ability to raise capital to fund our operations;
the progress and costs of our research and development programs, including our ability to develop our current portfolio of
therapeutic products, or discover and develop new ones;
our ability, or our partners ability and willingness, to advance partnered products or programs, and the speed in which they
are advanced;
the cost of prosecuting, defending and enforcing patent claims and other intellectual property rights;
the progress, scope, costs, and results of our preclinical and clinical testing of any current or future pharmaceutical or
MultiStem-related products;
the time and cost involved in obtaining regulatory approvals;
the cost of manufacturing our product candidates;
expenses related to complying with GMP of therapeutic product candidates;
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costs of financing the purchases of additional capital equipment and development technologies;
competing technological and market developments;
our ability to establish and maintain collaborative and other arrangements with third parties to assist in bringing our
products to market and the cost of such arrangements;
the amount and timing of payments or equity investments that we receive from collaborators or changes in or terminations
of future or existing collaboration and licensing arrangements and the timing and amount of expenses we incur to
supporting these collaborations and license agreements;
costs associated with the integration of any new operation, including costs relating to future mergers and acquisitions with
companies that have complementary capabilities;
expenses related to the establishment of sales and marketing capabilities for products awaiting approval or products that
have been approved;
the level of our sales and marketing expenses; and
our ability to introduce and sell new products.
The extent to which we utilize our existing equity purchase agreement with Aspire Capital Fund, LLC, or Aspire Capital, as a source
of funding will depend on a number of factors, including the prevailing market price of our common stock, the volume of trading in
our common stock and the extent to which we are able to secure funds from other sources. The number of shares that we may sell to
Aspire Capital under the purchase agreement on any given day and during the term of the agreement is limited. Additionally, we and
Aspire Capital may not effect any sales of shares of our common stock under the purchase agreement during the continuance of an
event of default. Even if we are able to access the remaining $24.5 million under the purchase agreement as of December 31, 2013,
we will still need additional capital to fully implement our business, operating and development plans.
We have secured capital historically from grant revenues, collaboration proceeds, and debt and equity offerings. We will need to
secure substantial additional capital to fund our future operations. We cannot be certain that additional capital will be available on
acceptable terms or at all. In recent years, it has been difficult for companies to raise capital due to a variety of factors, which may or
may not continue. To the extent we raise additional capital through the sale of equity securities, including to Aspire Capital, the
ownership position of our existing stockholders could be substantially diluted. If additional funds are raised through the issuance of
preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock.
Fluctuating interest rates could also increase the costs of any debt financing we may obtain.
Failure to successfully address ongoing liquidity requirements will have a material adverse effect on our business. If we are unable to
obtain additional capital on acceptable terms when needed, we may be required to take actions that harm our business and our ability
to achieve cash flow in the future, including possibly the surrender of our rights to some technologies or product opportunities,
delaying our clinical trials or curtailing or ceasing operations.
We are heavily dependent on the successful development and commercialization of MultiStem products, and if we encounter
delays or difficulties in the development of this product candidate, our business could be harmed.
Our success is heavily dependent upon the successful development of MultiStem products for certain diseases and conditions
involving acute or ischemic injury or immune system dysfunction. Our business could be materially harmed if we encounter
difficulties in the development of this product candidate, such as:
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delays in the ability to manufacture the product in quantities or in a form that is suitable for any required preclinical studies
or clinical trials;
delays in the design, enrollment, implementation or completion of required preclinical studies and clinical trials;
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an inability to follow our current development strategy for obtaining regulatory approval from the FDA because of changes
in the regulatory approval process;
less than desired or complete lack of efficacy or safety in preclinical studies or clinical trials; and
intellectual property constraints that prevent us from making, using, or commercializing the product candidate.
Our product candidates are in an early stage of development and we currently have no therapeutic products approved for sale. If
we are unable to develop, obtain regulatory approval or market any of our product candidates, our financial condition will be
negatively affected, and we may have to curtail or cease our operations.
Many factors, known and unknown, can adversely affect clinical trials and the ability to evaluate a product’s efficacy. During the
course of treatment, patients can die or suffer other adverse events for reasons that may or may not be related to the proposed product
being tested. Even if unrelated to our product, certain events can nevertheless adversely impact our clinical trials. As a result, our
ability to ultimately develop and market the products and obtain revenues would suffer.
Even promising results in preclinical studies and initial clinical trials do not ensure successful results in later clinical trials, which test
broader human use of our products. Many companies in our industry have suffered significant setbacks in advanced clinical trials,
despite promising results in earlier trials.
We are in the early stage of product development, and we are dependent on the application of our technologies to discover or develop
therapeutic product candidates. We currently do not sell any approved therapeutic products and do not expect to have any products
commercially available for several years, if at all. You must evaluate us in light of the uncertainties and complexities affecting an
early stage biotechnology company. Our product candidates require additional research and development, preclinical testing, clinical
testing and regulatory review and/or approvals or clearances before marketing. To date, no one to our knowledge has commercialized
any therapeutic products using our technologies and we might never commercialize any product using our technologies and strategy.
In addition, we may not succeed in developing new product candidates as an alternative to our existing portfolio of product
candidates. If our current product candidates are delayed or fail, or we fail to successfully develop and commercialize new product
candidates, our financial condition may be negatively affected, and we may have to curtail or cease our operations.
We may not successfully maintain our existing collaborative and licensing arrangements, or establish new ones, which could
adversely affect our ability to develop and commercialize our product candidates.
A key element of our business strategy is to commercialize some of our product candidates through collaborations with other
companies. Our strategy includes establishing collaborations and licensing agreements with one or more pharmaceutical,
biotechnology or device companies, preferably after we have advanced product candidates through the initial stages of clinical
development. However, we may not be able to establish or maintain such licensing and collaboration arrangements necessary to
develop and commercialize our product candidates. Even if we are able to maintain or establish licensing or collaboration
arrangements, these arrangements may not be on favorable terms and may contain provisions that will restrict our ability to develop,
test and market our product candidates. Any failure to maintain or establish licensing or collaboration arrangements on favorable
terms could adversely affect our business prospects, financial condition or ability to develop and commercialize our product
candidates.
Our agreements with our collaborators and licensees may have provisions that give rise to disputes regarding the rights and
obligations of the parties. These and other possible disagreements could lead to termination of the agreement or delays in
collaborative research, development, supply, or commercialization of certain product candidates, or could require or result in
litigation or arbitration. Moreover, disagreements could arise with our collaborators over rights to intellectual property or our rights to
share in any of the future revenues of products developed by our collaborators. These kinds of disagreements could result in costly
and time-consuming litigation. Any such conflicts with our collaborators could reduce our ability to obtain future collaboration
agreements and could have a negative impact on our relationship with existing collaborators.
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Currently, our material collaborations and licensing arrangements are our collaboration with Pfizer to develop and commercialize
MultiStem for the treatment of IBD, and our collaboration with RTI to develop and commercialize MAPC technology-based biologic
implants for certain orthopedic applications in the bone graft substitutes market, and our license with the University of Minnesota
pursuant to which we license certain aspects of the MAPC technology. These arrangements do not have specific termination dates;
rather, each arrangement terminates upon the occurrence of certain events.
If our collaborators do not devote sufficient time and resources to successfully carry out their contracted duties or meet expected
deadlines, we may not be able to advance our product candidates in a timely manner or at all.
Our success depends on the performance by our collaborators of their responsibilities under our collaboration arrangements. Some
potential collaborators may not perform their obligations in a timely fashion or in a manner satisfactory to us. Typically, we cannot
control the amount of resources or time our collaborators may devote to our programs or potential products that may be developed in
collaboration with us. We are currently involved in multiple research and development collaborations with academic and research
institutions. These collaborators frequently depend on outside sources of funding to conduct or complete research and development,
such as grants or other awards. In addition, our academic collaborators may depend on graduate students, medical students, or
research assistants to conduct certain work, and such individuals may not be fully trained or experienced in certain areas, or they may
elect to discontinue their participation in a particular research program, creating an inability to complete ongoing research in a timely
and efficient manner. As a result of these uncertainties, we are unable to control the precise timing and execution of any experiments
that may be conducted.
Additionally, our current or future corporate collaborators will retain the ability to pursue other research, product development or
commercial opportunities that may be directly competitive with our programs. If these collaborators elect to prioritize or pursue other
programs in lieu of ours, we may not be able to advance product development programs in an efficient or effective manner, if at all. If
a collaborator is pursuing a competitive program and encounters unexpected financial or capability limitations, they may be motivated
to reduce the priority placed on our programs or delay certain activities related to our programs or be unwilling to properly fund their
share of the development expenses for our programs. Any of these developments could harm our product and technology
development efforts, which could seriously harm our business.
We may experience delays in clinical trials and regulatory approval relating to our products that could adversely affect our
financial results and our commercial prospects for our pharmaceutical or stem cell products.
In addition to the regulatory requirements for our pharmaceutical programs, we will also require regulatory approvals for each distinct
application of our stem cell product. In each case, we will be required to conduct clinical trials to demonstrate safety and efficacy of
MultiStem, or various products that incorporate or use MultiStem. For product candidates that advance to clinical testing, we cannot
be certain that we or a collaborator will successfully complete the clinical trials necessary to receive regulatory product approvals.
This process is lengthy and expensive.
We intend to seek approval for our product candidates through the FDA approval process. To obtain regulatory approvals, we must,
among other requirements, complete clinical trials showing that our products are safe and effective for a particular indication. Under
the approval process, we must submit clinical and non-clinical data to demonstrate the medication is safe and effective. For example,
we must be able to provide data and information, which may include extended pharmacology, toxicology, reproductive toxicology,
bioavailability and genotoxicity studies, to establish suitability for Phase 2 or large scale Phase 3 clinical trials.
All of our product candidates are at an early stage of development. As these programs enter and progress through early stage clinical
development, or complete additional non-clinical testing, an indication of a lack of safety or lack of efficacy may result in the early
termination of an ongoing trial, or may cause us or any of our collaborators to forego further development of a particular product
candidate or program. The FDA or other regulatory agencies may require extensive clinical trials or other testing prior to granting
approval, which could be costly and time consuming to conduct. Any of these developments would hinder, and potentially prohibit,
our ability to commercialize our product candidates. We cannot assure you that clinical trials will in fact demonstrate that our
products are safe or effective.
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Additionally, we may not be able to find acceptable patients or may experience delays in enrolling patients for our currently planned
or any future clinical trials. The FDA or we may suspend our clinical trials at any time if either believes that we are exposing the
subjects participating in the trials to unacceptable health risks. The FDA or institutional review boards and/or institutional biosafety
committees at the medical institutions and healthcare facilities where we seek to sponsor clinical trials may not permit a trial to
proceed or may suspend any trial indefinitely if they find deficiencies in the conduct of the trials.
Product development costs to us and our potential collaborators will increase if we have delays in testing or approvals or if we need to
perform more or larger clinical trials than planned. We expect to continue to rely on third-party clinical investigators at medical
institutions and healthcare facilities to conduct our clinical trials, and, as a result, we may face additional delaying factors outside our
control. Significant delays may adversely affect our financial results and the commercial prospects for our product candidates and
delay our ability to become profitable.
The results seen in animal testing of our product candidates may not be replicated in humans.
This annual report discusses the safety and efficacy seen in preclinical testing of our lead product candidates, including MultiStem, in
animals, but we may not see positive results when our other product candidates undergo clinical testing in humans in the future.
Preclinical studies and Phase 1 clinical trials are not primarily designed to test the efficacy of a product candidate in humans, but
rather to:
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test short-term safety and tolerability;
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study the absorption, distribution, metabolism and elimination of the product candidate;
study the biochemical and physiological effects of the product candidate and the mechanisms of the drug action and the
relationship between drug levels and effect; and
understand the product candidate’s side effects at various doses and schedules.
Success in preclinical studies or completed clinical trials does not ensure that later studies or trials, including continuing non-clinical
studies and large-scale clinical trials, will be successful nor does it necessarily predict future results. The rate of failure in drug
development is quite high, and many companies in the biotechnology and pharmaceutical industries have suffered significant setbacks
in advanced clinical trials, even after promising results in earlier trials. Product candidates may fail to show desired safety and
efficacy in larger and more diverse patient populations in later stage clinical trials, despite having progressed through early stage
trials. Negative or inconclusive results from any of our ongoing preclinical studies or clinical trials could result in delays,
modifications, or abandonment of ongoing or future clinical trials and the termination of our development of a product candidate.
Additionally, even if we are able to successfully complete pivotal Phase 3 clinical trials, the FDA still may not approve our product
candidates.
Even if we obtain regulatory approval of any of our product candidates, the approved products may be subject to post-approval
studies and will remain subject to ongoing regulatory requirements. If we fail to comply, or if concerns are identified in
subsequent studies, our approval could be withdrawn and our product sales could be suspended.
If we are successful at obtaining regulatory approval for MultiStem or any of our other product candidates, regulatory agencies in the
United States and other countries where a product will be sold may require extensive additional clinical trials or post-approval clinical
studies that are expensive and time consuming to conduct. In particular, therapeutic products administered for the treatment of
persistent or chronic conditions, such as obesity, are likely to require extensive follow-up studies and close monitoring of patients
after regulatory approval has been granted, for any signs of adverse effects that occur over a long period of time. These studies may
be expensive and time consuming to conduct and may reveal side effects or other harmful effects in patients that use our therapeutic
products after they are on the market, which may result in the limitation or withdrawal of our drugs from the market. Alternatively,
we may not be able to conduct such additional trials, which might force us to abandon our efforts to develop or commercialize certain
product candidates. Even if post-approval studies are not requested or required, after our products are approved and on the market,
there might be safety issues that emerge over time that require a change in product labeling or that require withdrawal of the product
from the market, which would cause our revenue to decline.
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Additionally, any products that we may successfully develop will be subject to ongoing regulatory requirements after they are
approved. These requirements will govern the manufacturing, packaging, marketing, distribution, and use of our products. If we fail
to comply with such regulatory requirements, approval for our products may be withdrawn, and product sales may be suspended. We
may not be able to regain compliance, or we may only be able to regain compliance after a lengthy delay, significant expense, lost
revenues and damage to our reputation.
We may rely on third parties to manufacture our MultiStem product candidate.
Our current business strategy relies on third parties to manufacture our MultiStem product candidates in accordance with good
manufacturing practices established by the FDA, or similar regulations in other countries. These third parties may not deliver
sufficient quantities of our MultiStem product candidates, manufacture MultiStem product candidates in accordance with
specifications, or comply with applicable government regulations. Additionally, if the manufactured products fail to perform as
specified, our business and reputation could be severely impacted.
We expect to enter into additional manufacturing agreements for the production of product materials. If any manufacturing agreement
is terminated or any third party collaborator experiences a significant problem that could result in a delay or interruption in the supply
of product materials to us, there are very few contract manufacturers that currently have the capability to produce our MultiStem
product on acceptable terms, or on a timely and cost-effective basis. We cannot assure you that manufacturers on whom we will
depend will be able to successfully produce our MultiStem product on acceptable terms, or on a timely or cost-effective basis. We
cannot assure you that manufacturers will be able to manufacture our products in accordance with our product specifications or will
meet FDA or other requirements. We must have sufficient and acceptable quantities of our product materials to conduct our clinical
trials and ultimately to market our product candidates, if and when such products have been approved by the FDA for marketing. If
we are unable to obtain sufficient and acceptable quantities of our product material, we may be required to delay the clinical testing
and marketing of our products.
If we do not comply with applicable regulatory requirements in the manufacture and distribution of our product candidates, we
may incur penalties that may inhibit our ability to commercialize our products and adversely affect our revenue.
Our failure or the failure of our potential collaborators or third party manufacturers to comply with applicable FDA or other
regulatory requirements including manufacturing, quality control, labeling, safety surveillance, promoting and reporting may result in
criminal prosecution, civil penalties, recall or seizure of our products, total or partial suspension of production or an injunction, as
well as other regulatory action against our product candidates or us. Discovery of previously unknown problems with a product,
supplier, manufacturer or facility may result in restrictions on the sale of our products, including a withdrawal of such products from
the market. The occurrence of any of these events would negatively impact our business and results of operations.
If we are unable to attract and retain key personnel and advisors, it may adversely affect our ability to obtain financing, pursue
collaborations or develop our product candidates.
We are highly dependent on our executive officers Gil Van Bokkelen, Ph.D., our Chief Executive Officer, William Lehmann, J.D.,
M.B.A., President and Chief Operating Officer, John Harrington, Ph.D., Chief Scientific Officer and Executive Vice President,
Robert Deans, Ph.D., Executive Vice President, Regenerative Medicine, and Laura Campbell, CPA, Vice President of Finance, as
well as other personnel.
These individuals are integral to the development and integration of our technologies and to our present and future scientific
collaborations, including managing the complex research processes and the product development and potential commercialization
processes. Given their leadership, extensive technical, scientific and financial expertise and management and operational experience,
these individuals would be difficult to replace. Consequently, the loss of services of one or more of these named individuals could
result in product development delays or the failure of our collaborations with current and future collaborators, which, in turn, may
hurt our ability to develop and commercialize products and generate revenues.
Our future success depends on our ability to attract, retain and motivate highly qualified management and scientific, development and
commercial personnel and advisors. If we are unable to attract and retain key personnel and advisors, it may negatively affect our
ability to successfully develop, test and commercialize our product candidates.
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Our ability to compete may decline if we are not successful in adequately protecting our patented and other proprietary
technologies.
Our success depends in part on our ability to obtain and maintain intellectual property that protects our technologies and our products.
Patent positions may be highly uncertain and may involve complex legal and factual questions, including the ability to establish
patentability of compounds and methods for using them for which we seek patent protection. We cannot predict the breadth of claims
that will ultimately be allowed in our patent applications, if any, including those we have in-licensed or the extent to which we may
enforce these claims against our competitors. We have filed multiple patent applications that seek to protect the composition of matter
and method of use related to our programs. In addition, we are prosecuting numerous distinct patent families directed to composition,
methods of production, and methods of use of MultiStem and related technologies. If we are unsuccessful in obtaining and
maintaining these patents related to products and technologies, we may ultimately be unable to commercialize products that we are
developing or may elect to develop in the future.
The degree of future protection for our proprietary rights is therefore highly uncertain and we cannot assure you that:
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we were the first to file patent applications or to invent the subject matter claimed in patent applications relating to the
technologies or product candidates upon which we rely;
others will not independently develop similar or alternative technologies or duplicate any of our technologies;
others did not publicly disclose our claimed technology before we conceived the subject matter included in any of our
patent applications;
any of our pending or future patent applications will result in issued patents;
any of our patent applications will not result in interferences or disputes with third parties regarding priority of invention;
any patents that may be issued to us, our collaborators or our licensors will provide a basis for commercially viable
products or will provide us with any competitive advantages or will not be challenged by third parties;
we will develop additional proprietary technologies that are patentable;
the patents of others will not have an adverse effect on our ability to do business; or
new proprietary technologies from third parties, including existing licensors, will be available for licensing to us on
reasonable commercial terms, if at all.
In addition, patent law outside the United States is uncertain and in many countries intellectual property laws are undergoing review
and revision. The laws of some countries do not protect intellectual property rights to the same extent as domestic laws. It may be
necessary or useful for us to participate in opposition proceedings to determine the validity of our competitors’ patents or to defend
the validity of any of our or our licensor’s future patents, which could result in substantial costs and would divert our efforts and
attention from other aspects of our business. With respect to certain of our inventions, we have decided not to pursue patent protection
outside the United States, both because we do not believe it is cost effective and because of confidentiality concerns. Accordingly, our
international competitors could develop and receive foreign patent protection for gene sequences and functions for which we are
seeking United States patent protection, enabling them to sell products that we have developed.
Technologies licensed to us by others, or in-licensed technologies, are important to our business. The scope of our rights under our
licenses may be subject to dispute by our licensors or third parties. Our rights to use these technologies and to practice the inventions
claimed in the licensed patents are subject to our licensors abiding by the terms of those licenses and not terminating them. In
particular, we depend on certain technologies relating to our MultiStem technology licensed from the University of Minnesota, and
the termination of this license could result in our loss of some of the rights that enable us to utilize this technology, and our ability to
develop products based on MultiStem could be seriously hampered.
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In addition, we may in the future acquire rights to additional technologies by licensing such rights from existing licensors or from third
parties. Such in-licenses may be costly. Also, we generally do not control the patent prosecution, maintenance or enforcement of in-
licensed technologies. Accordingly, we are unable to exercise the same degree of control over this intellectual property as we do over
our internally developed technologies. Moreover, some of our academic institution licensors, collaborators and scientific advisors have
rights to publish data and information to which we have rights. If we cannot maintain the confidentiality of our technologies and other
confidential information in connection with our collaborations, our ability to protect our proprietary information or obtain patent
protection in the future may be impaired, which could have a significant adverse effect on our business, financial condition and results of
operations.
We may not have adequate protection for our unpatented proprietary information, which could adversely affect our competitive
position.
In addition to patents, we will substantially rely on trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain our competitive position. However, others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. To protect our trade
secrets, we may enter into confidentiality agreements with employees, consultants and potential collaborators. However, these
agreements may not provide meaningful protection of our trade secrets or adequate remedies in the event of unauthorized use or
disclosure of such information. Likewise, our trade secrets or know-how may become known through other means or be independently
discovered by our competitors. Any of these events could prevent us from developing or commercializing our product candidates.
We may be sued for product liability, which could adversely affect our business.
Because our business strategy involves the development and sale by either us or our collaborators of commercial products, we may be
sued for product liability. We may be held liable if any product we develop and commercialize, or any product our collaborators
commercialize that incorporates any of our technology, causes injury or is found otherwise unsuitable during product testing,
manufacturing, marketing, sale or consumer use. In addition, the safety studies we must perform and the regulatory approvals required to
commercialize our pharmaceutical products, will not protect us from any such liability.
We carry product liability insurance that includes coverage for human clinical trials. Currently, we carry a $5 million per event, $5
million annual aggregate coverage for both our products liability policy and our clinical trials protection. We also intend to seek product
liability insurance for any approved products that we may develop or acquire. However, in the event there are product liability claims
against us, our insurance may be insufficient to cover the expense of defending against such claims, or may be insufficient to pay or
settle such claims. Furthermore, we may be unable to obtain adequate product liability insurance coverage for commercial sales of any
of our approved products. If such insurance is insufficient to protect us, our results of operations will suffer. If any product liability
claim is made against us, our reputation and future sales will be damaged, even if we have adequate insurance coverage.
Many potential competitors, including those who have greater resources and experience than we do, may develop products or
technologies that make ours obsolete or noncompetitive.
We face significant competition with respect to our product candidates. With regard to our efforts to develop MultiStem as a novel stem
cell therapy, currently, there are a number of companies that are actively developing stem cell products, which encompass a range of
different cell types, including embryonic stem cells, adult-derived stem cells, and processed bone marrow derived cells. Our future
success will depend on our ability to maintain a competitive position with respect to technological advances. Technological
developments by others may result in our MultiStem product platform and technologies, as well as our pharmaceutical formulations,
becoming obsolete.
We are subject to significant competition from pharmaceutical, biotechnology and diagnostic companies, academic and research
institutions, and government or other publicly funded agencies that are pursuing or may pursue the development of therapeutic products
and technologies that are substantially similar to our proposed therapeutic products and technologies, or that otherwise address the
indications we are pursuing. Our most significant competitors include major pharmaceutical companies such as Pfizer, Roche,
Johnson & Johnson, Sanofi and GlaxoSmithKline, as well as smaller biotechnology or biopharmaceutical companies such as Celgene,
Mesoblast, Aastrom, Stem Cells Inc., Cytori, Pluristem, Arena Pharmaceuticals and Vivus. Most of our current and potential competitors
have substantially greater research and development capabilities and financial, scientific, regulatory, manufacturing, marketing, sales,
human resources, and experience than we do. Many of our competitors have several therapeutic products that have already been
developed, approved and successfully commercialized, or are in the process of obtaining regulatory approval for their therapeutic
products in the United States and internationally.
Many of these companies have substantially greater capital resources, research and development resources and experience,
manufacturing capabilities, regulatory expertise, sales and marketing resources, established relationships with consumer products
companies and production facilities.
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Universities and public and private research institutions are also potential competitors. While these organizations primarily have
educational objectives, they may develop proprietary technologies related to stem cells or secure patent protection that we may need for
the development of our technologies and products. We may attempt to license these proprietary technologies, but these licenses may not
be available to us on acceptable terms, if at all. Our competitors, either alone or with their collaborative partners, may succeed in
developing technologies or products that are more effective, safer, more affordable or more easily commercialized than ours, and our
competitors may obtain intellectual property protection or commercialize products sooner than we do. Developments by others may
render our product candidates or our technologies obsolete.
Our current product discovery and development collaborators are not prohibited from entering into research and development
collaboration agreements with third parties in any product field. Our failure to compete effectively would have a significant adverse effect
on our business, financial condition and results of operations.
The availability, manner, and amount of reimbursement for our product candidates from government and private payers are
uncertain, and our inability to obtain adequate reimbursement for any products could severely limit our product sales.
We expect that many of the patients who seek treatment with any of our products that are approved for marketing will be eligible for
Medicare benefits. Other patients may be covered by private health plans. If we are unable to obtain or retain adequate levels of
reimbursement from Medicare or from private health plans, our ability to sell our products will be severely limited. The application of
existing Medicare regulations and interpretive coverage and payment determinations to newly approved products is uncertain and those
regulations and interpretive determinations are subject to change. The Medicare Prescription Drug Improvement and Modernization Act,
enacted in December 2003, provides for a change in reimbursement methodology that reduces the Medicare reimbursement rates for
many drugs, which may adversely affect reimbursement for any products we may develop. Medicare regulations and interpretive
determinations also may determine who may be reimbursed for certain services, and may limit the pool of patients our product candidates
are being developed to serve.
Federal, state and foreign governments continue to propose legislation designed to contain or reduce health care costs. Legislation and
regulations affecting the pricing of products like our potential products may change further or be adopted before any of our potential
products are approved for marketing. Cost control initiatives by governments or third-party payers could decrease the price that we
receive for any one or all of our potential products or increase patient coinsurance to a level that make our products under development
become unaffordable. In addition, government and private health plans persistently challenge the price and cost-effectiveness of
therapeutic products. Accordingly, these third parties may ultimately not consider any or all of our products under development to be cost
effective, which could result in products not being covered under their health plans or covered only at a lower price. Any of these
initiatives or developments could prevent us from successfully marketing and selling any of our products that are approved for
commercialization.
Public perception of ethical and social issues surrounding the use of adult-derived stem cell technology may limit or discourage the
use of our technologies, which may reduce the demand for our therapeutic products and technologies and reduce our revenues.
Our success will depend in part upon our ability to develop therapeutic products incorporating or discovered through our adult-derived
stem cell technology. For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for
limits on, or regulation of the use of, adult-derived stem cell technologies. Although we do not use the more controversial stem cells
derived from embryos or fetuses, claims that adult-derived stem cell technologies are ineffective, unethical or pose a danger to the
environment may influence public attitudes. The subject of stem cell technologies in general has received negative publicity and aroused
public debate in the United States and some other countries. Ethical and other concerns about our adult-derived stem cell technology
could materially hurt the market acceptance of our therapeutic products and technologies, resulting in diminished sales and use of any
products we are able to develop using adult-derived stem cells.
Even if we or our collaborators receive regulatory approval for our products, those products may never be commercially successful.
Even if we develop pharmaceuticals or MultiStem related products that obtain the necessary regulatory approval, and we have access to
the necessary manufacturing, sales, marketing and distribution capabilities that we need, our success depends to a significant degree upon
the commercial success of those products. If these products fail to achieve or subsequently maintain market acceptance or commercial
viability, our business would be significantly harmed because our future royalty revenue or other revenue would be dependent upon sales
of these products. Many factors may affect the market acceptance and commercial success of any potential products that we may discover,
including:
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health concerns, whether actual or perceived, or unfavorable publicity regarding our obesity drugs, stem cell products or those
of our competitors;
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the timing of market entry as compared to competitive products;
the rate of adoption of products by our collaborators and other companies in the industry;
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any product labeling that may be required by the FDA or other United States or foreign regulatory agencies for our products
or competing or comparable products;
convenience and ease of administration;
pricing;
perceived efficacy and side effects;
marketing;
availability of alternative treatments;
levels of reimbursement and insurance coverage; and
activities by our competitors.
If we are unable to create and maintain sales, marketing and distribution capabilities or enter into agreements with third parties to
perform those functions, we will not be able to commercialize our product candidates.
We currently have no sales, marketing or distribution capabilities. Therefore, to commercialize our product candidates, if and when such
products have been approved and are ready for marketing, we expect to collaborate with third parties to perform these functions. We will
either need to share the value generated from the sale of any products and/or pay a fee to the contract sales organization. If we establish
any such relationships, we will be dependent upon the capabilities of our collaborators or contract service providers to effectively
market, sell, and distribute our product. If they are ineffective at selling and distributing our product, or if they choose to emphasize
other products over ours, we may not achieve the level of product sales revenues that we would like. If conflicts arise, we may not be
able to resolve them easily or effectively, and we may suffer financially as a result. If we cannot rely on the sales, marketing and
distribution capabilities of our collaborators or of contract service providers, we may be forced to establish our own capabilities. We
have no experience in developing, training or managing a sales force and will incur substantial additional expenses if we decide to
market any of our future products directly. Developing a marketing and sales force is also time consuming and could delay launch of our
future products. In addition, we will compete with many companies that currently have extensive and well-funded marketing and sales
operations. Our marketing and sales efforts may be unable to compete successfully against these companies.
We will use hazardous and biological materials in our business. Any claims relating to improper handling, storage or disposal of
these materials could be time consuming and costly.
Our products and processes will involve the controlled storage, use and disposal of certain hazardous and biological materials and waste
products. We and our suppliers and other collaborators are subject to federal, state and local regulations governing the use, manufacture,
storage, handling and disposal of materials and waste products. Even if we and these suppliers and collaborators comply with the
standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be
completely eliminated. In the event of an accident, we could be held liable for any damages that result, and any liability could exceed the
limits or fall outside the coverage of any insurance we may obtain and exceed our financial resources. We may not be able to maintain
insurance on acceptable terms, or at all. We may incur significant costs to comply with current or future environmental laws and
regulations.
Disputes concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be time
consuming and extremely costly and could delay our research and development efforts.
Our commercial success, if any, will be significantly harmed if we infringe the patent rights of third parties or if we breach any license
or other agreements that we have entered into with regard to our technology or business.
We are aware of other companies and academic institutions that have been performing research in the areas of adult derived stem cells.
In particular, other companies and academic institutions have announced that they have identified nonembryonic stem cells isolated from
bone marrow or other tissues that have the ability to form a range of cell types, or display the property of pluripotency. To the extent any
of these companies or academic institutions currently have, or obtain in the future, broad patent claims, such patents could block our
ability to use various aspects of our discovery and development process and might prevent us from developing or commercializing
newly discovered applications of our MultiStem technology, or otherwise conducting our business. In addition, it is possible that some
of the pharmaceutical product candidates we are developing may not be patentable or may be covered by intellectual property of third
parties.
We are not currently a party to any litigation with regard to our patent or trademark positions. However, the life sciences and other
technology industries are characterized by extensive litigation regarding patents and other intellectual property rights. Many life sciences
and other technology companies have employed intellectual property litigation as a way to gain a competitive advantage. To the extent
we are involved in litigation, interference proceedings, oppositions, reexamination, protest or other potentially adverse intellectual
property proceedings as a result of alleged infringement by us of the rights of others or as a result of priority of invention
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disputes with third parties, we might have to spend significant amounts of money, time and effort defending our position and we may
not be successful. In addition, any claims relating to the infringement of third-party proprietary rights or proprietary determinations,
even if not meritorious, could result in costly litigation, lengthy governmental proceedings, divert management’s attention and
resources, or require us to enter into royalty or license agreements that are not advantageous to us. If we do not have the financial
resources to support such litigation or appeals, we may forfeit or lose certain commercial rights. Even if we have the financial
resources to continue such litigation or appeals, we may lose. In the event that we lose, we may be forced to pay very substantial
damages; we may have to obtain costly license rights, which may not be available to us on acceptable terms, if at all; or we may be
prohibited from selling products that are found to infringe the patent rights of others.
Should any person have filed patent applications or obtained patents that claim inventions also claimed by us, we may have to
participate in an interference proceeding declared by the relevant patent regulatory agency to determine priority of invention and,
thus, the right to a patent for these inventions in the United States. Such a proceeding could result in substantial cost to us even if the
outcome is favorable. Even if successful on priority grounds, an interference action may result in loss of claims based on patentability
grounds raised in the interference action. Litigation, interference proceedings or other proceedings could divert management’s time
and efforts. Even unsuccessful claims could result in significant legal fees and other expenses, diversion of management’s time and
disruption in our business. Uncertainties resulting from initiation and continuation of any patent proceeding or related litigation could
harm our ability to compete and could have a significant adverse effect on our business, financial condition and results of operations.
An adverse ruling arising out of any intellectual property dispute, including an adverse decision as to the priority of our inventions,
could undercut or invalidate our intellectual property position. An adverse ruling could also subject us to significant liability for
damages, including possible treble damages, prevent us from using technologies or developing products, or require us to negotiate
licenses to disputed rights from third parties. Although patent and intellectual property disputes in the technology area are often
settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include
license fees and ongoing royalties. Furthermore, necessary licenses may not be available to us on satisfactory terms, if at all. Failure
to obtain a license in such a case could have a significant adverse effect on our business, financial condition and results of operations.
To the extent we enter markets outside of the United States, our business will be subject to political, economic, legal and social
risks in those markets, which could adversely affect our business.
There are significant regulatory and legal barriers in markets outside the United States that we must overcome to the extent we enter
or attempt to enter markets in countries other than the United States. We will be subject to the burden of complying with a wide
variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We also may experience
difficulties adapting to new cultures, business customs and legal systems. Any sales and operations outside the United States would
be subject to political, economic and social uncertainties including, among others:
•
•
•
•
•
•
•
changes and limits in import and export controls;
increases in custom duties and tariffs;
changes in currency exchange rates;
economic and political instability;
changes in government regulations and laws;
absence in some jurisdictions of effective laws to protect our intellectual property rights; and
currency transfer and other restrictions and regulations that may limit our ability to sell certain products or repatriate profits
to the United States.
Any changes related to these and other factors could adversely affect our business to the extent we enter markets outside the United
States.
Foreign governments often impose strict price controls on approved products, which may adversely affect our future profitability
in those countries, and the re-importation of drugs to the United States from foreign countries that impose price controls may
adversely affect our future profitability.
Frequently foreign governments impose strict price controls on newly approved therapeutic products. If we obtain regulatory approval
to sell products in foreign countries, we may be unable to obtain a price that provides an adequate financial return on our investment.
Furthermore, legislation in the United States may permit re-importation of drugs from foreign countries into the United States,
including re-importation from foreign countries where the drugs are sold at lower prices than in the United States due to foreign
government-mandated price controls. Such a practice, especially if it is conducted on a widespread basis, may significantly reduce our
potential United States revenues from any drugs that we are able to develop.
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If we elect not to sell our products in foreign countries that impose government mandated price controls because we decide it is
uneconomical to do so, a foreign government or patent office may attempt to terminate our intellectual property rights in that
country, enabling competitors to make and sell our products.
In some cases we may choose not to sell a product in a foreign country because it is uneconomical to do so under a system of
government-imposed price controls, or because it could severely limit our profitability in the United States or other markets. In such
cases, a foreign government or patent office may terminate any intellectual property rights we may obtain with respect to that product.
Such a termination could enable competitors to produce and sell our product in that market. Furthermore, such products may be
exported into the United States through legislation that authorizes the importation of drugs from outside the United States. In such an
event, we may have to reduce our prices, or we may be unable to compete with low-cost providers of our drugs, and we could be
financially harmed as a result.
We may encounter difficulties managing our growth, which could adversely affect our business.
At various times we have experienced periods of rapid growth in our employee numbers as a result of a dramatic increase in activity
in technology programs, genomics programs, collaborative research programs, discovery programs, and scope of operations. At other
times, we have had to reduce staff in order to bring our expenses in line with our financial resources. Our success will also depend on
the ability of our officers and key employees to continue to improve our operational capabilities and our management information and
financial control systems, and to expand, train and manage our work force.
If we acquire products, technologies or other businesses, we will incur a variety of costs, may have integration difficulties and may
experience numerous other risks that could adversely affect our business.
To remain competitive, we may decide to acquire additional businesses, products and technologies. We currently have no
commitments or agreements with respect to, and are not actively seeking, any material acquisitions. We have limited experience in
identifying acquisition targets, successfully acquiring them and integrating them into our current infrastructure. We may not be able to
successfully integrate any businesses, products, technologies or personnel that we might acquire in the future without a significant
expenditure of operating, financial and management resources, if at all. In addition, future acquisitions could require significant
capital infusions and could involve many risks, including, but not limited to the following:
•
•
•
•
•
•
•
•
we may have to issue convertible debt or equity securities to complete an acquisition, which would dilute our stockholders
and could adversely affect the market price of our common stock;
an acquisition may negatively impact our results of operations because it may require us to incur large one-time charges to
earnings, amortize or write down amounts related to goodwill and other intangible assets, or incur or assume substantial
debt or liabilities, or it may cause adverse tax consequences, substantial depreciation or deferred compensation charges;
we may encounter difficulties in assimilating and integrating the business, technologies, products, personnel or operations
of companies that we acquire;
certain acquisitions may disrupt our relationship with existing collaborators who are competitive to the acquired business;
acquisitions may require significant capital infusions and the acquired businesses, products or technologies may not
generate sufficient revenue to offset acquisition costs;
an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management;
acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience; and
key personnel of an acquired company may decide not to work for us.
Any of the foregoing risks could have a significant adverse effect on our business, financial condition and results of operations.
If we do not continue to meet the listing standards established by The NASDAQ Capital Market, the common stock may not
remain listed for trading.
The NASDAQ Capital Market has established certain quantitative criteria and qualitative standards that companies must meet in
order to remain listed for trading on these markets. We cannot guarantee that we will be able to maintain all necessary requirements
for listing; therefore, we cannot guarantee that our common stock will remain listed for trading on The NASDAQ Capital Market or
other similar markets.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our principal offices are located at 3201 Carnegie Avenue in Cleveland, Ohio. We currently lease approximately 45,000 square feet
of space for our corporate offices and laboratories, with state-of-the-art laboratory space. The lease began in 2000 and currently
expires in March 2016, and we have the option to renew annually through 2019. Our rent is $267,000 per year and our rental rate has
not changed since the lease inception in 2000. Also, we currently lease office and laboratory space for our Belgian subsidiary. The
lease currently expires in July 2015, and we have an option to renew annually through July 2022. The annual rent in Belgium is
€€ 144,000 and is subject to adjustments based on an inflationary index. Our total rent expense for all properties was $491,000 in 2013.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become subject to various legal proceedings that are incidental to the ordinary conduct of our business.
Currently, there are no such proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Capital Market under the symbol “ATHX.” Set forth below are the high and low sale
prices for our common stock on the NASDAQ Capital Market for the periods indicated.
Year ended December 31, 2013:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year ended December 31, 2012:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$2.52
$1.99
$2.42
$1.89
$1.47
$1.75
$1.71
$2.33
$1.52
$1.47
$1.54
$1.07
$0.95
$1.35
$1.25
$1.49
Holders
As of March 1, 2014, there were approximately 540 holders of record of our common stock. Additionally, shares of common stock
are held by financial institutions as nominees for beneficial owners that are deposited into participant accounts at DTC, which are
considered to be held of record by Cede & Co. and are included in the holders of record as one stockholder.
Dividend Policy
We would have to rely upon dividends and other payments from our wholly owned subsidiary, ABT Holding Company, to generate
the funds necessary to make dividend payments, if any, on our common stock. ABT Holding Company, however, is legally distinct
from us and has no obligation to pay amounts to us. The ability of ABT Holding Company to make dividend and other payments to us
is subject to, among other things, the availability of funds and applicable state laws. However, there are no restrictions such as
government regulations or material contractual arrangements that restrict the ability of ABT Holding Company to make dividend and
other payments to us. We did not pay cash dividends on our common stock during the past three years. We do not anticipate that we
will pay any dividends on our common stock in the foreseeable future. Rather, we anticipate that we will retain earnings, if any, for
use in the development of our business.
Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended December 31, 2013, we sold an aggregate of 300,000 shares of common stock to Aspire Capital under an
equity purchase agreement an average purchase price of $1.69 per share. Each issuance of these unregistered shares qualifies as an
exempt transaction pursuant to Section 4(2) of the Securities Act of 1933. Each issuance qualified for exemption under Section 4(2)
of the Securities Act of 1933 because none involved a public offering. Each offering was not a public offering due to the number of
persons involved, the manner of the issuance and the number of securities issued. In addition, in each case Aspire Capital had the
necessary investment intent.
Information concerning our share repurchases made during the fourth quarter of 2013:
Period
October
November
December
Total
Total Number of
Shares
Purchased (1)
—
—
65,732
65,732
Average Price
Paid Per Share
—
$
—
2.06
2.06
$
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
—
—
—
—
Maximum Number
of Shares that
May Yet Be
Purchased Under
the Plans
—
—
—
—
(1) All shares were surrendered or deemed surrendered to us in connection with our share-based compensation plans.
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SELECTED FINANCIAL DATA
ITEM 6.
(in thousands, except share and per share data)
Consolidated Statement of Operations
Data:
Revenues:
Contract revenue
Grant revenue
Total revenues
Costs and expenses:
Research and development
General and administrative
Depreciation
Loss from operations
Other (expense) income:
Other income (expense), net
(Expense) income from change in fair
value of warrants
Net loss
Basic and diluted net loss per share
Weighted average shares outstanding, basic
and diluted
Consolidated Balance Sheet Data:
Cash and cash equivalents
Available-for-sale securities, short-tem
Working capital
Available-for-sale securities, long-term
Total assets
Warrant liabilities and note payable
Total stockholders’ equity
2013
2012
Year Ended December 31,
2011
2010
2009
$
$
755
1,683
2,438
$
7,380
1,328
8,708
$
9,015
1,329
10,344
$
6,685
2,254
8,939
20,484
6,065
346
(24,457)
19,636
4,753
320
(16,001)
18,930
4,916
278
(13,780)
14,779
5,387
284
(11,511)
1,079
1,080
2,159
11,920
5,621
233
(15,615)
38
(1,138)
(778)
134
249
(6,324)
(30,743)
(0.53)
$
$
2,404
(14,735)
(0.45)
$
$
812
(13,746)
(0.59)
$
$
—
(11,377)
(0.60)
$
$
—
(15,366)
(0.81)
$
$
57,674,833
32,556,781
23,239,019
18,929,749
18,928,379
2013
2012
December 31,
2011
2010
2009
$
31,948
—
28,487
—
34,188
9,999
19,821
$
32
$
25,533
—
21,831
—
27,603
2,878
20,247
$
8,785
3,999
7,014
—
15,701
983
7,298
$
2,105
13,076
9,106
—
19,106
—
9,005
11,167
10,135
16,291
5,080
28,331
—
18,957
32
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis in conjunction with “Item 8. Financial Statements and Supplementary Data”
included below in this annual report on Form 10-K.
Overview
We are an international biotechnology company that is focused primarily in the field of regenerative medicine. Our MultiStem cell
therapy has been evaluated in two completed Phase 1 clinical trials and is currently being evaluated in two ongoing Phase 2 clinical
trials, as well as an investigator-led Phase 1 trial. Our current clinical development programs are focused on treating inflammatory and
immune disorders, neurological conditions, cardiovascular disease, and other conditions. We are also applying our pharmaceutical
discovery capabilities to identify and develop small molecule compounds with potential applications in indications such as obesity,
related metabolic conditions and certain neurological conditions.
Current Programs
By applying our proprietary MultiStem cell therapy product, we have established therapeutic product development programs treating
inflammatory and immune disorders, neurological conditions, cardiovascular disease, and other conditions. To date, we have advanced
five programs to the clinical development stage, including the following:
• Inflammatory Bowel Disease: MultiStem therapy is being evaluated in a Phase 2 clinical study involving
administration of MultiStem to patients suffering from UC, the most common form of IBD. This double blind, placebo
controlled trial being conducted with our partner, Pfizer, in UC patients that have an inadequate response or are refractory to
current treatment, completed enrolling patients in December 2013. We expect to report with Pfizer the initial results in the
spring of 2014.
• Ischemic Stroke: In our ongoing Phase 2 clinical study, we are evaluating the administration of MultiStem cell therapy
to patients that have suffered an ischemic stroke. In contrast to treatment with thrombolytics, which must be administered
within 3 to 4 hours after a stroke, we are treating patients one to two days after the stroke has occurred. In preclinical studies,
administration of a single dose of MultiStem cells, even several days after a stroke, resulted in significant and durable
improvements. This double blind, placebo-controlled trial is being conducted at leading stroke centers across the United
States and Europe. The study is expected to enroll approximately 136 patients. We are targeting to complete enrollment
around the end of summer 2014 and release the preliminary results as soon as they are available.
• Acute Myocardial Infarction: We have evaluated the administration of MultiStem to patients that have suffered an
acute myocardial infarction, or AMI, in a Phase 1 clinical study. In 2010, we announced preliminary results for this study,
demonstrating a favorable safety profile and encouraging signs of improvement in heart function among patients that
exhibited severely compromised heart function prior to treatment. This data was published in a leading peer reviewed
scientific journal in 2012. One-year follow-up data suggested that the benefit observed was sustained over time. We are
preparing for a Phase 2 clinical study of MultiStem administration to heart attack victims and are planning to initiate late
2014. In 2013, we were awarded a grant for up to $2.8 million to support funding this clinical program.
• Hematopoietic Stem Cell Transplant / GvHD: We completed a Phase 1 clinical study of the administration of
MultiStem cells to patients suffering from leukemia or certain other blood-borne cancers in which patients undergo radiation
therapy and then receive a hematopoietic stem cell, or HSC, transplant. Such patients are at significant risk for serious
complications, including GvHD, an imbalance of immune system function caused by transplanted immune cells that attack
various tissues and organs in the patient. In 2011 and in 2012, we released data from the study, which demonstrated the safety
of MultiStem cells in this indication and suggested that the MultiStem therapy may have a beneficial effect in reducing the
incidence and severity of GvHD, as well as providing other benefits. The MultiStem therapy has been designated an orphan
drug by both the FDA and EMA, which may provide market exclusivity and other substantial potential incentives and
benefits. We have had several interactions with the FDA and international agencies regarding study design and the potential
to accelerate the path to product approval. Based on current plans, we intend to be ready to start this study in 2014, but study
initiation will depend on the progress in our other clinical trials and the achievement of certain business development and
financial objectives.
We are also collaborating with a leading transplant group at the University of Regensburg in Germany that has initiated a small
institutional sponsored clinical trial exploring the administration of MultiStem cells in patients following a liver transplant. We are
providing the clinical product and some financial support to conduct the trial.
In addition to our current and anticipated clinical development activities, we are engaged in preclinical development and evaluation of
MultiStem therapy in other inflammatory and immune, neurological and cardiovascular disease areas, as well as certain other
indications. We conduct such work both through our own internal research efforts and through a broad network of collaborations we
have established with investigators at leading research institutions across the United States and in Europe.
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We are in discussions with third parties about collaborating in the development of MultiStem therapy for certain programs and may
enter into one or more business partnership(s) to advance these programs.
We have also collaborated with RTI on the development of products for certain orthopedic applications using our stem cell
technologies in the bone graft substitutes market. We will receive royalty revenue from product sales beginning in 2014, since RTI
recently commenced its commercialization activities, and we may receive other payments upon the successful achievement of certain
commercial milestones.
We are also engaged in the development of novel small molecule therapies to treat obesity and other conditions, such as
schizophrenia. We may elect to enter into a partnership to advance the development of our 5HT2c agonist program, either for the
treatment of obesity, schizophrenia, or both indications, as well as for certain programs involving MultiStem.
Financial
We have incurred losses since inception of operations in 1995 and had an accumulated deficit of $264 million at December 31, 2013.
Our losses have resulted principally from costs incurred in research and development, clinical and preclinical product development,
acquisition and licensing costs, and general and administrative costs associated with our operations. We have used the financing
proceeds from equity and debt offerings and other sources of capital to develop our technologies, to discover and develop therapeutic
product candidates, develop business collaborations and to acquire certain technologies and assets. During the years ended December
2013, 2012 and 2011, excluding issuances pursuant to our equity purchase arrangement with Aspire Capital described below, we
completed registered direct, public and private equity offerings generating net proceeds of approximately $18.4 million, $29.2 million
and $11.8 million, respectively. Also, in January 2014, we generated net proceeds of approximately $18.7 million in a registered
direct offering.
In November 2011, we entered into an equity purchase agreement with Aspire Capital, which provided that Aspire Capital was
committed to purchase up to an aggregate of $20.0 million of shares of our common stock over a two-year term, subject to our
election to sell any such shares. As part of the agreement, Aspire Capital made an initial investment of $1.0 million in us and received
266,667 additional shares as compensation for its commitment. As of September 30, 2013, we had sold all the remaining shares that
were available under the 8,000,000 shares of common stock registered for resale under the equity facility, which was due to expire
early in 2014.
In October 2013, we terminated the expiring 2011 equity purchase agreement with Aspire Capital and entered into a new 2013 equity
purchase agreement with Aspire Capital to purchase up to an aggregate of $25.0 million of shares of our common stock over a new
two-year period. The terms of the 2013 equity facility are similar to the previous arrangement, and we issued 333,333 shares of our
common stock Aspire Capital as a commitment fee in October 2013 and filed a registration statement for the resale of 10,000,000
shares of common stock in connection with the new equity facility.
During the quarter ended December 31, 2013, we sold 300,000 shares under the Aspire equity purchase agreements, and no shares
were sold in the quarter ended December 31, 2012. From its inception in November 2011 through December 31, 2013, we have
received proceeds of approximately $13.4 million, in aggregate, under the Aspire equity purchase arrangement since its inception in
November 2011.
During the year ended December 31, 2013, we received proceeds of approximately $402,000 from the exercise of warrants
aggregating in issuances of 397,826 shares of common stock. As of March 1, 2014, we received proceeds of approximately $938,000
from the exercise of warrants in 2014. No warrants were exercised in 2012 and 2011.
In August 2013, we were awarded a federal grant that is expected to provide up to $2.8 million in support of a Phase 2 clinical study
evaluating the administration of MultiStem to patients who have suffered an AMI. In 2012, we were awarded grant funding
aggregating $3.6 million to further advance our MultiStem programs and cell therapy platform, including further development of
MultiStem for the treatment of TBI and further development of our cell therapy formulations and manufacturing capabilities, from
federal, state and European organizations.
Results of Operations
Since our inception, our revenues have consisted of license fees, contract revenues and milestone payments from our collaborators,
and grant proceeds primarily from federal, state and foundation grants. We have derived no revenue from the commercial sale of
therapeutic products to date. Research and development expenses consist primarily of external clinical and preclinical study costs,
manufacturing and process development costs, salaries and related personnel costs, legal expenses resulting from intellectual property
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prosecution and maintenance processes, facility costs, and laboratory supply and reagent costs. We expense research and development
costs as they are incurred. We expect to continue to make significant investments in research and development to enhance our
technologies, advance clinical trials of our product candidates, expand our regulatory affairs and product development capabilities,
conduct preclinical studies of our product, and manufacture our product candidates. General and administrative expenses consist
primarily of salaries and related personnel costs, board fees, legal and professional fees, and other corporate expenses. We expect to
continue to incur substantial losses through at least the next several years.
The following table sets forth our revenues and expenses for the periods indicated. The following tables are stated in thousands.
Revenues
Contract revenue
Grant revenue
Research and development expenses
Type of expense
Personnel costs
Research supplies
Facilities
Clinical and preclinical development costs
Sponsored research
Patent legal fees
Other
Stock-based compensation
General and administrative expenses
Type of expense
Personnel costs
Facilities
Legal and professional fees
Other
Stock-based compensation
Year ended December 31,
2013
$ 755
1,683
$2,438
2012
$7,380
1,328
$8,708
2011
$ 9,015
1,329
$10,344
2013
$ 5,590
1,484
1,083
7,459
1,074
1,956
1,199
639
$20,484
Year ended December 31,
2012
$ 5,097
1,435
964
8,053
1,381
1,373
1,183
150
$19,636
2011
$ 4,641
1,316
944
7,495
1,408
1,703
1,218
205
$18,930
Year ended December 31,
2013
$2,339
262
1,050
1,530
884
$6,065
2012
$2,162
280
798
1,182
331
$4,753
2011
$1,927
270
1,008
1,364
347
$4,916
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Revenues. Revenues decreased to $2.4 million for the year ended December 31, 2013 from $8.7 million for 2012, reflecting a $4.0
million decrease in our Pfizer contract revenues and a $2.2 million decrease in our RTI contract revenues. Our 2012 contract revenues
included the amortization of Pfizer payments, including a $6.0 million up-front license fee, research and development funding, and
payments for manufacturing services over the estimated performance period that ended in June 2012. Absent any new collaborations,
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our ongoing contract revenues will be comprised of any clinical manufacturing and milestone payments from Pfizer, potential royalty and
commercial milestone payments from RTI, and potential license fees, milestone payments and royalties from Bristol-Myers Squibb. Grant
revenue increased $355,000 for the year ended December 31, 2013 compared to the year ended December 31, 2012, primarily due to expiring
grants being replaced with new, larger awards, as our grants are focused now on late-stage preclinical and early-stage clinical development
programs. Our grant revenues may fluctuate from period to period based on the timing of grant-related activities and the award and expiration
of grants.
Research and Development Expenses. Research and development expenses increased to $20.5 million for the year ended December 31, 2013
from $19.6 million for the year ended December 31, 2012. The increase of $0.9 million is primarily comprised of an increase in patent legal
fees of $583,000, an increase in personnel costs of $493,000, an increase in stock-based compensation expense of $489,000, an increase in
facility costs of $119,000, and an increase in research supplies of $49,000 for the year ended December 31, 2013 from the comparable period
in 2012. These increases were partially offset by a decrease in clinical and preclinical development costs of $594,000 and a decrease in
sponsored research costs of $307,000 in 2013 compared to 2012. The increase in patent legal fees resulted from increased patent expenses
associated with patent prosecution, national filings, and interference and related other filings during 2013. The increase in personnel costs
related to the addition over the past twelve months of personnel supporting our preclinical and clinical programs, an annual merit increase in
salaries, and increased performance bonus payments. The increase in stock-based compensation in 2013 compared to 2012 related primarily to
restricted stock units granted to our named executive officers in exchange for the termination of an old incentive agreement, which vest over a
three-year period, and the issuance of stock options to our executives as part of the implementation of an annual equity incentive program. Our
clinical and preclinical development costs primarily reflect costs associated with our MultiStem clinical trials and include contract research
organization costs, clinical manufacturing costs, manufacturing process development costs and clinical consulting costs. The decrease in our
clinical and preclinical costs in 2013 compared to 2012 relates primarily to fewer manufacturing campaigns and less contract research
organization costs for our ongoing clinical studies, net of increased manufacturing process development costs. Sponsored research costs
decreased due to fewer academic research institution costs being required under our grant-funded programs. We expect our 2014 annual
research and development expenses to be higher than the 2013 expenses based on our planned clinical development and manufacturing
process development activities, and such costs will vary over time based on clinical manufacturing campaigns and the timing and stage of
clinical trials underway. Other than external expenses for our clinical and preclinical programs, we do not track our research expenses by
project; rather, we track such expenses by the type of cost incurred.
General and Administrative Expenses. General and administrative expenses increased to $6.1 million in 2013 from $4.8 million in 2012. The
$1.3 million increase in 2013 compared to 2012 was due primarily to an increase of $553,000 in stock-based compensation, an increase in
other general and administrative costs of $348,000 related to outside services and recruiting costs, an increase in legal and professional fees of
$252,000 related primarily to SEC filings, and an increase in personnel costs of $177,000. The increase in stock-based compensation in 2013
compared to 2012 related primarily to restricted stock units granted to our named executive officers in exchange for the termination of an old
incentive arrangement, which vest over a three-year period, and the issuance of stock options to our executives as part of the implementation
of an annual equity incentive program. The increase in outside services related to an increase in investor relations costs and advisory fees, as
well as our being designated an accelerated filer in 2013, resulting in additional external costs associated with the required attestation of
internal controls. The increase in legal and professional fees related primarily to required additional SEC filings and related activities, and
corporate advisory services. The increase in personnel costs related to the addition of personnel over the past twelve months, an annual merit
increase in salaries, and increased performance bonus payments. We expect our general and administrative expenses to continue at similar
levels in 2014.
Depreciation. Depreciation expense increased to $346,000 in 2013 from $320,000 in 2012 due to depreciation on new capital purchases.
Other Income (Expense), net. In 2013, we had net other income of $38,000 compared to net other expense of $1.1 million in 2012. Included in
other income (expense), net, are interest income, foreign currency gains and losses, and any realized gains and losses on the sale of our assets.
Also, included in 2012 were the final cash and stock-based milestone payments to our former lenders in connection with our equity offerings
amounting to $1.3 million, net of a gain of $183,000 related to an equity-method investment that was liquidated in 2012.
(Expense) Income from Change in Fair Value of Warrants. Expense of $6.3 million and income of $2.4 million was recognized during the
years ended 2013 and 2012, respectively, for the change in the valuation of our warrant liabilities.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Revenues. Revenues decreased to $8.7 million for the year ended December 31, 2012 from $10.3 million for 2011. Contract revenue decreased
$1.6 million for the year ended December 31, 2012 compared to the year ended December 31, 2011 and reflects the impact of our
arrangements with Pfizer, RTI and Bristol-Myers Squibb. Our contract revenues reflect the amortization of Pfizer payments, including a $6.0
million up-front license fee, over the estimated performance period that ended in June 2012, as well as the amortization of a $3.0 million
guaranteed license fee from the RTI collaboration over the estimated performance period that ended in 2011 and the final $2.0 million license
payments from RTI that was recognized in the fourth quarter of 2012. Grant revenue remained consistent at $1.3 million for the year ended
December 31, 2012 and 2011 primarily due to expiring grants being replaced with new grants.
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Research and Development Expenses. Research and development expenses increased to $19.6 million for the year ended
December 31, 2012 from $18.9 million for the year ended December 31, 2011. The increase of $0.7 million related to an increase in
clinical and preclinical development costs of $558,000, an increase in personnel costs of $456,000 and an increase in research
supplies of $119,000 for the year ended December 31, 2012 from the comparable period in 2011. These increases were partially offset
by a decrease in patent legal fees of $330,000, a decrease in stock compensation expense of $55,000, and a decrease in sponsored
research costs of $27,000. Our clinical and preclinical development costs relate primarily to costs associated with our MultiStem
clinical trials, and reflect increases in contract research organization costs and clinical consulting costs in 2012, partially offset by less
clinical manufacturing costs during the year. Lastly, our clinical costs for the year ended December 31, 2011 were net of the now
terminated Angiotech collaboration’s cost-sharing amount of $312,000. The increase in personnel costs related to an increase in
salaries and bonus, and the addition of personnel supporting our preclinical and clinical programs. The increase in research supplies
related primarily to supplies for increased personnel. The decrease in patent legal costs resulted from reduced patent prosecution costs
during the year. Sponsored research costs decreased primarily due to a decrease in grant-funded programs that require collaboration
with academic research institutions. Other than external expenses for our clinical and preclinical programs, we do not track our
research expenses by project; rather, we track such expenses by the type of cost incurred.
General and Administrative Expenses. General and administrative expenses decreased to $4.8 million in 2012 from $4.9 million in
2011. The $163,000 decrease in 2012 compared to 2011 was due primarily to a decrease in legal and professional fees of $210,000
and a decrease in other general and administrative costs of $182,000 related to outside services, partially offset by an increase in
personnel costs of $235,000.
Depreciation. Depreciation expense increased to $320,000 in 2012 from $278,000 in 2011 due to depreciation on new capital
purchases.
Other Income (Expense), net. Other income (expense), net, includes cash and stock-based milestone payments that were completed in
2012 to our former lenders in connection with our equity offerings, amounting to $1.3 million in 2012 and $0.9 million in 2011,
foreign currency gains and losses, and a gain of $183,000 related to an equity-method investment that was liquidated in 2012.
(Expense) Income from Change in Fair Value of Warrants. We recognized income of $2.4 million and $0.8 million in 2012 and 2011,
respectively, from the change in the valuation of our warrant liabilities.
Liquidity and Capital Resources
Our sources of liquidity include our cash balances and any available-for-sale securities. At December 31, 2013, we had $31.9 million
in cash and cash equivalents. We have primarily financed our operations through business collaborations, grant funding and equity
financings. We conduct all of our operations through our subsidiary, ABT Holding Company. Consequently, our ability to fund our
operations depends on ABT Holding Company’s financial condition and its ability to make dividend payments or other cash
distributions to us. There are no restrictions such as government regulations or material contractual arrangements that restrict the
ability of ABT Holding Company to make dividend and other payments to us.
In January 2014, we completed a registered direct offering generating net proceeds of approximately $18.7 million through the
issuance of 5,000,000 shares of common stock and warrants to purchase 1,500,000 shares of common stock with an exercise price of
$4.50 per share that expire on July 15, 2016. The securities were sold in multiples of a fixed combination of one share of common
stock and a warrant to purchase 0.30 shares of common stock at an offering price of $4.10 per fixed combination.
In December 2013, we completed a registered direct offering generating net proceeds of approximately $18.4 million through the
issuance of 10,000,000 shares of common stock and warrants to purchase 3,500,000 shares of common stock with an exercise price of
$2.50 per share that expire on March 31, 2015. Of the 3,500,000 warrants, 1,401,218 are not exercisable until June 3, 2014. The
securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase 0.35 shares of
common stock at an offering price of $2.00 per fixed combination.
In October 2012, we completed a public offering generating net proceeds of approximately $18.3 million through the issuance of
19,802,000 shares of common stock at a price of $1.01 per share. In November 2012, the underwriters exercised in full their right to
purchase an additional 2,970,300 shares of common stock, solely to cover over-allotments. The exercise of the full over-allotment
option generated an additional $2.8 million of net proceeds.
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In March 2012, we completed a private placement financing generating net proceeds of approximately $8.1 million through the issuance
of 4,347,827 shares of common stock and five-year warrants to purchase 4,347,827 shares of common stock with an exercise price of
$2.07 per share. The securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase
one share of common stock at an offering price of $2.07 per fixed combination. The warrants have anti-dilution price protection, subject
to certain exceptions. As a result of the October 2012 public offering and in accordance with the terms of the warrants, we sought and
obtained stockholder approval in February 2013 to reduce the exercise price of these warrants to $1.01 per share. In connection with this
private placement, our former lenders were entitled to a milestone payment in the amount of $900,000, of which 75% was settled in
2012 through the issuance of our common stock at $1.94 per share at our election.
In February 2011, we completed a registered direct offering with net proceeds of $11.8 million through the issuance of 4,366,667 shares
of common stock and five-year warrants to purchase 1,310,000 shares of common stock with an exercise price of $3.55 per share. The
securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase 0.3 of a share of
common stock at an offering price of $3.00 per fixed combination.
We entered into an equity purchase agreement with Aspire Capital in 2011, which provided that Aspire Capital was committed to
purchase up to an aggregate of $20.0 million of shares of our common stock over a two-year term, subject to our election to sell any
such shares. Under the agreement, we had the right to sell shares, subject to certain volume limitations and a minimum floor price, at a
modest discount to the prevailing market price. As part of the agreement, Aspire Capital made an initial investment of $1.0 million in us
through the purchase of 666,667 shares of our common stock at $1.50 per share in 2011, and received 266,667 additional shares as
compensation for its commitment. As of September 30, 2013, we had sold all the remaining shares that were available under the
8,000,000 shares of common stock registered for resale under the equity facility. In aggregate since its inception in 2011, we received
gross proceeds of approximately $12.9 million under the agreement, which was due to expire in January 2014.
In October 2013, we terminated the expiring equity purchase agreement with Aspire Capital and entered into a new equity purchase
agreement with Aspire Capital to purchase up to an aggregate of $25.0 million of shares of our common stock over a new two-year
period. The terms of the 2013 equity facility are similar to the previous arrangement, and we issued 333,333 shares of our common stock
Aspire Capital as a commitment fee in October 2013 and filed a registration statement for the resale of 10,000,000 shares of common
stock in connection with the new equity facility.
During the quarter ended December 31, 2013, we sold 300,000 shares under the Aspire equity purchase agreement at an average price
per share of $1.69 per share, and no shares were sold in the quarter ended December 31, 2012. During the years ended December 31,
2013 and 2012, we sold 6,566,666 and 800,000 shares, respectively, to Aspire Capital at average prices of $1.70 and $1.57 per share,
respectively. As of December 31, 2013, we have received proceeds of approximately $13.4 million in aggregate under the Aspire equity
purchase agreements since 2011.
During the year ended December 31, 2013, we received proceeds of approximately $402,000 from the exercise of warrants aggregating
in the issuance of 397,826 shares of common stock. We did not receive any proceeds from the exercise of warrants in the year ended
December 31, 2012. As of March 1, 2014, we received proceeds of approximately $938,000 from the exercise of warrants in 2014.
In connection with our equity offerings, our former lenders were entitled to milestone payments until any remaining balance of an
original $2.25 million milestone was paid. We made cash and stock-based milestone payments of $1.3 million to our former lenders
during the year ended December 31, 2012, which settled the final balance of this contingent obligation, paying 75% of the milestone
through the issuance of our common stock at our election.
Under the terms of our agreement with Pfizer, we are eligible to receive milestone payments of up to $105 million upon the successful
achievement of certain development, regulatory and commercial milestones, though there can be no assurance that we will achieve any
milestones. No significant milestone payments have been received as of December 31, 2013. Pfizer pays us for manufacturing product
for clinical development and commercialization purposes. Pfizer has responsibility for development, regulatory and commercialization
and will pay us tiered royalties on any worldwide commercial sales of MultiStem IBD products. Alternatively, in lieu of royalties and
certain commercialization milestones, we may elect to co-develop with Pfizer and the parties will share development and
commercialization expenses and profits/losses on an agreed basis beginning at Phase 3 clinical development.
In 2011, we reached an agreement with Angiotech to terminate the collaboration agreement and license between the parties, reflecting a
change in Angiotech’s business and financial strategy. As a result of the termination, we regained ownership of all rights for developing
our stem cell technologies and products for cardiovascular disease indications, including AMI, congestive heart failure, chronic
ischemia, and peripheral vascular disease, and Angiotech no longer has any license rights or options with respect to our technologies and
products. As part of the termination agreement, if we enter into a new AMI collaboration before November 14, 2014, and at the time of
the collaboration, we have made certain progress in development, Angiotech could be eligible for 10% of any third-party license fees up
to a maximum of $5.0 million. Angiotech is not entitled to other downstream payments, such as milestone payments, royalties or any
profit-sharing payments.
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Under the terms of our RTI agreement, we received $5.0 million of license fee payments in 2010-2012. In accordance with the
agreement, we are also eligible to receive an additional $35.5 million in cash payments upon the successful achievement of certain
commercial milestones, though there can be no assurance that such milestones will be achieved, and no milestone payments have
been received as of December 31, 2013. In addition, we will receive tiered royalties on worldwide commercial sales of implants using
our technologies. RTI commenced its commercialization activities in 2014.
We remain entitled to receive license fees for targets that were delivered to Bristol-Myers Squibb under our completed 2001
collaboration, as well as milestone payments and royalties on compounds developed by Bristol-Myers Squibb using our technology,
though there can be no assurance that we will achieve any such milestones or royalties.
In 2012, we entered into an arrangement with the Global Cardiovascular Innovation Center and the Cleveland Clinic Foundation in
which we are entitled to proceeds of up to $500,000 in the form of a forgivable loan to fund certain remaining preclinical work using
MultiStem to treat congestive heart failure and for preparing the program for an investigational new drug application, or IND with the
FDA. Interest on the loan accrues at a fixed rate of 4.25% per annum, and is added to the outstanding principal. The loan will be
forgiven based on the achievement of a certain milestone, unrelated to the preclinical work, within three to four years. As of
December 31, 2013, we had drawn $166,000 of this financing with a total balance of $176,000.
In 2013, we were awarded a federal grant that is expected to provide up to $2.8 million in support of a Phase 2 clinical study
evaluating the administration of MultiStem to patients who have suffered an AMI. In 2012, we were awarded grant funding
aggregating $3.6 million to further advance our MultiStem programs and cell therapy platform, including further development of
MultiStem for the treatment of TBI and further development of our cell therapy formulations and manufacturing capabilities, from
federal, state and European organizations.
In 2011, we entered into an alliance with Fast Forward, a nonprofit subsidiary of the National Multiple Sclerosis Society, pursuant to
which Fast Forward is funding the development of MultiStem for the treatment of multiple sclerosis through the filing of an IND. Fast
Forward has committed $640,000 to fund the advancement of the program to clinical development stage. In return, upon successful
achievement of certain development and commercialization milestones, we would remit certain milestone payments to Fast Forward.
When we hold investments, our available-for-sale securities typically include United States government obligations and corporate
debt securities. We have been investing conservatively due to the ongoing economic conditions and have prioritized liquidity and the
preservation of principal in lieu of potentially higher returns. As a result, we have experienced no losses on the principal of our
investments and have held our investments until maturity. All available-for-sale securities had matured as of December 31, 2012.
Also, although the unfavorable market and economic conditions have resulted in a decrease to our market capitalization, there has
been no impairment to the value of our assets. Our fixed assets are used for internal research and development and, therefore, are not
impacted by these external factors.
We will require substantial additional funding in order to continue our research and product development programs, including
preclinical evaluation and clinical trials of our product candidates and manufacturing process development. At December 31, 2013,
we had available cash and cash equivalents of $31.9 million and after giving effect to our January 2014 registered direct offering, we
had more than $50 million of available cash and cash equivalents. As a result, we intend to meet our short-term liquidity needs with
available cash. Over the longer term, we will make use of available cash, but will have to continue to generate additional funding to
meet our needs, through business development opportunities, as well as grant-funding opportunities. Additionally, we are raising
capital from time to time through the equity purchase agreement with Aspire Capital, subject to its volume and price limitations. We
also manage our cash by deferring certain discretionary costs and stage certain development costs to extend our operational runway,
as needed. Over time, we may consider the sale of additional equity securities, or possibly borrowing from financing institutions.
Our capital requirements over time depend on a number of factors, including progress in our clinical development programs, our
clinical and preclinical pipeline of additional opportunities and their stage of development, additional external costs such as payments
to contract research organizations and contract manufacturing organizations, additional personnel costs, and the costs in filing and
prosecuting patent applications and enforcing patent claims. The availability of funds impacts our ability to advance multiple clinical
programs concurrently, and any shortfall in funding could result in our having to delay or curtail research and development efforts.
Further, these requirements may change at any time due to technological advances, business development activity or competition
from other companies. We cannot assure you that adequate funding will be available to us or, if available, that it will be available on
acceptable terms.
We expect to continue to incur substantial losses through at least the next several years and may incur losses in subsequent periods.
The amount and timing of our future losses are highly uncertain. Our ability to achieve and thereafter sustain profitability will be
dependent upon, among other things, successfully developing, commercializing and obtaining regulatory approval or clearances for
our technologies and products resulting from these technologies.
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Cash Flow Analysis
Net cash used in operating activities was $22.8 million, $17.7 million and $14.5 million in 2013, 2012 and 2011, respectively, and
represented the use of cash in funding preclinical and clinical development activities. We expect that net cash used in operating
activities will increase in 2014 compared to 2013 in connection with increased clinical development activities for our MultiStem
product candidates and platform. Net cash used in operating activities has fluctuated significantly on a quarter-to-quarter basis over
the past few years primarily due to the receipt of collaboration fees and payment of specific clinical trial costs, such as clinical
manufacturing campaigns, contract research organization costs, and manufacturing process development projects.
Net cash (used in) provided by investing activities was $(0.4) million, $3.9 million and $8.6 million in 2013, 2012 and 2011,
respectively. The fluctuations from period to period were due to the timing of purchases and maturity dates of investments and the
purchase of equipment. Purchases of equipment were $385,000, $347,000 and $590,000 in 2013, 2012 and 2011, respectively. We
expect that our capital equipment expenditures will continue at similar levels in 2014 compared to 2013.
Financing activities provided cash of $29.6 million in 2013 related to the December 2013 registered direct offering, the exercise of
common stock warrants, and usage of the Aspire Capital equity purchase facility. Financing activities provided cash of $30.5 million
in 2012 related to the March 2012 private placement, the October 2012 public offering, and usage of the Aspire Capital equity
purchase facility, and provided cash of $12.6 million in 2011 related to the February 2011 registered direct offering and the initial
Aspire Capital investment in 2011.
Investors in certain of our equity offerings have received warrants to purchase shares of our common stock, of which an aggregate of
8,909,027 warrants remain outstanding at December 31, 2013 with a weighted average exercise price of $2.04 per share. During
2013, we received $402,000 from the exercise of warrants by our investors.
Our contractual payment obligations as of December 31, 2013 are as follows:
Contractual Obligations
Operating leases for facilities and equipment
leases
Note payable (1)
Payment due by Period
Total
Less than 1 Year
1 – 3 Years
3 – 5 Years
More than 5 Years
$ 933,000
176,000
$1,109,000
$
$
483,000
—
483,000
$450,000
176,000
$626,000
$ —
—
—
$
—
—
—
(1) Consists of a loan pursuant to an arrangement with the Global Cardiovascular Innovation Center and the Cleveland Clinic,
which is forgivable upon the achievement of a certain milestone.
We lease office and laboratory space under operating leases. Our lease for our corporate offices and laboratories began in 2000 and
currently expires in March 2016, and we have the option to renew annually through 2019. Our rent is $267,000 per year and our rental
rate has not changed since the lease inception in 2000. Also, we lease office and laboratory space for our Belgian subsidiary that
currently expires in July 2015 and includes options to renew annually through July 2022, and the annual rent of $197,000 is subject to
adjustments based on an inflationary index. Our total rent expense for all properties was $491,000 in 2013.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Management Estimates
The SEC defines critical accounting policies as those that are, in management’s view, important to the portrayal of our financial
condition and results of operation and demanding of management’s judgment. Our discussion and analysis of financial condition and
results of operations are based on our consolidated financial statements, which have been prepared in accordance with United States
generally accepted accounting principles. The preparation of these financial statements requires us to make estimates on experience
and on various assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from those estimates.
A discussion of the material implications of uncertainties associated with the methods, assumptions and estimates underlying our
critical accounting polices is as follows:
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Revenue Recognition
Our license and collaboration agreements may contain multiple elements, including license and technology access fees, research and
development funding, manufacturing revenue, cost-sharing, milestones and royalties. The deliverables under such an arrangement are
evaluated under Accounting Standards Codification, or ASC, 605-25, Multiple-Element Arrangements. Effective January 1, 2011, we
adopted ASU 2009-13, Multiple-Deliverable Revenue Arrangements, or ASU 2009-13, which amended the guidance in ASC 605-25
on the accounting for arrangements involving the delivery of more than one element. Pursuant to the new standard, each required
deliverable is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has
“stand–alone value” to the customer. The arrangement’s consideration that is fixed or determinable is then allocated to each separate
unit of accounting based on the relative selling price of each deliverable. In general, the consideration allocated to each unit of
accounting is recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future
deliverables.
We adopted this new accounting standard on a prospective basis for agreements containing multiple elements entered into on or after
January 1, 2011, and for any agreements entered into prior to January 1, 2011, but materially modified on or after that date.
The primary impact of adopting the new standard is expected to be the earlier recognition of revenue for multiple element
arrangements. The adoption of ASU 2009-13 did not affect revenues that we have earned through December 31, 2013. The impact of
adopting this new accounting standard is dependent on the terms and conditions of any future arrangements that we may enter into
that include multiple elements and arrangements entered into prior to January 1, 2011 that are materially modified. Depending on the
terms of any such arrangements, the adoption of this accounting standard may have a material impact on our consolidated results of
operations or financial position as it may have the potential effect of less revenue deferral for new collaborations than we have
historically experienced. We recognized revenue of $7.9 million for the year ended December 31, 2011 and deferred revenue of $3.1
million as of December 31, 2011 pertaining to collaborations which were entered into prior to our adoption of ASU 2009-13 and
which were not modified on or after January 1, 2011. The performance period for our multiple element arrangements has concluded.
For agreements entered into prior to January 1, 2011 and not materially modified thereafter, we continue to apply our prior accounting
policy with respect to such arrangements. Under this policy, the deliverables under the arrangement are evaluated to assess whether
they have standalone value and objective and reliable evidence of fair value, and if so, are accounted for as a single unit. We then
recognize revenue for each unit based on the culmination of the earnings process under ASC 605-S25, issued as Staff Accounting
Bulletin, or SAB, Topic 13, and our estimated performance period for the single units of accounting based on the specific terms of
each collaborative agreement. We subsequently adjust the estimated performance periods, if appropriate, on a prospective basis based
upon available facts and circumstances. Future changes in estimates of the performance period may materially impact the timing of
future revenue recognized. Amounts received prior to satisfying the revenue recognition criteria for contract revenues are recorded as
deferred revenue in the accompanying balance sheets. Reimbursement amounts (other than those accounted for using collaboration
accounting) paid to us are recorded on a gross basis in the statements of operations as contract revenues.
We recognize revenue from at-risk, performance milestones that are substantive in the period that the milestone is achieved, as
defined in the respective contracts.
We entered into collaboration agreements with Pfizer and RTI that contain multiple elements and deliverables. For a description of
the collaboration agreement and the determination of contract revenues, see Note E to our audited consolidated financial statements
incorporated by reference into this prospectus.
Also included in contract revenue are license fees received from Bristol-Myers Squibb, which are specifically set forth in the license
and collaboration agreement as amounts due to us based on our completion of certain tasks (e.g., delivery and acceptance of a cell
line) and development milestones (e.g., clinical trial phases), and as such, are not based on estimates that are susceptible to change.
Such amounts are invoiced and recorded as revenue as tasks are completed and as milestones are achieved.
Similarly, grant revenue consists of funding under cost reimbursement programs primarily from federal and state sources for qualified
research and development activities performed by us, and as such, are not based on estimates that are susceptible to change. Such
amounts are invoiced (unless prepaid) and recorded as revenue as tasks are completed.
Collaborative Arrangements
Collaborative arrangements that involve cost or future profit sharing are reviewed to determine the nature of the arrangement and the
nature of the collaborative parties’ businesses. The arrangements are also reviewed to determine if one party has sole or primary
responsibility for an activity, or whether the parties have shared responsibility for the activity. If responsibility for an activity is
shared and there is no principal party, then the related costs of that activity are recognized by us on a net basis in the statement of
operations (e.g., total cost less reimbursement from collaborator). If we are deemed to be the principal party for an activity, then the
costs and
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revenues associated with that activity are recognized on a gross basis in the statement of operations. The accounting may be
susceptible to change if the nature of a collaborator’s business changes. Currently, our only collaboration accounted for on a net basis
is our cost-sharing collaboration with Angiotech, which was terminated in 2011.
Clinical Trial Costs
Clinical trial costs are accrued based on work performed by outside contractors that manage and perform the trials. We obtain initial
estimates of total costs based on enrollment of subjects, project management estimates and other activities. Actual costs are typically
charged to us and recognized as the tasks are completed by the contractor, and if we are invoiced based on progress payments as
opposed to actual costs, we develop estimates of work completed to date. Accrued clinical trial costs may be subject to revisions as
clinical trials progress, and any revisions are recorded in the period in which the facts that give rise to the revisions become known.
Stock-Based Compensation
We recognize stock-based compensation expense on the straight-line method and use a Black-Scholes option-pricing model to
estimate the grant-date fair value of share-based awards. The expected term of options granted represent the period of time that option
grants are expected to be outstanding. We use the “simplified” method to calculate the expected life of option grants given our limited
history and determine volatility by using our historical stock volatility. Estimates of fair value are not intended to predict actual future
events or the value ultimately realized by persons who receive equity awards.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those
estimates and if our expectations on forfeitures changes. If actual forfeitures vary from the estimate, we will recognize the difference
in compensation expense in the period the actual forfeitures occur or when options vest.
All of the aforementioned estimates and assumptions are evaluated on a quarterly basis and may change as facts and circumstances
warrant. Changes in these assumptions can materially affect the estimate of the fair value of our share-based payments and the related
amount recognized in our financial statements.
Fair Value of Warrant Liabilities
The estimated fair value of warrants accounted for as liabilities, representing a level 3 fair value measure, is determined on the
issuance date and subsequently marked to market at each financial reporting date. The fair value of the warrants is estimated using the
expected volatility based on our historical volatility for warrants issued after January 1, 2013, or for warrants issued prior to 2013,
using the historical volatilities of comparable companies from a representative peer group selected based on industry and market
capitalization, each of which using a Black-Scholes pricing model. The fair value of certain warrants is determined using probability
weighted-average assumptions that give consideration to contractual terms in the warrants, such as an exercise price repricing feature,
as defined.
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995 that involve risks and uncertainties. These forward-looking statements relate to, among other things, the expected
timetable for development of our product candidates, our growth strategy, and our future financial performance, including our
operations, economic performance, financial condition, prospects, and other future events. We have attempted to identify forward-
looking statements by using such words as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,”
“may,” “plans,” “potential,” “should,” “suggest,” “will,” or other similar expressions. These forward-looking statements are only
predictions and are largely based on our current expectations. These forward-looking statements appear in a number of places in this
annual report.
In addition, a number of known and unknown risks, uncertainties, and other factors could affect the accuracy of these statements.
Some of the more significant known risks that we face are the risks and uncertainties inherent in the process of discovering,
developing, and commercializing products that are safe and effective for use as human therapeutics, including the uncertainty
regarding market acceptance of our product candidates and our ability to generate revenues. The following risks and uncertainties
may cause our actual results, levels of activity, performance, or achievements to differ materially from any future results, levels of
activity, performance, or achievements expressed or implied by these forward-looking statements:
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our ability to raise capital to fund our operations;
the timing of the results of Pfizer’s Phase 2 clinical study involving MultiStem cell therapy to ulcerative colitis patients;
final results from our MultiStem clinical trials;
the possibility of delays in, adverse results of, and excessive costs of the development process;
our ability to successfully initiate and complete clinical trials of our product candidates;
uncertainty regarding market acceptance of our product candidates and our ability to generate revenues, including
MultiStem cell therapy for the prevention of GvHD and the treatment of IBD, AMI, stroke and other disease indications;
changes in external market factors;
changes in our industry’s overall performance;
changes in our business strategy;
our ability to protect and defend our intellectual property and related business operations, including the successful
prosecution of our patent applications and enforcement of our patent rights, and operate our business in an environment of
rapid technology and intellectual property development;
our possible inability to realize commercially valuable discoveries in our collaborations with pharmaceutical and other
biotechnology companies;
our ability to meet milestones under our collaboration agreements;
our collaborators’ ability to continue to fulfill their obligations under the terms of our collaboration agreement;
the success of our efforts to enter into new strategic partnerships and advance our programs, including, without limitation,
in Japan;
our possible inability to execute our strategy due to changes in our industry or the economy generally;
changes in productivity and reliability of suppliers;
the success of our competitors and the emergence of new competitors; and
the risks mentioned elsewhere in this annual report on Form 10-K under Item 1A, “Risk Factors.”
Although we currently believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee
our future results, levels of activity or performance. We undertake no obligation to publicly update forward-looking statements,
whether as a result of new information, future events or otherwise, except as otherwise required by law. You are advised, however, to
consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K furnished to the SEC. You
should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider any such list to
be a complete set of all potential risks or uncertainties.
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43
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to interest rate risk is related to our investment portfolio and our borrowings. Fixed rate investments and borrowings
may have their fair market value adversely impacted from changes in interest rates. Due in part to these factors, our future investment
income may fall short of expectations. Further, we may suffer losses in investment principal if we are forced to sell securities that
have declined in market value due to changes in interest rates. When appropriate based on interest rates, we invest our excess cash
primarily in debt instruments of the United States government and its agencies and corporate debt securities, and as of December 31,
2013, we had no investments. We have been investing conservatively due to the current economic conditions and have prioritized
liquidity and the preservation of principal in lieu of potentially higher returns. As a result, we have experienced no losses on the
principal of our investments.
We enter into loan arrangements with financial institutions when needed and when available to us. At December 31, 2013, we had no
borrowings outstanding other than a forgivable note payable associated with local grant funding bearing fixed, forgivable interest of
4.25% per annum.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
44
44
Athersys, Inc.
Consolidated Financial Statements
Years Ended December 31, 2013, 2012 and 2011
Contents
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2013 and 2012
46
48
Consolidated Statements of Operations and Comprehensive Loss for each of the years ended December 31, 2013, 2012 and 2011 49
Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for each of the years ended December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
50
51
52
45
45
The Board of Directors and Stockholders
Athersys, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Athersys, Inc. as of December 31, 2013 and 2012, and the related
consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in the
period ended December 31, 2013. Our audits also included the financial statement schedule listed in the Index at Item 15(a) (2). These
financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Athersys, Inc. at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Athersys, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our
report dated March 13, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 13, 2014
46
46
The Board of Directors and Stockholders
Athersys, Inc.
Report of Independent Registered Public Accounting Firm
We have audited Athersys, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992
framework) (the COSO criteria). Athersys Inc.’s management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Athersys, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of operations and
comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2013 of
Athersys, Inc. and our report dated March 13, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 13, 2014
47
47
Athersys, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other
Total current assets
Equipment, net
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued compensation and related benefits
Accrued clinical trial costs
Accrued expenses
Deferred revenue
Total current liabilities
Note payable
Warrant liabilities
Stockholders’ equity:
Preferred stock, at stated value; 10,000,000 shares authorized, and no shares issued and
outstanding at December 31, 2013 and December 31, 2012
Common stock, $0.001 par value; 150,000,000 and 100,000,000 shares authorized at
December 31, 2013 and December 31, 2012, respectively, 70,749,212 and 53,058,632 shares
issued at December 31, 2013 and December 31, 2012, respectively, and 70,683,480 and
53,058,632 shares outstanding at December 31, 2013 and December 31, 2012, respectively
Additional paid-in capital
Treasury stock, at cost; 65,732 shares at December 31, 2013
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
December 31,
2013
2012
$ 31,948
520
387
32,855
1,333
$ 34,188
$ 25,533
490
286
26,309
1,294
$ 27,603
$
2,243
1,067
88
884
86
4,368
176
9,823
$
1,767
827
950
934
—
4,478
169
2,709
—
—
71
284,323
(135)
(264,438)
19,821
$ 34,188
53
253,889
—
(233,695)
20,247
$ 27,603
48
48
Athersys, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In Thousands, Except Share and Per Share Amounts)
2013
Year Ended December 31,
2012
2011
$
$
755
1,683
2,438
7,380
1,328
8,708
$
9,015
1,329
10,344
20,484
19,636
18,930
6,065
346
26,895
(24,457)
38
(6,324)
(30,743)
$
$
(0.53)
57,674,833
4,753
320
24,709
(16,001)
(1,138)
2,404
(14,735)
$
$
(0.45)
32,556,781
4,916
278
24,124
(13,780)
(778)
812
(13,746)
$
$
(0.59)
23,239,019
—
—
—
(30,743)
$
(28)
—
(28)
(14,763)
$
28
(26)
2
(13,744)
$
Revenues
Contract revenue
Grant revenue
Total revenues
Costs and expenses
Research and development (including stock compensation expense of $639,
$150 and $205 in 2013, 2012 and 2011, respectively)
General and administrative (including stock compensation expense of $884,
$331 and $347 in 2013, 2012 and 2011, respectively)
Depreciation
Total costs and expenses
Loss from operations
Other income (expense), net
(Expense) income from change in fair value of warrants
Net loss
Basic and diluted net loss per common share
Weighted average shares outstanding, basic and diluted
Items included in other comprehensive income (loss):
Proportional share of comprehensive (loss) income of equity method
investment
Unrealized loss on available-for-sale securities
Other comprehensive (loss) income items
Comprehensive loss
See accompanying notes.
49
49
Athersys, Inc.
Consolidated Statements of Stockholders’ Equity
(In Thousands, Except Share Amounts)
Preferred Stock Common Stock Additional
Number
of Shares
Stated
Value
Number
of Shares
Par
Value
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
Stockholders’
Equity
— $ — 18,930,678 $
— —
— —
19 $ 214,174 $ — $
552
— 5,556,582
—
— —
— —
—
— —
— 24,487,260
24
5
— —
— —
— —
11,480
—
—
226,206
481
—
— — 28,561,553
29
27,202
— —
—
—
9,819 —
— —
— —
— — 53,058,632
—
—
— —
53
— —
—
—
—
253,889
1,523
—
—
— —
397,826 —
797
— — 16,899,999
17
28,113
137
26 $
—
(205,214) $
—
9,005
552
—
—
2
28
—
—
—
—
(28)
—
—
—
—
—
(13,746)
11,485
(13,746)
—
(218,960)
—
2
7,298
481
—
27,231
—
(14,735)
—
(14,735)
—
(233,695)
—
(28)
20,247
1,523
—
797
—
28,267
— —
—
—
— $ — 70,683,480 $
327,023
1
— —
1
—
(272)
—
(135) $
—
—
— $
—
(30,743)
(264,438) $
(270)
(30,743)
19,821
71 $ 284,323 $
Balance at January 1, 2011
Stock based compensation
Issuance of common stock and
warrants, net of issuance costs
Net loss
Other comprehensive income
(loss) items
Balance at December 31, 2011
Stock based compensation
Issuance of common stock and
warrants, net of issuance costs
Issuance of common stock under
equity compensation plans
Net loss
Other comprehensive income
(loss) items
Balance at December 31, 2012
Stock based compensation
Issuance of common stock from
warrant exercises
warrants, net of issuance costs
Issuance of common stock under
equity compensation plans
Issuance of common stock and
Net loss
Balance at December 31, 2013
See accompanying notes.
50
50
Year Ended December 31,
2012
2013
2011
$(30,743) $(14,735) $(13,746)
346
—
1,523
—
6,324
7
320
(183)
481
1,005
(2,404)
14
(30)
(101)
(196)
86
(22,784)
199
580
198
(3,140)
(17,665)
—
—
(385)
(385)
—
4,237
(347)
3,890
278
(55)
552
683
(812)
58
1,745
(511)
983
(3,664)
(14,489)
(12,508)
21,672
(590)
8,574
—
(272)
402
29,454
29,584
6,415
25,533
—
—
—
12,595
12,595
6,680
2,105
$ 31,948 $ 25,533 $ 8,785
166
—
—
30,357
30,523
16,748
8,785
Athersys, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Realized gain on investments and available-for-sale securities
Stock-based compensation
Issuance of common stock to former lenders
Change in fair value of warrant liabilities
Amortization of premium on available-for-sale securities and other
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Accounts payable and accrued expenses
Deferred revenue
Net cash used in operating activities
Investing activities
Purchase of available-for-sale securities
Proceeds from maturities of available-for-sale securities
Purchases of equipment
Net cash (used in) provided by investing activities
Financing activities
Proceeds from note payable
Purchase of treasury stock
Proceeds from exercise of warrants
Proceeds from issuance of common stock and warrants, net
Net cash provided by financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying notes.
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Athersys, Inc.
Notes to Consolidated Financial Statements
A. Background
We are an international biopharmaceutical company that is focused primarily in the field of regenerative medicine and operate in one
business segment. Our operations consist primarily of research and product development activities.
B. Accounting Policies
Principles of Consolidation
The consolidated financial statements include our accounts and results of operations and those of our wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation. Investments in joint ventures are accounted for using
the equity method when we do not control the investee, but have the ability to exercise significant influence over the investee’s
operations and financial policies. We liquidated our investment in our joint venture in January 2012 and recognized a gain of
$183,000.
Revenue Recognition
Our license and collaboration agreements may contain multiple elements, including license and technology access fees, research and
development funding, manufacturing revenue, cost-sharing, milestones and royalties. The deliverables under such an arrangement are
evaluated under Accounting Standards Codification (“ASC”) 605-25, Multiple-Element Arrangements. Effective January 1, 2011, we
adopted ASU 2009-13, Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”), which amended the guidance in ASC 605-25
on the accounting for arrangements involving the delivery of more than one element. Pursuant to the new standard, each required
deliverable is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has “stand-
alone value” to the customer. The arrangement’s consideration that is fixed or determinable is then allocated to each separate unit of
accounting based on the relative selling price of each deliverable. In general, the consideration allocated to each unit of accounting is
recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables.
We adopted this new accounting standard on a prospective basis for agreements containing multiple elements entered into on or after
January 1, 2011, and for any agreements entered into prior to January 1, 2011, but materially modified on or after that date.
The primary impact of adopting the new standard is expected to be the earlier recognition of revenue for multiple element
arrangements. The adoption of ASU 2009-13 did not affect revenues that we have earned through December 31, 2013. The impact of
adopting this new accounting standard is dependent on the terms and conditions of any future arrangements that we may enter into
that include multiple elements and arrangements entered into prior to January 1, 2011 that are materially modified. Depending on the
terms of any such arrangements, the adoption of this accounting standard may have a material impact on our consolidated results of
operations or financial position as it may have the potential effect of less revenue deferral for new collaborations than we have
historically experienced.
For agreements entered into prior to January 1, 2011 and not materially modified thereafter, we continue to apply our prior accounting
policy with respect to such arrangements. Under this policy, the deliverables under the arrangement are evaluated to assess whether
they have standalone value and objective and reliable evidence of fair value, and if so, are accounted for as a single unit. We then
recognize revenue for each unit based on the culmination of the earnings process under ASC 605-S25, issued as Staff Accounting
Bulletin (“SAB”) Topic 13, and our estimated performance period for the single units of accounting based on the specific terms of
each collaborative agreement. We subsequently adjust the estimated performance periods, if appropriate, on a prospective basis based
upon available facts and circumstances. Future changes in estimates of the performance period may materially impact the timing of
future revenue recognized. Amounts received prior to satisfying the revenue recognition criteria for contract revenues are recorded as
deferred revenue in the accompanying balance sheets. Reimbursement amounts (other than those accounted for using collaboration
accounting) paid to us are recorded on a gross basis in the statements of operations as contract revenues.
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Athersys, Inc.
Notes to Consolidated Financial Statements (continued)
We recognize revenue from at-risk, performance milestones that are substantive in the period that the milestone is achieved, as defined
in the respective contracts.
Also included in contract revenue are license fees received from Bristol-Myers Squibb, which are specifically set forth in the license and
collaboration agreement as amounts due to us based on our completion of certain tasks (e.g., delivery and acceptance of a cell line) and
development milestones (e.g., clinical trial phases), and as such, are not based on estimates that are susceptible to change. Such amounts
are invoiced and recorded as revenue as tasks are completed and as milestones are achieved.
Similarly, grant revenue consists of funding under cost reimbursement programs primarily from federal and state sources for qualified
research and development activities performed by us, and as such, are not based on estimates that are susceptible to change. Such
amounts are invoiced (unless prepaid) and recorded as revenue as tasks are completed.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash
equivalents are primarily invested in money market funds and commercial paper. The carrying amount of our cash equivalents
approximates fair value due to the short maturity of the investments.
Research and Development
Research and development expenditures, which consist primarily of costs associated with external clinical and preclinical study fees,
manufacturing costs, salaries and related personnel costs, legal expenses resulting from intellectual property application processes, and
laboratory supply and reagent costs, including direct and allocated overhead expenses, are charged to expense as incurred.
Collaborative Arrangements
Collaborative arrangements that involve cost or future profit sharing are reviewed to determine the nature of the arrangement and the
nature of the collaborative parties’ businesses. The arrangements are also reviewed to determine if one party has sole or primary
responsibility for an activity, or whether the parties have shared responsibility for the activity. If responsibility for an activity is shared
and there is no principal party, then the related costs of that activity are recognized by us on a net basis in the statement of operations
(e.g., total cost less reimbursement from collaborator). If we are deemed to be the principal party for an activity, then the costs and
revenues associated with that activity are recognized on a gross basis in the statement of operations. The accounting may be susceptible
to change if the nature of a collaborator’s business changes. Our only collaboration accounted for on a net basis was our cost-sharing
collaboration with Angiotech Pharmaceuticals, Inc. (“Angiotech”), which was terminated in 2011.
Clinical Trial Costs
Clinical trial costs are accrued based on work performed by outside contractors that manage and perform the trials. We obtain initial
estimates of total costs based on enrollment of subjects, project management estimates and other activities. Actual costs are typically
charged to us and recognized as the tasks are completed by the contractor, and if we are invoiced based on progress payments as
opposed to actual costs, we develop estimates of work completed to date. Accrued clinical trial costs may be subject to revisions as
clinical trials progress, and any revisions are recorded in the period in which the facts that give rise to the revisions become known.
Royalties
We may be required to make future royalty payments to certain parties based on product sales under license agreements. We did not pay
any royalties during the three-year period ended December 31, 2013.
Investments in Available-for-Sale Securities
We determine the appropriate classification of investment securities at the time of purchase and re-evaluate such designation as of each
balance sheet date. Our investments typically consist of United States government obligations and corporate debt securities, which are
classified as available-for-sale and are valued based on quoted prices in active markets for identical assets (Level 1). Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net of applicable tax, reported as a component of accumulated
other comprehensive income. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization or accretion is included in interest income. Realized gains and losses on available-for-sale securities are
included in interest income. The cost of securities sold is based on the specific identification method. Interest earned on securities
classified as available-for-sale is included in interest income. None of our financial assets are in markets that are not active.
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Athersys, Inc.
Notes to Consolidated Financial Statements (continued)
Long-Lived Assets
Equipment is stated at acquired cost less accumulated depreciation. Laboratory and office equipment are depreciated on the straight-
line basis over the estimated useful lives (three to ten years). Leasehold improvements are amortized over the shorter of the lease term
or estimated useful life.
Long-lived assets are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the
asset or related group of assets may not be recoverable. If the expected future undiscounted cash flows are less than the carrying
amount of the asset, an impairment loss is recognized at that time. Measurement of impairment may be based upon appraisal, market
value of similar assets or discounted cash flows.
Patent Costs and Rights
Costs of prosecuting and maintaining patents and patent rights are expensed as incurred. As of December 31, 2013, we have filed for
broad intellectual property protection on our proprietary technologies. We currently have numerous United States patent applications
and corresponding international patent applications related to our technologies, as well as many issued United States and international
patents.
Warrant Liabilities
We account for common stock warrants as either liabilities or as equity instruments depending on the specific terms of the warrant
agreement. Registered common stock warrants that could require cash settlement or liquidated damages are accounted for as
liabilities. We classify these warrant liabilities on the consolidated balance sheet as non-current liabilities. The warrant liabilities are
revalued at fair value at each balance sheet date subsequent to the initial issuance. We use the Black-Scholes valuation model to value
the warrant liabilities at fair value. The fair value is estimated using the expected volatility based on our historical volatility for
warrants issued after January 1, 2013, or for warrants issued prior to 2013, using the historical volatilities of comparable companies
from a representative peer group selected based on industry and market capitalization. The fair value of the warrants is determined
using probability weighted-average assumptions, when appropriate. Changes in the fair market value of the warrant are reflected in
the consolidated statement of operations as other income (expense).
Treasury Stock
Treasury stock is recorded at cost and any difference between the cost basis and the selling price of treasury stock is recognized as
additional paid-in capital. Treasury stock is relieved on a first-in-first-out basis at actual cost. At December 31, 2013, we had 65,732
shares of common stock held in treasury and available for reissuance.
Comprehensive Income (Loss)
Unrealized gains and losses on our available-for-sale securities, if any, and the proportional share of comprehensive income and loss
of our equity method investment, which was liquidated in 2012, are the only components of accumulated other comprehensive
income.
Concentration of Credit Risk
Our accounts receivable are generally comprised of amounts due from collaborators and granting authorities and are subject to
concentration of credit risk due to the absence of a large number of customers. At December 31, 2013, the majority of our accounts
receivable are due from granting authorities. We do not require collateral from these customers.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
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Athersys, Inc.
Notes to Consolidated Financial Statements (continued)
Stock-Based Compensation
We recognize stock-based compensation expense on the straight-line method and use a Black-Scholes option-pricing model to
estimate the fair value of option awards. The expected term of options granted represent the period of time that option grants are
expected to be outstanding. We use the “simplified” method to calculate the expected life of option grants given our limited history of
exercise activity and determine volatility by using our historical stock volatility. The fair value of our restricted stock units are equal
to the closing price of our common stock on the date of grant and is expensed over the vesting period on a straight-line basis.
Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons that receive equity
awards.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those
estimates. If actual forfeitures vary from the estimate, we recognize the difference in compensation expense in the period the actual
forfeitures occur or when options vest.
All of the aforementioned estimates and assumptions are evaluated on a quarterly basis and may change as facts and circumstances
warrant. Changes in these assumptions can materially affect the estimate of the fair value of our share-based payments and the related
amount recognized in our financial statements.
The following weighted-average input assumptions were used in determining the fair value of the Company’s stock options:
Volatility
Risk-free interest rate
Expected life of option
Expected dividend yield
2013
109.2%
1.5%
6.14 years
0.0%
December 31,
2012
117.3%
0.8%
5.72 years
0.0%
2011
125.7%
1.5%
5.96 years
0.0%
Income Taxes
Deferred tax liabilities and assets are determined based on the differences between the financial reporting and tax basis of assets and
liabilities and are measured using the tax rate and laws currently in effect. We evaluate our deferred income taxes to determine if a
valuation allowance should be established against the deferred tax assets or if the valuation allowance should be reduced based on
consideration of all available evidence, both positive and negative, using a “more likely than not” standard.
We had no liability for uncertain income tax positions as of December 31, 2013 and 2012. Our policy is to recognize potential
accrued interest and penalties related to the liability for uncertain tax benefits, if applicable, in income tax expense. Net operating loss
and credit carryforwards since inception remain open to examination by taxing authorities, and will for a period post utilization.
Net Loss per Share
Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding
during the period. We have outstanding options and warrants that are not used in the calculation of diluted net loss per share because
to do so would be anti-dilutive. The following instruments were excluded from the calculation of diluted net loss per share because
their effects would be anti-dilutive:
Outstanding options
Restricted stock units
Outstanding warrants
2013
Year ended December 31,
2012
5,129,579
2,449,346
8,909,027
16,487,952
4,058,184
70,814
5,806,853
9,935,851
2011
4,499,601
39,300
6,435,496
10,974,397
Reclassifications
Certain prior year amounts have been reclassified to conform with current year presentations.
55
55
Athersys, Inc.
Notes to Consolidated Financial Statements (continued)
C. Equipment
Equipment consists of (in thousands):
Laboratory equipment
Office equipment and leasehold improvements
Accumulated depreciation
December 31,
2013
$ 6,703
2,814
9,517
(8,184)
$ 1,333
2012
$ 6,741
3,842
10,583
(9,289)
$ 1,294
In 2013, we disposed of approximately $1.5 million of obsolete laboratory equipment, office equipment and leasehold improvements, all of
which was fully depreciated.
D. Financial Instruments
Fair Value Measurements
We classify the inputs used to measure fair value into the following hierarchy:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar
assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3
Unobservable inputs for the asset or liability.
The following table provides a summary of the financial assets and liabilities measured at fair value on a recurring basis as follows: (in
thousands):
Description
Warrant liabilities
Description
Warrant liabilities
Fair Value Measurements at December 31, 2013 Using
Balance as of
December 31,
2013
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
$
9,823
$
—
$
—
Significant
Unobservable
Inputs (Level 3)
9,823
$
Fair Value Measurements at December 31, 2012 Using
Balance as of
December 31,
2012
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
$
2,709
$
—
$
—
Significant
Unobservable
Inputs (Level 3)
2,709
$
We review and reassess the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the
observability of inputs in a fair value measurement may result in a reclassification between fair value hierarchy levels. There were no
reclassifications for all periods presented.
The estimated fair value of warrants accounted for as liabilities, representing a level 3 fair value measure, was determined on the issuance
date and subsequently marked to market at each financial reporting date. The fair value is estimated using the expected volatility based on
our historical volatility for warrants issued after January 1, 2013, or for warrants issued prior to 2013, using the historical volatilities of
comparable companies from a representative peer group selected based on industry and market capitalization. The fair value of the warrants
is determined using probability weighted-average assumptions, when appropriate. The warrants issued in our December 2013 offering were
issued in two series, since 1,401,218 of the total 3,500,000 warrants issued are not exercisable until June 3, 2014. The following inputs
were used at December 31, 2013:
Expected volatility
Risk-free interest rate
Expected life
Fair value at December 31, 2013
(in thousands)
“A”
Warrants Issued
December 2013
“B”
Warrants Issued
December 2013
Warrants Issued
March 2012
Warrants Issued
February 2011
53.3%
0.13%
1.25 years
51.7%
0.13%
0.82 years
71.4%
0.78%
3.20 years
73.3%
0.38%
2.09 years
$
1,232
$
650
$
6,944
$
997
56
56
A roll-forward of fair value measurements using significant unobservable inputs (Level 3) for the warrants is as follows (in thousands):
Athersys, Inc.
Notes to Consolidated Financial Statements (continued)
Balance January 1, 2013
Issuance of warrants December 2013
Settlements
Loss included in other income (expense), net, for the period
Balance December 31, 2013
Year ended
December 31, 2013
2,709
$
1,186
(396 )
6,324
9,823
$
Financing Arrangements
We lease office and laboratory space under operating leases. The lease for our corporate offices and laboratories began in 2000 and currently
expires in March 2016, and we have the option to renew annually through 2019. Our rent is $267,000 per year and our rental rate has not changed
since the lease inception in 2000. Also, we lease office and laboratory space for our Belgian subsidiary, which currently expires in July 2015 and
includes options to renew annually through July 2022, with annual rent of $197,000, subject to adjustments based on an inflationary index
Aggregate rent expense was approximately $491,000, $415,000 and $397,000 in 2013, 2012 and 2011, respectively. The future annual minimum
lease commitments at December 31, 2013 are approximately $483,000 for 2014, $383,000 for 2015, $67,000 for 2016, and $0 for 2017.
In April 2012, we entered into an arrangement with the Global Cardiovascular Innovation Center and the Cleveland Clinic Foundation pursuant to
which we are entitled to proceeds of up to $500,000 in the form of a forgivable loan to fund certain remaining preclinical work using MultiStem to
treat congestive heart failure and for preparing the program for an investigational new drug application with the United States Food and Drug
Administration. Interest on the loan accrues at a fixed rate of 4.25% per annum, and is added to the outstanding principal. The principal and interest
on the loan will be forgiven based on the achievement of a certain milestone, unrelated to the preclinical work, within three to four years. As of
December 31, 2013 and 2012, we have drawn $166,000 of this financing, which is reflected on the balance sheet as a non-current note payable,
including interest.
Our former lenders retained a right to receive remaining milestone payments up to $1.3 million as of December 31, 2011 (from an original amount
of $2.25 million) upon the occurrence of certain events, and the final balance was settled in full in 2012 in connection with equity offerings during
the year. We elected to pay 75% of the milestone payments in shares of common stock at the per-share offering prices in 2012 and $1.3 million in
cash and stock-based milestone payments were recognized as other expense in 2012. In 2011, milestone expense was $0.9 million.
We paid no interest during the three years ended December 31, 2013.
E. Collaborations and Revenue Recognition
Pfizer
In 2009, we entered into a collaboration with Pfizer Inc. (“Pfizer”) to develop and commercialize our MultiStem product candidate to treat
inflammatory bowel disease (“IBD”) for the worldwide market. Under the terms of the agreement, we received a non-refundable up-front payment
from Pfizer and research funding and support through June 2012. In addition, we are eligible to receive milestone payments upon the successful
achievement of certain development, regulatory and commercial milestones, for which we evaluated the nature of the events triggering these
contingent payments and concluded that these events constituted substantive milestones that will be recognized as revenue in the period in which
the underlying triggering event occurs. In concluding that each milestone is substantive, we considered factors such as whether the associated
consideration fairly represents either the level of effort required to reach the milestone or the value added to the product based on the achievement
of such milestone. No significant milestone revenue has been recognized to date.
®
Pfizer pays us for manufacturing product for clinical development and commercialization purposes. Pfizer has responsibility for development,
regulatory and commercialization and will pay us tiered royalties on worldwide commercial sales of MultiStem IBD products. Alternatively, in lieu
of royalties and certain commercialization milestones, we may elect to co-develop with Pfizer and the parties will share development and
commercialization expenses and profits/losses on an agreed basis beginning at Phase 3 clinical development.
We evaluated the facts and circumstances of the agreement and determined the Pfizer agreement had multiple deliverables that should be combined
into a single unit of accounting. We recognized the license and technology access fee and research and development funding ratably on a straight-
line basis over the estimated performance period, which was completed mid-2012, and measured manufacturing revenue beginning upon the
culmination of the earnings process and recognized it over the performance period of the bundled unit of accounting.
57
57
Athersys, Inc.
Notes to Consolidated Financial Statements (continued)
Angiotech
In 2011, we reached an agreement with Angiotech to terminate the collaboration agreement and license between the parties, reflecting
a change in Angiotech’s business and financial strategy. As a result of the termination, we regained ownership of all rights for
developing our stem cell technologies and products for cardiovascular disease indications, including AMI, congestive heart failure,
chronic ischemia, and peripheral vascular disease, and Angiotech no longer has any license rights or options with respect to our
technologies and products. As part of the termination agreement, if we enter into a new AMI collaboration before November 14,
2014, and at the time of the collaboration, we have made certain progress in development, Angiotech could be eligible for 10% of any
third-party license fees up to a maximum of $5.0 million. Angiotech is not entitled to other downstream payments, such as milestone
payments, royalties or any profit-sharing payments. Prior to the termination of the collaboration, our clinical costs were recorded net
of Angiotech’s cost-share reimbursements, which amounted to $312,000 in 2011.
RTI Surgical, Inc.
In 2010, we entered into an agreement with RTI Surgical, Inc. (“RTI”), formerly RTI Biologics, Inc., to develop and commercialize
biologic implants using our technology for certain orthopedic applications in the bone graft substitutes market. Under the terms of the
agreement, we received a $5.0 million license fee in installments, of which $3.0 million was guaranteed and received in 2010 and
2011, and $2.0 million was contingent upon future events and considered a substantive milestone at the inception of the agreement.
We evaluated the facts and circumstances and determined the RTI agreement had obligations constituting deliverables and concluded
that it has multiple deliverables, including deliverables relating to the grant of a license to our technology and performance of
research and development services, and concluded that these deliverables should be combined into a single unit of accounting. We
recognized the $3.0 million guaranteed license fee ratably on a straight-line basis over the estimated performance period, which was
completed in 2011.
In September 2012, RTI agreed to make the remaining $2.0 million license fee payments by December 31, 2012, and we agreed to
provide RTI with certain technical support through December 31, 2012. The $2.0 million consideration associated with the
amendment was recognized over the performance period from September 2012 through December 2012.
We are also eligible to receive $35.5 million in cash payments upon the successful achievement of certain commercial milestones. We
evaluated the nature of the events triggering these contingent payments and concluded that these events are substantive and that
revenue will be recognized in the period in which each underlying triggering event occurs. In addition, we will receive tiered royalties
on worldwide commercial sales, if any, of implants using our technologies. No milestone or royalty revenue has been recognized to
date.
F. Capitalization and Warrant Liability
Capitalization
At December 31, 2013, we had 150.0 million shares of common stock (100.0 million shares at December 31, 2012) and 10.0 million
shares of undesignated preferred stock authorized. No shares of preferred stock have been issued as of December 31, 2013.
The following shares of common stock were reserved for future issuance:
Stock-based compensation plans
Warrants to purchase common stock — former lenders
Warrants to purchase common stock — 2011 offering
Warrants to purchase common stock — 2012 offering
Warrants to purchase common stock — 2013 offering
December 31
2013
11,020,510
149,026
1,310,000
3,950,001
3,500,000
19,929,537
2012
5,490,181
149,026
1,310,000
4,347,827
—
11,297,034
In January 2014, we completed a registered direct offering generating net proceeds of approximately $18.7 million through the
issuance of 5,000,000 shares of common stock and immediately exercisable warrants to purchase 1,500,000 shares of common stock
with an exercise price of $4.50 per share that expire on July 15, 2016. The securities were sold in multiples of a fixed combination of
one share of common stock and a warrant to purchase 0.30 shares of common stock at an offering price of $4.10 per fixed
combination.
58
58
Athersys, Inc.
Notes to Consolidated Financial Statements (continued)
In December 2013, we completed a registered direct offering generating net proceeds of approximately $18.4 million through the
issuance of 10,000,000 shares of common stock and warrants to purchase 3,500,000 shares of common stock with an exercise price of
$2.50 per share that expire on March 31, 2015. Of the 3,500,000 warrants, 1,401,218 are not exercisable until June 3, 2014. The
securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase 0.35 shares of common
stock at an offering price of $2.00 per fixed combination.
In October 2012, we completed a public offering generating net proceeds of approximately $18.3 million through the issuance of
19,802,000 shares of common stock at a price of $1.01 per share. In November 2012, the underwriters exercised in full their right to
purchase an additional 2,970,300 shares of common stock, solely to cover over-allotments. The exercise of the full over-allotment option
generated an additional $2.8 million of net proceeds.
In March 2012, we completed a private placement financing generating net proceeds of approximately $8.1 million through the issuance
of 4,347,827 shares of common stock and five-year warrants to purchase 4,347,827 shares of common stock with an exercise price of
$2.07 per share. The securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase
one share of common stock at an offering price of $2.07 per fixed combination, and the warrants include price protection in the event we
sell stock below the exercise price, as defined. As a result of the October 2012 public offering and in accordance with the terms of the
warrants, we sought and obtained stockholder approval in February 2013 to reduce the exercise price of these warrants to $1.01 per
share.
In February 2011, we completed a registered direct offering with net proceeds of $11.8 million through the issuance of 4,366,667 shares
of common stock and five-year warrants to purchase 1,310,000 shares of common stock with an exercise price of $3.55 per share. The
securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase 0.3 of a share of
common stock at an offering price of $3.00 per fixed combination.
Aspire Capital
In November 2011, we entered into an equity purchase agreement, which provides that Aspire Capital Fund, LLC (“Aspire Capital”) is
committed to purchase up to an aggregate of $20.0 million of shares of our common stock over a two-year term, subject to our election
to sell any such shares. Under the agreement, we have the right to sell shares, subject to certain volume limitations and a minimum floor
price, at a modest discount to the prevailing market price. As part of the agreement, Aspire Capital made an initial investment of $1.0
million in us through the purchase of 666,667 shares of our common stock at $1.50 per share in 2011, and received 266,667 additional
shares as compensation for its commitment. In 2012, we sold an additional 800,000 shares to Aspire Capital at an average price of $1.57
per share.
In October 2013, we terminated the expiring 2011 equity purchase agreement with Aspire Capital and entered into a new equity
purchase agreement with Aspire Capital to purchase up to an aggregate of $25.0 million of shares of our common stock over a new two-
year period. The terms of the 2013 equity facility are similar to the previous arrangement, and we issued 333,333 shares of our common
stock Aspire Capital as a commitment fee in October 2013 and filed a registration statement for the resale of 10,000,000 shares of
common stock in connection with the new equity facility. In 2013, we sold an aggregate 6,566,666 shares to Aspire Capital at an average
price of $1.70 per share under both equity purchase agreements (300,000 shares were sold during the quarter ended December 31, 2013
at an average price of $1.69 per share). As of December 31, 2013, we have received aggregate proceeds of approximately $13.4 million
under both equity purchase agreements since their inception.
Warrant Liabilities
The warrants we issued in the December 2013 registered direct offering contain a provision for a cash payment in the event that the
shares are not delivered to the holder within two trading days. The cash payment equals $10 per day per $2,000 of warrant shares for
each day late. The warrants we issued in both the March 2012 private placement and the February 2011 registered direct offering each
contain a provision for net cash settlement in the event that there is a fundamental transaction (e.g., merger, sale of substantially all
assets, tender offer, or share exchange). If a fundamental transaction occurs in which the consideration issued consists of all cash or
stock in a non-public company, then the warrant holder has the option to receive cash equal to a Black Scholes value of the remaining
unexercised portion of the warrant. Further, the March 2012 warrants include price protection in the event we sell stock below the
exercise price, as defined. As a result of the October 2012 public offering and in accordance with the terms of the warrants, we sought
and obtained stockholder approval in February 2013 to reduce the exercise price of these 4,347,827 warrants to $1.01 per share.
The warrants have been classified as liabilities, as opposed to equity, due to the potential adjustment to the exercise price that could
result upon late delivery of the shares or potential cash settlement upon the occurrence of certain events as described above, and are
recorded at their fair values at each balance sheet date. See Note D.
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59
As of December 31, 2013, we had the following outstanding warrants to purchase shares of common stock:
Athersys, Inc.
Notes to Consolidated Financial Statements (continued)
Number of
Underlying Shares
149,026
1,310,000
3,950,001
3,500,000
8,909,027
Exercise Price
$5.00
$3.55
$1.01
$2.50
Expiration
June 8, 2014
February 2, 2016
March 14, 2017
March 31, 2015
G. Stock-Based Compensation
We have two incentive plans that authorized an aggregate of 11,500,000 shares of common stock for awards to employees, directors and
consultants, which reflects an increase in shares authorized of 6,000,000 that was approved in 2013. These equity incentive plans authorize the
issuance of equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units,
performance shares and units, and other stock-based awards to qualified employees, directors and consultants. As of December 31, 2013, a total
of 479,490 shares of common stock have been issued under our equity incentive plans.
As of December 31, 2013, a total of 3,441,585 shares were available for issuance under our equity compensation plans and stock-based awards
to purchase 7,578,925 shares of common stock were outstanding. We recognized $1,523,000, $481,000 and $552,000 of stock-based
compensation expense in 2013, 2012 and 2011, respectively.
Stock Options
The weighted average fair value of options granted in 2013, 2012 and 2011 was $1.42, $1.21 and $2.30 per share, respectively. The total fair
value of options vested during 2013, 2012 and 2011 was $585,000, $420,000 and $570,000, respectively. At December 31, 2013, total
unrecognized estimated compensation cost related to unvested stock options was approximately $1,686,000, which is expected to be recognized
by mid-2017 using the straight-line method. The weighted average contractual life of unvested options at December 31, 2013 was 9.34 years.
The aggregate intrinsic value of fully vested option shares and option shares expected to vest as of December 31, 2013 was $402,000.
A summary of our stock option activity and related information is as follows:
Outstanding January 1, 2011
Granted
Forfeited / Terminated / Expired
Outstanding December 31, 2011
Granted
Forfeited / Expired
Outstanding December 31, 2012
Granted
Exercised
Forfeited / Expired
Outstanding December 31, 2013
Vested during 2013
Vested and exercisable at December 31, 2013
Exercise Price
$1.13 – 2.94
$3.10 – 5.00
$5.28 – 7.80
Weighted
Average
Exercise
Price
Number
of Options
4,308,013 $ 4.73
2.61
213,588
3.46
(22,000)
4.63
4,499,601
1.44
290,150
4.92
(731,567)
4.36
4,058,184
1.71
1,336,928
1.26
(1,312)
(264,221)
3.36
5,129,579 $ 3.72
383,808 $ 1.86
3,896,383 $ 4.35
Options Outstanding
Options Vested and Exercisable
December 31, 2013
Number
of
Options
1,988,579
3,033,500
107,500
5,129,579
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
8.18 $ 1.86
3.37 $ 4.88
5.98 $ 5.28
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
6.28 $ 2.08
3.37 $ 4.88
5.98 $ 5.28
Number
of
Options
756,133
3,032,750
107,500
3,896,383
60
60
Athersys, Inc.
Notes to Consolidated Financial Statements (continued)
Restricted Stock Units
A summary of our restricted stock unit activity and related information is as follows:
Outstanding January 1, 2011
Granted
Outstanding December 31, 2011
Granted
Vested-common stock issued
Forfeited/expired
Outstanding December 31, 2012
Granted
Vested-common stock issued
Forfeited/expired
Outstanding December 31, 2013
Vested/Issued cumulative at December 31, 2013
Number
of
Restricted
Stock Units
—
39,300
39,300
56,716
(9,819)
(15,383)
70,814
2,851,964
(468,359)
(5,073)
2,449,346
478,178
Weighted
Average
Fair Value
$ —
2.69
2.69
1.43
2.69
1.88
1.86
1.71
1.72
1.77
1.71
1.74
$
$
The weighted average fair value of restricted stock units granted in 2013 was $1.71 per share. The total fair value of restricted stock
units vested during 2013, 2012 and 2011 was $805,000, $26,000 and $0, respectively. At December 31, 2013, total unrecognized
estimated compensation cost related to unvested restricted stock units was approximately $3,954,000, which is expected to be
recognized by mid-2017 using the straight-line method.
H. Income Taxes
We had net operating loss and research and development tax credit carryforwards of approximately $26,382,000 and $1,473,000,
respectively, at December 31, 2013, and approximately $71,522,000 and $4,176,000, respectively at December 31, 2012. Such losses
and credits may be used to reduce future taxable income and tax liabilities and will expire at various dates between 2033 and 2034.
Additionally, as of December 31, 2013, we have net operating loss carryforwards of approximately $34,521,000 (“Section 382
Limited NOL”) that are limited to an annual net operating loss carryforward of $1,833,000. This limitation under Section 382 of the
Internal Revenue Code was a result of our equity offering in October 2012. The Section 382 Limited NOL may be used to reduce
future taxable income and tax liabilities and will expire at various dates between 2014 and 2031.
Significant components of our deferred tax assets are as follows (in thousands):
Net operating loss carryforwards
Net operating loss carryforwards — Section 382 Limited NOL
Research and development credit carryforwards
Compensation expense
Other
Total deferred tax assets
Valuation allowance for deferred tax assets
Net deferred tax assets
December 31,
2013
$ 8,970
11,737
1,473
3,353
509
26,042
(26,042)
$ —
2012
$ 24,318
2,277
4,176
2,948
503
34,222
(34,222)
$ —
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Athersys, Inc.
Notes to Consolidated Financial Statements (continued)
Because of our cumulative losses, the deferred tax assets have been fully offset by a valuation allowance. We have not paid income
taxes for the three-year period ended December 31, 2013.
I. Profit Sharing Plan and 401(k) Plan
We have a profit sharing and 401(k) plan that covers substantially all employees and allows for discretionary contributions by us. We
make employer contributions to this plan, and the expense was approximately $97,000 in 2013, $98,000 in 2012, and $88,000 in
2011.
J. Quarterly Financial Data (unaudited)
The following table presents quarterly data for the years ended December 31, 2013 and 2012, in thousands, except per share data:
Revenues
Net loss
Basic and diluted net loss per common share
Revenues
Net loss
Basic and diluted net loss per common share
First
Quarter
Second
Quarter
2013
Third
Quarter
Fourth
Quarter
Full Year
326 $
$
920 $ 2,438
$(9,388) $(5,946) $(5,614) $(9,795) $(30,743)
$ (0.18) $ (0.11) $ (0.10) $ (0.15) $ (0.53)
571 $
621 $
First
Quarter
Second
Quarter
2012
Third
Full Year
Quarter
$ 2,747 $ 2,657 $ 1,015 $ 2,289 $ 8,708
$(4,336) $(3,713) $(3,449) $(3,237) $(14,735)
$ (0.17) $ (0.13) $ (0.12) $ (0.07) $ (0.45)
Fourth
Quarter
Due to the effect of quarterly changes to outstanding shares of common stock and weightings, the annual loss per share will not
necessarily equal the sum of the respective quarters.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures: An evaluation was carried out under the supervision and with the participation
of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on that evaluation, these
officers have concluded that as of December 31, 2013, our disclosure controls and procedures are effective.
Management’s report on internal control over financial reporting: Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and
with the participation of management, including our principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of internal control over financial reporting based on the 1992 framework in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation
under the 1992 framework in Internal Control — Integrated Framework, management concluded that our internal control over
financial reporting was effective as of December 31, 2013. The effectiveness of our internal control over financial reporting as of
December 31, 2013 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their
report, which is included in Item 8 of this annual report on Form 10-K and incorporated herein by reference.
Changes in internal control: During the fourth quarter of 2013, there has been no change in our internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On January 17, 2014, the Board of Directors of the Company, upon the recommendation of the Compensation Committee of the
Board of Directors of the Company, approved a cash bonus incentive plan, or the Plan, for the year ended December 31, 2014 for the
named executive officers of the Company. The Plan provides that each participant is eligible to earn a bonus during the award term of
January 1, 2014 through December 31, 2014. The Plan provides for the following target bonus percentages of the named executive
officer’s salary during the award term, weighted as set forth below on the achievement of specified corporate goals, with the
remainder based on individual/functional performance. The corporate goals include advancing the Company’s clinical programs for
MultiStem, advancement of strategic partnership and program activities, and executing against the established operating plan and
capital acquisition objectives. There is no formally adopted plan document for the Plan.
Title
Chief Executive Officer
President & Chief Operating Officer
Executive Vice President & Chief Scientific Officer
Executive Vice President, Regenerative Medicine
Vice President of Finance
Target
Bonus
Weighting on
Corporate Goals
60%
45%
45%
40%
30%
100%
80%
80%
60%
60%
A summary of the plan is attached to this annual report on Form 10-K as Exhibit 10.55 and is hereby incorporated herein by reference
thereto.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The persons listed below are the directors and executive officers of the Company as of March 13, 2014.
Age Current Position and Office
53 Chief Executive Officer, Chairman and Director
Name
Gil Van Bokkelen, Ph.D.
William (B.J.) Lehmann, Jr., J.D. 48 President and Chief Operating Officer
John J. Harrington, Ph.D.
Robert Deans, Ph.D.
Laura K. Campbell, CPA
Lee E. Babiss, Ph.D.
Ismail Kola, Ph.D.
Lorin J. Randall
Kenneth H. Traub
Jack L. Wyszomierski
46 Chief Scientific Officer, Executive Vice President and Director
62 Executive Vice President of Regenerative Medicine
50 Vice President of Finance
58 Director (Lead Director)
57 Director
70 Director
52 Director
58 Director
Executive Officers and Directors
Gil Van Bokkelen, Ph.D.. Dr. Van Bokkelen has served as our Chief Executive Officer and Chairman since August 2000.
Dr. Van Bokkelen co-founded Athersys, Inc. in 1995 and served as Chief Executive Officer and Director since the Company’s
founding. Prior to May 2006, he also served as the Company’s President. Dr. Van Bokkelen served as the Chairman of the Alliance
for Regenerative Medicine from 2010 through 2012, a Washington D.C. based consortium of companies, patient advocacy groups,
disease foundations, and clinical and research institutions that are committed to the advancement of the field of regenerative
medicine, and now serves ex officio. He is also the Chairman of the Board of Governors for the National Center for Regenerative
Medicine, and has served on a number of other boards, including the Biotechnology Industry Organization’s ECS board of directors
(from 2001 to 2004, and from 2008 to present). He received his Ph.D. in Genetics from Stanford University School of Medicine, his
B.A. in Economics from the University of California at Berkeley, and his B.A. in Molecular Biology from the University of
California at Berkeley.
Dr. Van Bokkelen brings to the Board leadership, extensive business, operating, financial and scientific experience, and
tremendous knowledge of our Company and the biopharmaceutical industry. Dr. Van Bokkelen also brings his broad strategic vision
for our Company to the Board of Directors and his service as the Chairman and Chief Executive Officer of Athersys creates a critical
link between management and the Board, enabling the Board to perform its oversight function with the benefit of management’s
perspectives on the business. In addition, having the Chief Executive Officer, and Dr. Van Bokkelen, in particular, on our Board of
Directors provides our Company with ethical, decisive and effective leadership.
John J. Harrington, Ph.D.. Dr. Harrington co-founded Athersys in 1995 and has served as our Chief Scientific Officer,
Executive Vice President and Director since our founding. Dr. Harrington led the development of the RAGE technology, as well as
its application for gene discovery, drug discovery and commercial protein production applications. He is a listed inventor on over 20
issued or pending United States patents, has authored numerous scientific publications, and has received numerous awards for his
work, including being named one of the top international young scientists by MIT Technology Review in 2002. Dr. Harrington has
overseen the therapeutic product development programs at Athersys since their inception, and is also focused on the clinical
development and manufacturing of MultiStem . During his career, he has also held positions at Amgen and Scripps Clinic. He
received his B.A. in Biochemistry and Cell Biology from the University of California at San Diego and his Ph.D. in Cancer Biology
from Stanford University.
®
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Dr. Harrington’s scientific experience and deep understanding of our Company, combined with his drive for innovation and
excellence, position him well to serve on the Board of Directors.
Executive Officers
William (BJ) Lehmann, Jr., J.D. Mr. Lehmann joined Athersys in September 2001 and has served as our President and Chief
Operating Officer since June 2006. Prior to that time, Mr. Lehmann was Athersys’ Executive Vice President of Corporate
Development and Finance from August 2002 until June 2006, when he became Athersys’ President and Chief Operating Officer.
From 1994 to 2001, Mr. Lehmann was with McKinsey & Company, Inc., an international management consulting firm, where he
worked extensively with new technology and service-based businesses in the firm’s Business Building practice. Prior to joining
McKinsey, he worked at Wilson, Sonsini, Goodrich & Rosati, a Silicon Valley law firm, and worked with First Chicago Corporation,
a financial institution. Mr. Lehmann received his J.D. from Stanford University, his M.B.A. from the University of Chicago, and his
B.A. from the University of Notre Dame.
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Robert J. Deans, Ph.D. Dr. Deans joined Athersys in February 2003 to lead the Company’s regenerative medicine research and
development activities and has served as our Executive Vice President since June 2011. Prior to that time, Dr. Deans was Vice
President of Regenerative Medicine, until he was named Senior Vice President of Regenerative Medicine in June 2006, and Executive
Vice President in June 2011. Dr. Deans is highly regarded as an expert in stem cell therapeutics, with over twenty years of experience
in this field. From 2001 to 2003, Dr. Deans worked for early-stage biotechnology companies. Dr. Deans was formerly the Vice
President of Research at Osiris, a biotechnology company, from 1998 to 2001 and Director of Research and Development with the
Immunotherapy Division of Baxter International, Inc., a global healthcare company, from 1992 to 1998. Dr. Deans was also
previously on faculty at USC Medical School in Los Angeles, between 1981 and 1998, in the departments of Microbiology and
Neurology at the Norris Comprehensive Cancer Center. Dr. Deans was an undergraduate at MIT, received his Ph.D. at the University
of Michigan, and did his post-doctoral work at UCLA in Los Angeles.
Laura K. Campbell, CPA. Ms. Campbell joined Athersys in January 1998 and has served as our Vice President of Finance
since June 2006. Ms. Campbell joined Athersys initially as Controller, followed by Director of Finance and Senior Director of
Finance, and currently serves as Vice President of Finance. Prior to joining Athersys, she was at Ernst & Young LLP, a public
accounting firm, for 11 years in the firm’s audit practice. During her tenure with Ernst & Young LLP, Ms. Campbell specialized in
entrepreneurial services and the biotechnology industry sector and participated in several initial public offerings. Ms. Campbell
received her B.S., with distinction, in Business Administration from The Ohio State University.
Directors
Lee E. Babiss, Ph.D. Dr. Babiss has served as Lead Director since October 2013 and as a Director since August 2010.
Dr. Babiss is currently Chief Scientific Officer and Executive Vice President of Discovery Innovation of PPD, Inc., a contract
research organization, where he has served since February 2010, and Chief Executive Officer of X-Rx, a majority-owned subsidiary
of PPD, Inc., providing strategic direction and scientific leadership in support of drug discovery. Dr. Babiss was formerly President
and Director of Global Pharmaceutical Research at Roche, a pharmaceutical company, from 1998 until his appointment at PPD, Inc.
Prior to Roche, Dr. Babiss spent seven years with Glaxo, Inc., now GlaxoSmithKline, a pharmaceutical company, where he held
senior positions, including Vice President of Biological Sciences and Genetics. Dr. Babiss received his doctorate in Microbiology
from Columbia University and completed his postdoctoral fellowship at the Rockefeller University, where he served as an assistant
and associate professor. Dr. Babiss has received numerous fellowship awards and grants and serves on several scientific advisory
committees and boards. Dr. Babiss has published over 60 peer-reviewed scientific papers.
Dr. Babiss’ brings over 20 years of experience developing and leading research and development programs. His strategic
leadership and product development knowledge provide a valuable perspective to the Board.
Ismail Kola, Ph.D. Dr. Kola has served as a Director since October 2010. Dr. Kola is currently Executive Vice President of
UCB S.A. in Belgium, a biopharmaceutical company dedicated to the development of innovative medicines focused on the fields of
central nervous system and immunology disorders, and President of UCB New Medicines, UCB’s discovery research through proof-
of-concept organization, since November 2009. Dr. Kola was formerly Senior Vice President, Discovery Research and Early Clinical
Research & Experimental Medicine at Schering-Plough Research Institute, the pharmaceutical research arm of Schering-Plough
Corporation, a pharmaceutical company, and Chief Scientific Officer at Schering-Plough Corporation, from March 2007 until his
appointment at UCB. Prior to Schering-Plough, Dr. Kola held senior positions from January 2003 to March 2007 at Merck, a
pharmaceutical company, where he was Senior Vice President and Site Head, Basic Research. From 2000 to 2003, Dr. Kola was Vice
President, Research, and Global Head, Genomics Science and Biotechnology, at Pharmacia Corporation, a pharmaceutical company.
Prior to his position with Pharmacia, Dr. Kola spent 15 years as Professor of Human Molecular Genetics and was Director of the
Centre for Functional Genomics and Human Disease at Monash Medical School in Australia. Dr. Kola received his Ph.D. in Medicine
from the University of Cape Town, South Africa, his B.Sc. from the University of South Africa, and his B.Pharm. from Rhodes
University, South Africa. Dr. Kola served on the board of directors of Astex Therapeutics (NASDAQ: ASTX) since May 2010 until
its sale to Otsuka Pharmaceuticals in October 2013, and currently serves on the board of directors of Biotie Therapies (and previously
Synosia who merged with Biotie) since February 2011, and previously served on the board of directors of Ondek Pty Ltd from 2009
to 2011, and Promega Corporation from 2003 to 2007. Dr. Kola has authored 160 technical publications in scientific and medical
journals and is the named inventor on at least a dozen patents. Dr. Kola holds Adjunct Professorships of Medicine at Washington
University in St. Louis, Missouri, and Monash University Medical School; a Foreign Adjunct Professorship at the Karolinska Institute
in Stockholm, Sweden; and was elected William Pitt Fellow at Pembroke College, Cambridge University, United Kingdom in 2008.
Dr. Kola has also been appointed a Visiting Professor at Oxford University, Nuffield School of Medicine, Oxford UK, since
September 2012.
For more than 20 years, Dr. Kola has created a bridge between the scientific and academic worlds though various projects
funded by renowned institutes, and Dr. Kola’s experience and leadership in taking numerous drugs from the research stage to market
or late stage development brings a unique and valuable perspective to our Board.
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Lorin J. Randall. Mr. Randall has served as a Director since September 2007. Mr. Randall is an independent financial consultant
and previously was Senior Vice President and Chief Financial Officer of Eximias Pharmaceutical Corporation, a development-stage
drug development company, from 2004 to 2006. From 2002 to 2004, Mr. Randall served as Senior Vice President and Chief Financial
Officer of i-STAT Corporation, a publicly-traded manufacturer of medical diagnostic devices that was acquired by Abbott Laboratories
in 2004. From 1995 to 2001, Mr. Randall was Vice President and Chief Financial Officer of CFM Technologies, Inc., a publicly-traded
manufacturer of semiconductor manufacturing equipment. Mr. Randall currently serves on the boards of directors of Acorda
Therapeutics, Inc. (NASDAQ: ACOR) since 2006, where he serves as chairman of the audit committee and is a member of the
compensation and nominations and governance committees, Nanosphere, Inc. (NASDAQ: NSPH) since 2008, where he serves as
chairman of the audit committee, and Tengion, Inc. (OTCQB: TNGN) since 2008, where he serves as chairman of the audit committee
and a member of the compensation committee. He previously served on the board of directors of Opexa Therapeutics, Inc. (NASDAQ:
OPXA) from 2007 to 2009, where he served as chair of the audit committee. Mr. Randall received a B.S. in accounting from The
Pennsylvania State University and an M.B.A. from Northeastern University.
Mr. Randall’s strong financial and human resources background and his service on the audit and compensation committees of other
companies provides expertise to the Board, including an understanding of financial statements, compensation policies and practices,
corporate finance, developing and maintaining effective internal controls, accounting, employee benefits, investments and capital
markets. These qualities also formed the basis for the Board’s decision to appoint Mr. Randall as chairman of the Audit Committee and
the Compensation Committee.
Kenneth H. Traub. Mr. Traub has served as our Director since June 2012. Mr. Traub is currently the President and Chief
Executive Officer of Ethos Management LLC since 2009, which specializes in investing in and enabling companies to execute strategies
to build and unlock stockholder value, and Mr. Traub is also currently general partner of Rosemark Capital, a private equity firm since
2013. Mr. Traub served as President, Chief Executive Officer and director of American Bank Note Holographics, Inc., or ABNH, a
global leader in product and document security, from 1999 until its sale in 2008 to JDS Uniphase Corporation, or JDSU, a provider of
optical products and measurement solutions for the communications industry. Mr. Traub managed the turnaround, growth and sale of
ABNH, and under his leadership, ABNH’s stockholders achieved a gain exceeding 1000 percent. Following the sale of ABNH,
Mr. Traub served as Vice President of JDSU in 2008. In 1994, Mr. Traub co-founded Voxware, Inc., a pioneer in ‘Voice over IP’
communication technologies and acted as its Executive Vice President, Chief Financial Officer and director until June 1998. Prior to
Voxware, he was Vice President of Finance of Trans-Resources, Inc. Mr. Traub currently serves on the boards of directors of the
following publicly traded companies: (i) MRV Communications, Inc. (OTC: MRVC) since November 2011 and as Chairman since
January 2012, where he is a member of the audit committee, compensation committee and nominating and governance committee; (ii)
DSP Group, Inc. (NASDAQ: DSPG) since May 2012 where he is a member of the compensation committee and strategic committee;
(iii) Vitesse Semiconductor Corp. (NASDAQ: VTSS) since March 2013, where he is a member of the compensation committee; and (iv)
Xyratex Limited (NASDAQ: XRTX) since June 2013, where he is a member of the audit committee. Mr. Traub also served on the board
of Phoenix Technologies Ltd. (NASDAQ:PTEC) from November 2009 through its sale in December 2010, where he was a member of
the audit committee and compensation committee, served on the board of MIPS Technologies, Inc. (NASDAQ: MIPS) from November
2011 through its sale in February 2013, where he was a member of the audit and governance committee, and served on the board of
iPass, Inc. (NASDAQ: IPAS) from June 2009 through June 2013, where he was a member of the compensation committee and the
corporate governance and nominating committee. Mr. Traub received a M.B.A. from Harvard Business School in 1988 and a B.A. from
Emory University in 1983.
As a director for Athersys, Mr. Traub contributes his extensive experience and expertise in managing and growing companies to
maximize shareholder value.
Jack L. Wyszomierski. Mr. Wyszomierski has served as a Director since June 2010 and is currently retired. From 2004 until his
retirement in June 2009, Mr. Wyszomierski served as the Executive Vice President and Chief Financial Officer of VWR International,
LLC, a supplier and distributor of laboratory supplies, equipment and supply chain solutions to the global research laboratory industry.
From 1982 to 2004, Mr. Wyszomierski held positions of increasing responsibility within the finance group at Schering-Plough
Corporation, a pharmaceutical company, culminating with his appointment as Executive Vice President and Chief Financial Officer in
1996. Prior to joining Schering-Plough, he was responsible for capitalization planning at Joy Manufacturing Company, a producer of
mining equipment, and was a management consultant at Data Resources, Inc., a distributor of economic data. Mr. Wyszomierski
currently serves on the board of directors of Xoma Corporation (NASDAQ: XOMA) since 2010, where he also serves as chairman of the
compensation committee and as a member of the audit committee, and Exelixis, Inc. (NASDAQ: EXEL) since 2004, where he serves as
chairman of the audit committee. Mr. Wyszomierski was also a member of the board of directors and chairman of the audit committee at
Unigene Laboratories, Inc. (OTC: UGNE) from 2012 to 2013. Mr. Wyszomierski holds a M.S. in Industrial Administration and a B.S. in
Administration, Management Science and Economics from Carnegie Mellon University.
Mr. Wyszomierski’s extensive financial reporting, accounting and finance experience and his service on the audit committees of
other public companies, as well as his experience in the healthcare and life sciences industries, provides financial expertise to the Board,
including an understanding of financial statements, corporate finance, developing and maintaining effective internal controls,
accounting, investments and capital markets.
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Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of reports of ownership, reports of changes of ownership and written representations under Section 16
(a) of the Exchange Act that were furnished to the Company during or with respect to fiscal year 2013 by persons who were, at any
time during fiscal year 2013, Directors or officers of the Company or beneficial owners of more than 10% of the outstanding shares of
common stock, all filing requirements for reporting persons were met.
Code of Ethics
Athersys has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal
accounting officer. Athersys’ code of ethics is posted under the Investors tab of its website at www.athersys.com. Athersys will post
any amendments to, or waivers of, its code of ethics that apply to its principal executive officer, principal financial officer and
principal accounting officer on its website.
Audit Committee
The Audit Committee is responsible for overseeing the accounting and financial reporting processes of the Company and the
audits of the financial statements of the Company. The Audit Committee is also directly responsible for the appointment,
compensation, retention and oversight of the work of the Company’s independent auditors, including the resolution of disagreements
between management and the auditors regarding financial reporting. Additionally, the Audit Committee approves all related-party
transactions that are required to be disclosed pursuant to Item 404 of Regulation S-K. The current members of the Audit Committee
are Lorin J. Randall, Kenneth H. Traub and Jack L. Wyszomierski. The Board of Directors has determined that each of Mr. Randall,
Mr. Traub and Mr. Wyszomierski is an “audit committee financial expert,” as defined in Item 407(d)(5)(ii) of Regulation S-K, and an
“independent director,” as defined in the NASDAQ listing standards.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Executive Summary
This section discusses the principles underlying our executive compensation policies and decisions and the most important
factors relevant to an analysis of these policies and decisions. It provides qualitative information regarding the manner and context in
which compensation is awarded to and earned by our named executive officers, which include Dr. Gil Van Bokkelen, our Chief
Executive Officer, Ms. Laura Campbell, our Vice President of Finance, Mr. William (B.J.) Lehmann, Jr., our President and Chief
Operating Officer, Dr. John Harrington, our Executive Vice President and Chief Scientific Officer, and Dr. Robert Deans, our
Executive Vice President of Regenerative Medicine, and places in perspective the data presented in the compensation tables and
narratives that follow.
We are an international biotechnology company that is focused primarily in the field of regenerative medicine. Our MultiStem
cell therapy has been evaluated in two completed Phase 1 clinical trials and is currently being evaluated in two ongoing Phase 2
clinical trials, as well as an investigator-led Phase 1 trial. We are also applying our pharmaceutical discovery capabilities to identify
and develop small molecule compounds with potential applications in indications such as obesity, related metabolic conditions and
certain neurological conditions. These represent major areas of clinical need, as well as substantial commercial opportunities. As
further discussed in this section, our compensation and benefit programs help us attract, retain and motivate individuals who will
maximize our business results by working to meet or exceed established company or individual objectives. In addition, we reward our
executive officers for meeting certain developmental milestones, such as completing advancements in product candidate
development, strategic partnerships or other financial transactions that add to the capital resources of the Company or create value for
stockholders.
The following are the highlights of our 2013 compensation and benefit programs:
increased the base salaries of our named executive officers;
•
•
•
paid cash bonuses to our named executive officers;
granted stock options to our named executive officers under a newly implemented annual equity compensation
program;
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•
•
terminated incentive agreements established in 2005 that would have provided our named executive officers with
bonus opportunities in the event of a financing transaction, merger or acquisition, or asset sale transaction and, in
exchange, granted restricted stock units to the executives that vest over three years; and
amended our Athersys, Inc. Amended and Restated 2007 Long-Term Incentive Plan (Amended and Restated
Effective June 18, 2013), or LTIP, to, among other things, increase the shares of common stock available
thereunder.
The following discussion and analysis of our compensation and benefit programs for 2013 should be read together with the
compensation tables and related disclosures that follow this section. This discussion includes forward-looking statements based on
our current plans, considerations, expectations and determinations about our compensation program. Actual compensation decisions
that we may make for 2014 and beyond may differ materially from our recent past.
Compensation Objectives and Philosophy
Our executive compensation programs are designed to:
•
•
•
•
recruit, retain, and motivate executives and employees that can help us achieve our core business goals;
provide incentives to promote and reward superior performance throughout the organization, which we refer to as
Pay for Performance;
facilitate stock ownership and retention by our executives and other employees; and
promote alignment between executives and other employees and the long-term interests of stockholders.
The Compensation Committee seeks to achieve these objectives by:
•
•
•
establishing a compensation program that is market competitive and internally fair;
linking individual and corporate performance with certain elements of compensation through the use of equity
grants, cash performance bonuses or other means of compensation, the value of which is substantially tied to the
achievement of our Company goals; and
when appropriate, given the nature of our business, rewarding our executive officers for both Company and
individual achievements with one-time performance awards.
At the 2013 Annual Meeting of Stockholders, approximately 95% of the votes cast were voted in favor of the approval of our
named executive officer compensation. Our Compensation Committee believes that the stockholder vote reinforces the objectives and
philosophy of our executive compensation programs.
Components of Compensation
Our executive compensation program includes the following elements:
•
•
•
•
base salary;
cash bonuses;
long-term equity incentive plan awards; and
retirement and health and other insurance benefits.
Our Compensation Committee has not adopted any formal or informal policies or guidelines for allocating compensation
between long-term and currently paid-out compensation, between cash and non-cash compensation or among different forms of non-
cash compensation. We consider competitive practices, relative management level and operating responsibilities of each executive
officer when determining the compensation elements to reward his or her ability to impact short-term and long-term results.
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Role of the Chief Executive Officer
Historically, our Chief Executive Officer has taken the lead in providing our Board of Directors with advice regarding executive
compensation. For 2013, the Compensation Committee considered recommendations from our Chief Executive Officer regarding the
compensation for and performance of our executive officers in relation to company-specific strategic goals that were established by
the Compensation Committee and approved by the Board of Directors. These achievements related to potential bonus payments and
salary increases. The Compensation Committee considers the recommendations made by our Chief Executive Officer because of his
knowledge of the business and the performance of the other executive officers. The Compensation Committee is not bound by the
input it receives from our Chief Executive Officer. Instead, the Compensation Committee exercises independent discretion when
making executive compensation decisions. We describe and discuss the particular compensation decisions made by the Compensation
Committee regarding the 2013 compensation of our named executive officers below under “Elements of Executive Compensation.”
Role of the Independent Compensation Consultant
From time to time, the Compensation Committee has retained the services of an independent compensation consultant, Arnosti
Consulting, Inc., or Arnosti. During 2013, at the request of the Compensation Committee, Arnosti assisted the Compensation
Committee in evaluating the base salaries to be paid to named executive officers and the annual equity awards to be granted
companywide. Also during 2013, Arnosti provided peer company data and advice with respect to the increase of the shares of
common stock available under the LTIP and the elimination of our 2005 incentive program with our named executive officers (see
Long-Term Incentive Program later in this section). The Company pays the cost for Arnosti’s services. However, the Compensation
Committee retains the sole authority to direct, terminate or engage Arnosti’s services. In 2013, the Compensation Committee
considered and assessed all relevant factors, including but not limited to, those set forth in Rule 10C-1(b)(4)(i) through (vi) under the
Exchange Act, that could give rise to a potential conflict of interest with respect to Arnosti’s work. Based on this review, we are not
aware of any conflict of interest that has been raised by the work performed by Arnosti.
Elements of Executive Compensation
Base Salary. We pay base salaries to provide executive officers with a competitive level of financial security. We establish base
salaries for our executives based on the scope of their responsibilities, taking into account competitive market compensation paid by
other companies for similar positions. Base salaries are generally reviewed annually, with adjustments based on the individual’s
responsibilities, performance and experience during the year. This review generally occurs each year following an annual review of
individual performance.
In general, the Company and the executive team performed well in 2013 against many key goals and objectives, as measured
against the metrics of key programmatic achievements (e.g., clinical and preclinical development), operational management and
financial performance (e.g., adherence to budgetary goals and objectives, balance sheet), intellectual property (e.g., patent issuances
and new filings, competitive positioning) and business development, among others. Each executive’s performance was evaluated
based on the Company’s performance as a whole, combined with an evaluation of individual performance against specific goals and
objectives relevant to his or her area of responsibility. Overall, the majority of corporate goals were achieved in 2013, taking into
account that a business partnership was not achieved, which was, and continues to be, an important goal.
For 2013, the Compensation Committee and the Board of Directors approved an increase in base salary of 4.65% for 2013 as
compared to 2012 for the Chief Executive Officer, an adjustment based on both performance and on competitive information
provided to the Compensation Committee by Arnosti. Also for 2013, the Compensation Committee and the Board of Directors
approved increases for each of the other named executive officer’s salary for 2013 as compared to 2012 based primarily on Company
performance for the year ended December 31, 2012. The increases were as follows: Mr. Lehmann – 3.5%; Dr. Harrington – 3.45%;
Dr. Deans – 3.42%; and Ms. Campbell – 3.33%.
For 2014, the Compensation Committee and the Board of Directors approved an increase in base salary of 2.00% for 2014 as
compared to 2013 for the Chief Executive Officer, an adjustment based on both performance and on competitive information
provided to the Compensation Committee by Arnosti. Also for 2014, the Compensation Committee and the Board of Directors
approved increases for each of the other named executive officer’s salary for 2014 as compared to 2013 based primarily on Company
performance for the year ended December 31, 2013. The increases are as follows: Mr. Lehmann – 2.05%; Dr. Harrington – 2.06%;
Dr. Deans – 2.04%; and Ms. Campbell – 2.07%.
Cash Bonuses. Given the nature of our business, when appropriate, we reward our named executive officers with performance-
related bonuses. We utilize annual incentive bonuses to reward officers and other employees for achieving financial and operational
goals and for achieving individual annual performance objectives. These objectives relate generally to strategic factors, including
advancement of our product candidates, identification and advancement of additional programs or product candidates, establishment
and maintenance of key strategic relationships, and to financial factors, including raising capital, adherence to budgets and cash
management.
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The Compensation Committee recommended and the Board approved a cash bonus incentive program for the year ended
December 31, 2013 for our named executive officers. Under the 2013 incentive program, each participant was eligible to earn a target
bonus of a specified percentage of the named executive officer’s salary during the award term, weighted on the achievement of
specific corporate goals, with the remainder based on individual/functional performance, as set forth below:
Dr. Van Bokkelen
Dr. Harrington
Mr. Lehmann
Dr. Deans
Ms. Campbell
Target Bonus
Corporate Goals
Functional Performance
Weighted On
40%
33%
33%
30%
25%
100%
80%
80%
60%
60%
0%
20%
20%
40%
40%
The evaluation of goal achievement is at the discretion of Compensation Committee and Board of Directors based on input from
the Chief Executive Officer (with respect to the named executive officers other than the Chief Executive Officer). The 2013 corporate
goals included program and collaboration goals, progress on MultiStem clinical development, and execution against the established
budget and operating plan. However, any bonus ultimately paid under the 2013 incentive program was to be at the discretion of the
Board of Directors based on the recommendation of the Compensation Committee, after good faith consideration of executive officer
performance, overall company performance, market conditions and cash availability. There was no formally adopted plan document
for the 2013 incentive program, although the Compensation Committee recommended and the Board of Directors approved the
specific corporate goals, target bonus levels and weightings between corporate and functional performance. The Compensation
Committee and the Board of Directors agreed that each of the named executive officers would be entitled to a bonus under the 2013
incentive program as a result of individual performance and the achievement of operational and strategic objectives in 2013,
specifically the achievement of patient enrollment goals for the Company’s clinical trials and other program development and sector
leadership goals, resulting in the payment of bonuses based on a percentage of such officers’ 2013 base salaries as follows:
Dr. Van Bokkelen
Dr. Harrington
Mr. Lehmann
Dr. Deans
Ms. Campbell
Bonus Achieved
26.4%
22.6%
22.6%
20.4%
17.6%
Cash Bonus Paid
118,800
$
83,500
$
84,000
$
65,000
$
42,000
$
For the year ending December 31, 2014, the Compensation Committee recommended and the Board of Directors approved a
similar cash bonus incentive plan for our named executive officers. The 2014 plan includes the following changes to the target bonus
percentage for our named executive officers.
Dr. Van Bokkelen
Dr. Harrington
Mr. Lehmann
Dr. Deans
Ms. Campbell
Target Bonus
Corporate Goals
Functional Performance
Weighted On
60%
45%
45%
40%
30%
100%
80%
80%
60%
60%
0%
20%
20%
40%
40%
The 2014 corporate goals include advancing strategic partnership and program activities, advancing and achieving enrollment
goals for our clinical programs for MultiStem, and executing against the established operating plan and capital acquisition objectives.
Long-Term Incentive Program. We believe that we can encourage superior long-term performance by our executive officers and
employees through encouraging them to own, and assisting them with the acquisition of, our common stock. Our equity compensation
plans provide our employees, including named executive officers, with incentives to help align their interests with the interests of our
stockholders. We believe that the use of common stock and stock-based awards offers the best approach to achieving our objective of
fostering a culture of ownership, which we believe will, in turn, motivate our named executive officers to create and enhance
stockholder value. We have not adopted stock ownership guidelines, but our equity compensation plans provide a principal method
for our executive officers to acquire equity in our company.
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Our equity compensation plans authorize us to grant, among other types of awards, options, restricted stock and restricted stock
units, or RSUs, to our employees, Directors and consultants. Historically, we elected to use stock options as our primary long-term
equity incentive vehicle. However, we began awarding RSUs to our non-executive employees in 2011 and to our named executive
officers in 2013. We expect to continue to use equity-based awards as a long-term incentive vehicle because we believe:
• equity-based awards align the interests of our executives with those of our stockholders, support a pay-for-performance
culture, foster an employee stock ownership culture and focus the management team on increasing value for our stockholders;
• the value of equity-based awards is based on our performance, because all the value received by the recipient of equity-based
awards is based on the growth of our stock price;
• equity-based awards help to provide a balance to the overall executive compensation program because, while base salary and
our discretionary annual bonus program focus on short-term performance, vesting equity-based awards reward increases in
stockholder value over the longer term; and
• the vesting period of equity-based awards encourages executive retention and efforts to preserve stockholder value.
In 2013, we granted 540,000 stock options and 2,700,000 RSUs to our named executive officers, as well as stock options and
RSUs to our other employees. We revised our long-term equity incentive program for our named executive officers in 2013, as
described further below, in connection with the termination of an outdated incentive program and the initiation of an ordinary-course
annual award program.
In 2005, in connection with a restructuring of our internal programs, the Board established the 2005 Incentive Program to retain
and motivate our executives, which would have compensated the named executive officers in the event of a merger, acquisition or
asset sale transaction. The 2005 Incentive Program became outdated for a variety of reasons, and, in 2013, the Compensation
Committee and the Board determined that the 2005 Incentive Program should be eliminated in exchange for a one-time award of
RSUs, and that an ordinary course annual award program for our named executive officers should be implemented. In April 2013, the
Compensation Committee approved amendments whereby the named executive officers would agree to terminate their incentive
agreements, and thereby the 2005 Incentive Program, in return for one-time grants of RSUs for their past service and performance,
and for the ability to receive annual grants under our Amended LTIP. Each named executive officer entered into such a termination
agreement and received the following number of RSUs in June 2013: 695,040 for Dr. Van Bokkelen; 570,551 for Dr. Harrington;
573,640 for Mr. Lehmann; 491,162 for Dr. Deans; and 369,607 for Ms. Campbell. These RSUs will vest ratably and quarterly over a
three-year term. The Compensation Committee utilized the services of Arnosti to assist in the development of a fair and rational
approach to the elimination of the 2005 Incentive Program and the number of one-time RSUs.
Annual equity awards in the ordinary course of business, which were initiated in June 2013 for our named executive officers
once the 2005 Incentive Program was eliminated, are tied to factors such as performance, peer and market analysis, and total equity
ownership level of each named executive officer, and further enhance the retention and long-term stock ownership features of our
equity incentive program. In determining the number of stock-based awards to be granted to named executive officers, we review
annually our named executive officers’ equity ownership positions, and we take into account the individual’s scope of responsibility,
ability to affect results and stockholder value, anticipated future contributions to increases in shareholder value, and the value of
equity-based awards in relation to other elements of the individual named executive officer’s total compensation. We also review
competitive compensation data, an assessment of individual performance, a review of each named executive officer’s existing long-
term incentives, retention considerations and a subjective determination of the individual’s potential to positively impact future
stockholder value. Equity-based awards are granted from time to time by the Compensation Committee and the Board of Directors,
with input from independent compensation consultants, as appropriate. The following stock option awards were granted to our named
executive officers in June 2013 as part of the program for routine annual equity-based awards: 185,000 for Dr. Van Bokkelen;
100,000 for Dr. Harrington; 115,000 for Mr. Lehmann; 80,000 for Dr. Deans; and 60,000 for Ms. Campbell.
Retirement and Insurance Benefits. Consistent with our compensation philosophy, we maintain benefits for our named executive
officers, including medical, dental, vision, life and disability insurance coverage and the ability to contribute to a 401(k) retirement
plan. The named executive officers and employees have the ability to participate in these benefits at the same levels. We began
making employer contributions to our 401(k) retirement plan in 2011 and contributed approximately $97,000 in 2013. We provide
such retirement and health insurance benefits to our employees to retain qualified personnel.
In addition, Dr. Van Bokkelen, Dr. Harrington, Mr. Lehmann, Dr. Deans and Ms. Campbell also receive Company-paid life
insurance benefits in the amounts of $2.0 million for Dr. Van Bokkelen, Dr. Harrington and Mr. Lehmann, and $1.0 million for
Dr. Deans and Ms. Campbell. These additional life insurance policies are provided to these officers due to their extensive travel
requirements and contributions to the Company.
71
71
Severance Arrangements
See the disclosure under “Potential Payments Upon Termination or Change of Control” for more information about severance
arrangements with our named executive officers. We provide such severance arrangements in order to assure that our executives will
focus on the best interests of the business at all times, without undue concern for their own financial security.
Employment Agreements and Arrangements
We believe that entering into employment agreements with each of our named executive officers was necessary for us to attract
and retain talented and experienced individuals for our senior level positions. In this way, the employment agreements help us meet
the initial objective of our compensation program. Each agreement contains terms and arrangements that we agreed to through arms-
length negotiation with our named executive officers. We view these employment agreements as reflecting the minimum level of
compensation that our named executive officers require to remain employed with us, and thus the bedrock of our compensation
program for our named executive officers. For more details of our employment agreements and arrangements, see the disclosure
under “2013 Summary Compensation Table.”
General Tax Deductibility of Executive Compensation
We structure our compensation program to comply with Internal Revenue Code Section 162(m). Under Section 162(m) of the
Code, there is a limitation on tax deductions of any publicly-held corporation for individual compensation to certain executives of
such corporation exceeding $1.0 million in any taxable year, unless the compensation is performance-based. The Compensation
Committee manages our incentive programs to qualify for the performance-based exemption; however, it also reserves the right to
provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances our
business objectives.
72
72
The following table and narrative set forth certain information with respect to the compensation earned during the fiscal year
ended December 31, 2013 by our named executive officers.
2013 Summary Compensation Table
Name and Principal
Position
Gil Van Bokkelen,
Chief Executive
Officer (3)
Laura Campbell,
Vice President
of Finance
William (BJ) Lehmann, Jr.,
President and Chief
Operating Officer
John Harrington,
Chief Scientific Officer and
Executive Vice President (3)
Robert Deans,
Executive Vice President,
Regenerative Medicine
Year
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
Salary
($)
$
450,000
$
430,000
$
404,500
239,300
$
$
231,562
$
225,365
$
371,400
$
358,849
$
346,714
369,400
$
$
357,116
$
346,714
318,000
$
$
307,500
$
292,898
Bonus ($)
$
118,800
$
107,500
$
40,000
42,000
$
$
40,500
$
15,300
84,000
$
$
77,000
$
27,000
83,500
$
$
77,800
$
27,000
65,000
$
$
62,300
$
24,300
Stock
Awards (1)
($)
1,188,518
$
$
0
$
0
632,028
$
$
0
$
0
980,924
$
$
0
$
0
975,642
$
$
0
$
0
839,887
$
$
0
$
0
Option
Awards (2)
($)
264,550
$
$
0
$
0
85,800
$
$
0
$
0
164,450
$
$
0
$
0
143,000
$
$
0
$
0
114,400
$
$
0
$
0
All Other
Compensation
($)
12,620
12,620
12,620
5,109
5,109
5,109
4,673
4,673
4,673
4,355
4,355
4,355
5,620
5,620
5,620
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total
(4)
2,034,488
$
550,120
$
$
457,120
1,004,237
$
277,171
$
245,774
$
1,605,447
$
440,522
$
378,387
$
1,575,897
$
439,271
$
378,069
$
1,342,907
$
375,420
$
$
322,818
(1) Amounts for stock awards represent the grant date full value of restricted stock units that vest over a three-year period, and do
not necessarily reflect compensation actually received by our named executive officers. The fair value of restricted stock unit
awards is calculated in accordance with Accounting Standards Codification 718 (“ASC 718”), excluding the impact of potential
forfeitures. Assumptions used in the calculation of these amounts are included in Note B to the audited consolidated financial
statements included herein for the fiscal year ended December 31, 2013.
(2) Amounts for option awards do not necessarily reflect compensation actually received by our named executive officers. The
amounts for option awards reflect the full grant date fair value of the equity awards made during the fiscal year ended
December 31, 2013 in accordance with ASC 718, excluding the impact of potential forfeitures. Assumptions used in the
calculation of these amounts are included in Note B to the audited consolidated financial statements included herein for the
fiscal year ended December 31, 2013.
(3) Drs. Van Bokkelen and Harrington also served as our Directors for 2013, 2012 and 2011 but did not receive any compensation
as our Directors.
73
The following table sets forth plan-based equity awards granted to our named executive officers during 2013 under our equity
compensation plans.
Grants of Plan-Based Awards for 2013
Name
Gil Van Bokkelen
Laura Campbell
William (BJ) Lehmann, Jr.
John Harrington
Robert Deans
All Other Stock
Awards:
Number of
Shares of Stock
or Units
(#)
695,040
369,607
573,64
0
570,551
491,162
Grant Date
June 18, 2013 (1)
June 18, 2013 (2)
June 18, 2013 (1)
June 18, 2013 (2)
June 18, 2013 (1)
June 18, 2013 (2)
June 18, 2013 (1)
June 18, 2013 (2)
June 18, 2013 (1)
June 18, 2013 (2)
All Other
Option Awards:
Number of
Securities
Underlying
Options
(#)
Exercise or
Base Price of
Option Awards
($/sh)
1.43
Grant Date Fair
Value of Stock
and Option
Awards
($) (3)
$ 1,188,518
$ 264,550
$ 632,028
85,800
$
$ 980,924
1.43 $ 164,450
$ 975,642
1.43 $ 143,000
$ 839,887
1.43 $ 114,400
1.43
185,000
60,000
115,000
100,000
80,000
$
$
$
$
$
(1) Restricted stock units granted under our Long-Term Incentive Plan.
(2) Options granted under our Long-Term Incentive Plan.
(3) The amounts in this column represent the grant date fair value of the options calculated in accordance with ASC 718, excluding
the impact of potential forfeitures.
Employment Agreements and Arrangements
Dr. Gil Van Bokkelen. On December 1, 1998, we entered into a one-year employment agreement, effective April 1, 1998, with
Dr. Gil Van Bokkelen, to serve initially as President and Chief Executive Officer. The agreement automatically renews for
subsequent one-year terms on April 1 of each year unless either party gives notice of termination at least thirty days before the end of
any term. Under the terms of the agreement, Dr. Van Bokkelen was entitled to an initial base salary of $150,000, which may be
increased at the discretion of the Board of Directors, and an annual discretionary incentive bonus of up to 33% of his base salary. His
salary for 2014 is $459,000 and his target annual incentive bonus is 60% of his base salary. Dr. Van Bokkelen also received options to
purchase shares of common stock upon his employment that were terminated in 2007, and his current stock options are described in
the table below. Dr. Van Bokkelen is also entitled to life insurance coverage for the benefit of his family in the amount of at least $1.0
million (which is $2.0 million for 2014) and is provided the use of a company automobile for business use. For more information
about severance arrangements under the agreement, see the disclosure under “Potential Payments Upon Termination or Change of
Control.” Dr. Van Bokkelen has also entered into a non-competition and confidentiality agreement with us under which, during his
employment and for a period of 18 months thereafter, he is restricted from, among other things, competing with us.
Dr. John J. Harrington. On December 1, 1998, we entered into a one-year employment agreement, effective April 1, 1998, with
Dr. John J. Harrington to serve initially as Executive Vice President and Chief Scientific Officer. The agreement automatically
renews for subsequent one-year terms on April 1 of each year unless either party gives notice of termination at least thirty days before
the end of any term. Under the terms of the agreement, Dr. Harrington was entitled to an initial base salary of $150,000, which may
be increased at the discretion of the Board of Directors, and an annual discretionary incentive bonus of up to 33% of his base salary.
His salary for 2014 is $377,000 and his target annual incentive bonus is 45% of his base salary. Dr. Harrington also received options
to purchase shares of common stock upon his employment that were terminated in 2007, and his current stock options are described in
the table below. Dr. Harrington is also entitled to life insurance coverage for the benefit of his family in the amount of at least $1.0
million (which is $2.0 million for 2014). For more information about severance arrangements under the agreement, see the disclosure
under “Potential Payments Upon Termination or Change of Control.” Dr. Harrington has also entered into a non-competition and
confidentiality agreement with us under which, during his employment and for a period of 18 months thereafter, he is restricted from,
among other things, competing with us.
74
Laura K. Campbell. On May 22, 1998, we entered into a two-year employment agreement with Laura K. Campbell to serve
initially as Controller. The agreement automatically renews for subsequent one-year terms on May 22 of each year unless either party
gives notice of termination at least thirty days before the end of any term. Under the terms of the agreement, Ms. Campbell was
entitled to an initial base salary of $70,200, which may be increased at the discretion of the Board of Directors. Her salary for 2014 is
$244,250 and her target annual incentive bonus is 30% of her base salary. Ms. Campbell also received options to purchase shares of
common stock upon her employment that were terminated in 2007, and her current stock options are described in the table below. For
more information about severance arrangements under the agreement, see the disclosure under “Potential Payments Upon
Termination or Change of Control.”
William (B.J.) Lehmann, Jr. On January 1, 2004, we entered into a four-year employment agreement with Mr. Lehmann to serve
initially as Executive Vice President of Corporate Development and Finance. The agreement automatically renews for subsequent
one-year terms on January 1 of each year unless either party gives notice of termination at least thirty days before the end of any term.
The agreement was amended in 2013 to modify the duration of his severance arrangement, with no changes to the events triggering
such severance. Under the terms of the agreement, Mr. Lehmann was entitled to an initial base salary of $250,000, which may be
increased at the discretion of the Board of Directors. His salary for 2014 is $379,000 and his target annual incentive bonus is 45% of
his base salary. Mr. Lehmann also received options to
purchase
were
shares
terminated in 2007, and his current stock options are described in the table below. For more information about severance
arrangements under the agreement, see the disclosure under “Potential Payments Upon Termination or Change of Control.” Mr.
Lehmann has also entered into a non-competition and confidentiality agreement with us under which, during his employment and
for a period of six months thereafter, he is restricted from, among other things, competing with us.
employment
common
stock
upon
that
of
his
Dr. Robert Deans. On October 3, 2003, we entered into a four-year employment agreement with Dr. Robert Deans to serve
initially as Vice President of Regenerative Medicine. The agreement automatically renews for subsequent one-year terms on
October 3 of each year unless either party gives notice of termination at least thirty days before the end of any term. Under the terms
of the agreement, Dr. Deans was entitled to an initial base salary of $200,000, which may be increased at the discretion of the Board
of Directors, and an annual discretionary incentive bonus of up to 30% of his base salary. His salary for 2014 is $324,500 and his
target annual incentive bonus is 40% of his base salary. Dr. Deans also received options to purchase shares of common stock upon his
employment that were terminated in 2007, and his current stock options are described in the table below. For more information about
severance arrangements under the agreement, see the disclosure under “Potential Payments Upon Termination or Change of Control.”
Dr. Deans has also entered into a non-competition and confidentiality agreement with us under which, during his employment and for
a period of six months thereafter, he is restricted from, among other things, competing with us.
Equity Compensation Plans
In June 2007, we adopted two equity compensation plans, which authorize the Board of Directors, or a committee thereof, to
provide equity-based compensation in the form of stock options, restricted stock, RSUs and other stock-based awards, which are used
to attract and retain qualified employees, Directors and consultants. Equity awards are granted from time to time under the guidance
and approval of the Compensation Committee. Total awards under these plans, as amended, are currently limited to 11,500,000 shares
of common stock, of which 3,441,585 shares remain available for issuance.
401(k) Plan
We have a tax-qualified employee savings and retirement plan, also known as a 401(k) plan that covers all of our employees.
Under our 401(k) plan, eligible employees may elect to reduce their current compensation by up to the statutorily prescribed annual
limit, which was $17,500 in 2013, and have the amount of the reduction contributed to the 401(k) plan. The trustees of the 401(k)
plan, at the direction of each participant, invest the assets of the 401(k) plan in designated investment options. We may make
matching or profit-sharing contributions to the 401(k) plan in amounts to be determined by the Board of Directors. We made
matching contributions to the 401(k) plan during fiscal 2013 at a maximum rate of fifty cents for every dollar of the first 6% of
participant contributions, up to a dollar maximum of $3,000 per participant, which amounted to approximately $97,000 in 2013. The
401(k) plan is intended to qualify under Section 401 of the Internal Revenue Code, so that contributions to the 401(k) plan and
income earned on the 401(k) plan contributions are not taxable until withdrawn, and so that any contributions we make will be
deductible when made.
75
The following table sets forth outstanding options held by our named executive officers at December 31, 2013.
Outstanding Equity Awards at 2013 Fiscal Year-End
Name (a)
Gil Van Bokkelen
Laura Campbell
William (BJ) Lehmann
John Harrington
Robert Deans
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b)
23,125
25,000
712,500
7,500
17,50
0
200,000
14,375
22,500
0
400,00
12,500
22,500
700,000
10,00
0
20,000
240,000
Option Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c)
161,875
0
0
52,500
0
0
100,625
0
0
87,500
0
0
70,000
0
0
Option
Exercise
Price
($)(e)
$ 1.71
$ 5.28
$ 5.00
$ 1.71
$ 5.28
$ 5.00
$ 1.71
$ 5.28
$ 5.00
$ 1.71
$ 5.28
$ 5.00
$ 1.71
$ 5.28
$ 5.00
Option Expiration
Date
(f)
June 18, 2023 (1)
December 23, 2019 (2)
June 8, 2017 (3)
June 18, 2023(1)
December 23, 2019 (2)
June 8, 2017 (3)
June 18, 2023 (1)
December 23, 2019 (2)
June 8, 2017 (3)
June 18, 2023 (1)
December 23, 2019 (2)
June 8, 2017 (3)
June 8, 2017 (1)
December 23, 2019 (2)
June 8, 2017 (3)
(1) Options were granted on June 18, 2013, vesting ratably over four years on a quarterly basis.
(2) Options were granted on December 23, 2009 and vested ratably over one year on a quarterly basis, and thus were fully
exercisable on December 24, 2010.
(3) Options were granted on June 8, 2007 and vested at a rate of 40% on the grant date and vested 20% in each of the three years
thereafter (on a quarterly basis), and thus were fully exercisable on June 8, 2010.
None of our named executive officers exercised any stock options during 2013. The following table provides information on all
stock awards vested and the value realized upon vesting, by the named executive officers during fiscal 2013:
2013 Options Exercised and Stock Vested
Name
Gil Van Bokkelen
Laura Campbell
William (BJ) Lehmann
John Harrington
Robert Deans
Stock Awards
Number of Shares
Acquired on Vesting
(#)
115,840
61,602
95,608
95,092
81,862
Value Realized on
Vesting (1)
($)
222,413
118,276
183,567
182,577
157,175
$
$
$
$
$
(1) The value realized upon vesting is the product of multiplying the number of shares of common stock by the market value of the
underlying shares on the vesting date.
76
Potential Payments Upon Termination or Change in Control
Under their employment agreements, the named executive officers may be entitled to certain potential payments upon
termination. In the event that an executive officer is terminated without cause or terminates employment for good reason, as defined
in the agreements, we would be obligated to pay full base salary for a defined period, subject to mitigation related to other
employment. For Gil Van Bokkelen and John Harrington, the defined payment period is 18 months, for William (BJ) Lehmann, the
defined payment period is twelve months, and for Laura Campbell and Robert Deans, the defined payment period is six months. We
would also be obligated to continue the participation of Gil Van Bokkelen and John Harrington in all other medical, life and employee
“welfare” benefit programs for a period of eighteen months at our expense, to the extent available and possible under the programs.
The agreements define “cause” to mean willful and continuous neglect of such executive officer’s duties or responsibilities or
willful misconduct by the executive officer that is materially and manifestly injurious to Athersys. “Good reason” includes, among
other things, demotion, salary reduction, relocation, failure to provide an executive officer with adequate and appropriate facilities
and termination by the executive officer within 90 days of a change in control. A “change in control” occurs when (1) a person or
group of persons purchases 50% or more of our consolidated assets or a majority of our voting shares, or (2) if, following a public
offering, the directors of Athersys immediately following the offering no longer constitute a majority of the Board of Directors. Upon
a change in control, or if the named executive officer should die or become permanently disabled, all unvested stock options become
immediately vested and exercisable. As of December 31, 2013, each of the named executive officers held unvested stock options, as
reflected in the Outstanding Equity Awards at 2013 Fiscal Year-End table above.
In the event that an executive officer is terminated for cause or as a result of death, we would be obligated to pay full base salary
and other benefits, including any unpaid expense reimbursements, through the date of termination, and would have no further
obligations to the executive officer. In the event that an executive officer is unable to perform duties as a result of a disability, we
would be obligated to pay full base salary and other benefits until employment is terminated and for a period of twelve months from
the date of such termination.
The table below reflects the amount of compensation payable to each named executive officer in the event of termination of
such executive’s employment, pursuant to such executive’s employment agreement. The amounts shown assume that such
termination was effective as of December 31, 2013 and thus includes amounts earned through such time and are estimates of the
amounts that would be paid out to executives upon their termination.
Gil Van Bokkelen
William (BJ) Lehmann, Jr.
John Harrington
Robert Deans
Laura Campbell
Executive Benefit and
Payments Upon
Separation
Cash Severance Payment
Continuation of Benefits
Total
Cash Severance Payment
Continuation of Benefits
Total
Cash Severance Payment
Continuation of Benefits
Total
Cash Severance Payment
Continuation of Benefits
Total
Cash Severance Payment
Continuation of Benefits
Total
Termination
Without
Cause or
Voluntary
For
Good
Reason
$
675,000
$
25,848
$ 700,848
$
371,400
$
—
$ 371,400
$
554,100
$
25,848
$ 579,948
159,000
$
$
—
$ 159,000
119,650
$
$
—
$ 119,650
77
The following table summarizes compensation paid to our non-employee Directors in 2013:
Director Compensation Table for 2013
Name(a)
Lee E. Babiss
Ismail Kola
Lorin J. Randall
Kenneth H. Traub
Jack L. Wyszomierski
Fees Earned or
Paid in Cash
($)(b)
$
$
$
$
$
0
58,25
42,000
68,500
50,000
56,000
Option
Awards
($)(1)(d)
$41,400
$41,400
$41,400
$41,400
$41,400
Total
($)(h)
$ 99,650
$ 83,400
$109,900
$ 91,400
$ 97,400
(1) Amounts in column (d) do not necessarily reflect compensation actually received by our Directors. The amounts in column
(d) reflect the full grant date fair value of the equity awards made during the fiscal year ended December 31, 2013, in
accordance with ASC 718. Assumptions used in the calculation of these amounts are included in the notes to the 2013 audited
consolidated financial statements included herein. The Directors had option awards outstanding as of December 31, 2013 for
shares of common stock as follows: Lee Babiss — 135,000; Ismail Kola 135,000; Lorin Randall — 90,000; Kenneth Traub —
60,000; and Jack Wyszomierski — 135,000.
Under our Director compensation program for non-employee Directors, new Directors receive an initial stock option grant to
purchase 50,000 shares (30,000 shares prior to September 2013) of common stock at fair market value on the date of grant, which
vests at a rate of 50% in the first year (on a quarterly basis) and 25% in each of the two years (on a quarterly basis) thereafter.
Additionally, the non-employee Directors receive annually an option award to purchase 30,000 shares (15,000 shares prior to
September 2013) of common stock at fair market value on the date of grant, which vests quarterly over a one-year period, with such
anniversary awards issued in June of each year in connection with our annual stockholder meeting. In June 2013, Directors Babiss,
Kola, Randall, Traub and Wyszomierski each received an anniversary stock option award of 15,000 shares. In September 2013, the
Compensation Committee recommended, and the Board of Directors approved, an increase to the initial option award and the
anniversary option award for a non-employee Director to 50,000 and 30,000 shares, respectively, after engaging Arnosti to conduct a
market and peer analysis. As a result, each of Directors Babiss, Kola, Randall, Traub and Wyszomierski received an incremental
anniversary stock option award of 15,000 shares in September 2013. The incremental awards vest over a one-year period beginning
June 2013, on a quarterly basis. All initial and anniversary stock option awards granted to non-employee Directors have a term of ten
years and upon the termination of the Director’s service, the Director has 18 months in which to exercise the vested portion of his
options prior to forfeiture.
Our Directors receive annual cash compensation retainers as set forth below, effective October 1, 2013:
Board Member
Lead Director
Audit Committee — Chairman
Audit Committee — Member
Compensation Committee — Chairman
Compensation Committee — Member
Nominations and Corporate Governance Committee — Chairman
Nominations and Corporate Governance Committee — Member
$40,000
$25,000
$15,000
$ 7,500
$10,000
$ 5,000
$10,000
$ 5,000
Prior to October 1, 2013, we did not appoint a lead director, and the annual retainers for the chairman and members of the
Nominations and Corporate Governance Committee were $6,000 and $3,000, respectively. These annual retainers are paid in
quarterly installments and Directors are reimbursed for reasonable out-of-pocket expenses incurred while attending Board and
committee meetings.
Compensation Committee Interlocks and Insider Participation
In 2013, none of our Directors was a member of the board of directors of any other company where the relationship would be
construed to constitute a committee interlock within the meaning of the rules of the SEC.
78
78
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis section
above and based on this review, has recommended to the Athersys Board of Directors the inclusion of the Compensation Discussion
and Analysis in this annual report on Form 10-K for the fiscal year ended December 31, 2013.
Compensation Committee Report
Compensation Committee
Board of Directors
Lee E. Babiss
Lorin J. Randall
Kenneth H. Traub
Jack W. Wyszomierski
79
79
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information regarding the Company’s equity compensation plans as of December 31, 2013,
unless otherwise indicated.
Number of
securities
to be issued
upon
exercise of
outstanding
awards
(a) (1)
6,644,055
934,870
7,578,925
Weighted-
average
exercise price
of outstanding
awards
(b)
$
$
3.74
3.60
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected
in column (a))
(c)
2,911,455
530,130
3,441,585
Plan Category
Equity compensation plan approved by security
holders
Equity compensation plan not approved by security
holders (2)
Total
Included in column (a) are both stock options and restricted stock units awarded under our equity compensation plans.
(1)
(2) The other shares of common stock included in this plan category are issued or issuable under our Equity Incentive
Compensation Plan. The terms of our Equity Incentive Compensation Plan are substantially similar to the terms of the Current
LTIP. For information on the terms of these plans, see “Compensation Discussion and Analysis – Elements of Executive
Compensation – Long-Term Incentive Program”, as well as “Compensation Discussion and Analysis – Equity Compensation
Plans” in this annual report.
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80
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information known to us regarding the beneficial ownership of our common stock as of
February 28, 2014 (unless otherwise indicated below) by:
• each person known by us to beneficially own more than 5% of our common stock;
• each of our Directors;
• each of the executive officers named in the Summary Compensation Table; and
• all of our Directors and executive officers as a group.
We have determined beneficial ownership in accordance with the rules of the SEC. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person, shares of common stock that could be issued upon the
exercise of outstanding options and warrants held by that person that are exercisable within 60 days of February 28, 2014 are
considered outstanding. These shares, however, are not considered outstanding when computing the percentage ownership of each
other person.
Percentage ownership calculations for beneficial ownership for each person or entity are based on 76,633,698 shares of common
stock outstanding as of February 28, 2014.
Except as indicated in the footnotes to this table and pursuant to state community property laws, each stockholder named in the
table has sole voting and investment power for the shares shown as beneficially owned by them.
Name of Beneficial Owner
Greater Than 5% Stockholders
First Eagle Investment Management, LLC
(1)
Directors and Executive Officers
Gil Van Bokkelen
(2)
Lee Babiss
(3)
John Harrington
(4)
Ismail Kola
(5)
Lorin Randall
(6)
Kenneth Traub
(7)
Jack Wyszomierski
Laura Campbell
Robert Deans
(10)
William (BJ) Lehmann, Jr.
All Directors and executive officers as a group (10
(11)
(9)
(8)
persons)
Number of
Shares
4,207,600
1,137,879
127,500
911,144
127,500
82,500
61,250
127,500
344,098
369,448
525,967
3,814,786
Percent of Class
5.5%
1.5%
*
1.2%
*
*
*
*
*
*
*
5.0%
(2)
Less than 1%.
*
(1) A Schedule 13G/A filed with the SEC on February 14, 2014 reported that First Eagle Investment Management, LLC, or FEIM,
an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is deemed to be the beneficial
owner of 4,207,600 shares of common stock as a result of acting as investment adviser to various FEIM clients. FEIM has sole
voting and dispositive power over 4,207,600 shares of common stock.
Includes vested options for 772,187 shares of common stock at a weighted average exercise price of $4.86 per share and 57,920
restricted stock units that vest on March 18, 2014.
Includes vested options for 127,500 shares of common stock at a weighted average exercise price of $2.67 per share.
Includes vested options for 741,250 shares of common stock at a weighted average exercise price of $4.93 per share and 47,546
restricted stock units that vest on March 18, 2014.
Includes vested options for 127,500 shares of common stock at a weighted average exercise price of $2.45 per share.
Includes vested options for 82,500 shares of common stock at a weighted average exercise price of $1.95 per share.
Includes vested options for 41,250 shares of common stock at a weighted average exercise price of $1.58 per share.
(5)
(6)
(7)
(3)
(4)
81
81
(8)
(9)
Includes vested options for 127,500 shares of common stock at a weighted average exercise price of $2.61 per share.
Includes vested options for 228,750 shares of common stock at a weighted average exercise price of $4.86 per share and 30,801
restricted stock units that vest on March 18, 2014.
(10) Includes vested options for 275,000 shares of common stock at a weighted average exercise price of $4.84 per share and 40,930
restricted stock units that vest on March 18, 2014.
(11) Includes vested options for 444,063 shares of common stock at a weighted average exercise price of $4.85 per share and 47,804
restricted stock units that vest on March 18, 2014.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Person Transactions
We give careful attention to related person transactions because they may present the potential for conflicts of interest. We refer
to “related person transactions” as those transactions, arrangements, or relationships in which:
• we were, are or are to be a participant;
• the amount involved exceeds $120,000; and
• any of our Directors, Director nominees, executive officers or greater-than five percent stockholders (or any of their
immediate family members) had or will have a direct or indirect material interest.
To identify related person transactions in advance, we rely on information supplied by our executive officers, Directors and
certain significant stockholders. We maintain a comprehensive written policy for the review, approval or ratification of related person
transactions, and our Audit Committee reviews all related person transactions identified by us. The Audit Committee approves or
ratifies only those related person transactions that are determined by it to be, under all of the circumstances, in the best interest of the
Company and its stockholders. No related person transactions occurred in fiscal 2013 that required a review by the Audit Committee.
At times, Aspire Capital has beneficially owned more than 5% of our outstanding common stock. We entered into an equity
purchase agreement with Aspire Capital in 2011, which provided that Aspire Capital was committed to purchase up to an aggregate of
$20.0 million of shares of our common stock over a two-year term, subject to our election to sell any such shares. Under the
agreement, we had the right to sell shares, subject to certain volume limitations and a minimum floor price, at a modest discount to
the prevailing market price. As part of the agreement, Aspire Capital made an initial investment of $1.0 million in us through the
purchase of 666,667 shares of our common stock at $1.50 per share in 2011, and received 266,667 additional shares as compensation
for its commitment. As a result of this transaction, combined with shares of our common stock that Aspire Capital held prior to the
November 2011 transaction, Aspire Capital became one of our larger stockholders, owning more than 5% of our shares of our
common stock outstanding at that time.
By September 30, 2013, we had sold all the remaining shares that were available under the 8,000,000 shares of common stock
registered for resale under the equity facility, which was due to expire in January 2014. In October 2013, we terminated the expiring
equity purchase agreement with Aspire Capital and entered into a new equity purchase agreement with Aspire Capital to purchase up
to an aggregate of $25.0 million of shares of our common stock over a new two-year period. The terms of the 2013 equity facility are
similar to the previous arrangement, and we issued 333,333 shares of our common stock Aspire Capital as a commitment fee in
October 2013 and filed a registration statement for the resale of 10,000,000 shares of common stock in connection with the new
equity facility.
In 2013, we sold an aggregate 6,566,666 shares to Aspire Capital at an average price of $1.70 per share under both equity
purchase agreements.
In our March 2012 private placement, Aspire Capital purchased an additional 966,184 shares of common stock and five-year
warrants to purchase 966,184 shares of common stock with an exercise price of $2.07 per share. The securities were sold in multiples
of a fixed combination of one share of common stock and a warrant to purchase one share of common stock at an offering price of
$2.07 per fixed combination, for a total purchase price to Aspire Capital of approximately $2.0 million. Also, in our October 2012
public offering, Aspire Capital purchased an additional 750,000 shares of common stock for a total purchase price to Aspire Capital
of approximately $0.8 million. As a result of our October 2012 public offering and in accordance with the antidilution provisions of
the March 2012 warrants, we sought and obtained stockholder approval in February 2013 to reduce the exercise price of the March
2012 warrants to $1.01 per share.
82
82
Also, in our December 2013 registered direct offering, Aspire Capital purchased an additional 1.0 million shares of common
stock and warrants to purchase 350,000 shares of common stock with an exercise price of $2.50 per share that expire on March 31,
2015, a portion of which are not exercisable until June 3, 2014. The securities were sold in multiples of a fixed combination of one
share of common stock and a warrant to purchase 0.35 shares of common stock at an offering price of $2.00 per fixed combination,
for a total purchase price to Aspire Capital of approximately $2.0 million.
Director Independence
The Board reviews the independence of each Director at least annually. During these reviews, the Board will consider
transactions and relationships between each Director (and his or her immediate family and affiliates) and the Company and our
management to determine whether any such transactions or relationships are inconsistent with a determination that the Director was
independent. The Board conducted its annual review of Director independence to determine if any transactions or relationships exist
that would disqualify any of the individuals who serve as a Director under the rules of the NASDAQ Capital Market or require
disclosure under Securities and Exchange Commission, or SEC, rules. Based upon the foregoing review, the Board determined the
following individuals are independent under the rules of the NASDAQ Capital Market: Lee E. Babiss, Ismail Kola, Lorin J. Randall,
Kenneth H. Traub and Jack L. Wyszomierski. Currently, we have two members of management that also serve on the Board: Dr. Van
Bokkelen, who is also our Chairman and Chief Executive Officer, and Dr. Harrington, who is our Executive Vice President and Chief
Scientific Officer. Neither Dr. Van Bokkelen nor Dr. Harrington is considered independent under the independence rules of the
NASDAQ Capital Market.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Principal Accountant Fees and Services
Audit Fees. Fees paid to Ernst & Young LLP for the audit of the annual consolidated financial statements included in the Company’s
Annual Reports on Form 10-K, for the reviews of the consolidated financial statements included in the Company’s Forms 10-Q, and
for services related to registration statements were $639,100 for the fiscal year ended December 31, 2013 and $500,400 for the fiscal
year ended December 31, 2012. The increase related primarily to services for registration statements filed in 2013 and internal control
attestation required in 2013.
Audit-Related Fees. There were no fees paid to Ernst & Young LLP for audit-related services in 2013 and 2012.
Tax Fees. Fees paid to Ernst & Young LLP associated with tax compliance and tax consultation were $29,250 and $25,000 for the
fiscal years ended December 31, 2013 and 2012, respectively.
All Other Fees. There were no other fees paid to Ernst & Young LLP in 2013 or 2012.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee has adopted a formal policy on auditor independence requiring the pre-approval by the Audit Committee
of all professional services rendered by the Company’s independent auditor prior to the commencement of the specified services.
For the fiscal year ended December 31, 2013, 100% of the services described above were pre-approved by the Audit Committee
in accordance with the Company’s formal policy on auditor independence.
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83
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements:
The following consolidated financial statements of Athersys, Inc. are included in Item 8:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Operations and Comprehensive Loss for each of the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flow for each of the years ended December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules:
The following financial statement schedule of Athersys, Inc. is included:
Schedule II – Valuation and Qualifying Accounts
(In thousands)
Year Ended December 31, 2013
Deducted from asset accounts:
Allowance for doubtful accounts – note receivable
Tax valuation allowances
Total 2013
Year Ended December 31, 2012
Deducted from asset accounts:
Allowance for doubtful accounts – note receivable
Tax valuation allowances
Total 2012
Year Ended December 31, 2011
Deducted from asset accounts:
Allowance for doubtful accounts – note receivable
Tax valuation allowances
Total 2011
Balance at
Beginning of
Year
Additions
Deductions
Balance at
End of Year
$
330
$ 34,222
$ 34,552
$ —
$10,126
$10,126
$ —
$18,306 (B)
$ 18,306
330(A)
$
$ 26,042
$ 26,372
$
307
$ 29,272
$ 29,579
$
23
$ 4,950
$ 4,973
$ —
$ —
$ —
330(A)
$
$ 34,222
$ 34,552
$
296
$ 23,908
$ 24,204
$
11
$ 5,364
$ 5,375
$ —
$ —
$ —
$
307
$ 29,272
$ 29,579
(A) – Reserve on note receivable; Fully - reserved.
(B) –
Deferred tax assets are fully offset by valuation allowances. As a result of the October 2012 equity
offering, the Company lost the use of a significant portion of its net operating loss carryforwards
generated prior to October 2012.
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related
instructions or are not applicable and, therefore, omitted.
84
84
(a)(3) Exhibits.
Exhibit No.
Exhibit Description
3.1
3.2
4.1
4.2
4.3
4.4
10.1*
10.2*
10.3*
10.4
10.5
10.6
10.7
10.8
10.9
Certificate of Incorporation of Athersys, Inc., as amended as of June 28, 2013 (incorporated herein by reference to
Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-Q (Commission No. 000-52108) filed with the
Commission on August 13, 2013)
Bylaws of Athersys, Inc., as amended as of October 30, 2007 (incorporated herein by reference to Exhibit 3.1 to
the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on October
31, 2007)
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on January 28, 2011)
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on March 15, 2012)
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on November 29, 2013)
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on January 13, 2014)
Research Collaboration and License Agreement, dated as of December 8, 2000, by and between Athersys, Inc. and
Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current
Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Cell Line Collaboration and License Agreement, dated as of July 1, 2002, by and between Athersys, Inc. and
Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current
Report on Form 8-K/A (Commission No. 000-52108) filed with the Commission on September 27, 2007)
Extended Collaboration and License Agreement, dated as of January 1, 2006, by and between Athersys, Inc. and
Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 10.3 to the registrant’s Current
Report on Form 8-K/A (Commission No. 000-52108) filed with the Commission on September 27, 2007)
License Agreement, effective as of May 5, 2006, by and between Athersys, Inc. and Angiotech (incorporated
herein by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108)
filed with the Commission on June 14, 2007)
Sublicense Agreement, effective as of May 5, 2006, by and between Athersys, Inc. and Angiotech (incorporated
herein by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108)
filed with the Commission on June 14, 2007)
Amended and Restated Registration Rights Agreement, dated as of April 28, 2000, by and among Athersys, Inc.
and the stockholders of Athersys, Inc. parties thereto (incorporated herein by reference to Exhibit 10.6 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14,
2007)
Amendment No. 1 to Athersys, Inc. Amended and Restated Registration Rights Agreement, dated as of January
29, 2002, by and among Athersys, Inc., the New Stockholders, the Investors, Biotech and the Stockholders (each
as defined in the Amended and Restated Registration Rights Agreement, dated as April 28, 2000, by and among
Athersys, Inc. and the stockholders of Athersys, Inc. parties thereto) (incorporated herein by reference to Exhibit
10.7 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on
June 14, 2007)
Amendment No. 2 to Athersys, Inc. Amended and Restated Registration Rights Agreement, dated as of November
19, 2002, by and among Athersys, Inc., the New Stockholders, the Investors, Biotech and the Stockholders (each
as defined in the Amended and Restated Registration Rights Agreement, dated as April 28, 2000, as amended, by
and among Athersys, Inc. and the stockholders of Athersys, Inc. parties thereto) (incorporated herein by reference
to Exhibit 10.8 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the
Commission on June 14, 2007)
Amendment No. 3 to Amended and Restated Registration Rights Agreement, dated as of May 15, 2007, by and
among Athersys, Inc. and the Existing Stockholders (as defined therein) (incorporated herein by reference to
Exhibit 10.9 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the
Commission on June 14, 2007)
85
85
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
10.23†
10.24†
10.25†
10.26†
Athersys, Inc. Equity Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.11 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amended and Restated Employment Agreement, dated as of December 1, 1998 but effective as of April 1, 1998, by
and between Athersys, Inc. and Dr. Gil Van Bokkelen (incorporated herein by reference to Exhibit 10.14 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Amended and Restated Employment Agreement, dated as of May 31, 2007, by and between
Advanced Biotherapeutics, Inc. and Gil Van Bokkelen (incorporated herein by reference to Exhibit 10.15 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Non-Competition and Confidentiality Agreement, dated as of December 1, 1998, by and between Athersys, Inc. and
Dr. Gil Van Bokkelen (incorporated herein by reference to Exhibit 10.16 to the registrant’s Current Report on Form 8-
K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amended and Restated Employment Agreement, dated as of December 1, 1998 but effective as of April 1, 1998, by
and between Athersys, Inc. and Dr. John J. Harrington (incorporated herein by reference to Exhibit 10.17 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Amended and Restated Employment Agreement, dated as of May 31, 2007, by and between
Advanced Biotherapeutics, Inc. and John Harrington (incorporated herein by reference to Exhibit 10.18 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Non-Competition and Confidentiality Agreement, dated as of December 1, 1998, by and between Athersys, Inc. and
Dr. John J. Harrington (incorporated herein by reference to Exhibit 10.19 to the registrant’s Current Report on Form 8-
K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Employment Agreement, dated as of May 22, 1998, by and between Athersys, Inc. and Laura K. Campbell
(incorporated herein by reference to Exhibit 10.20 to the registrant’s Current Report on Form 8-K (Commission No.
000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Employment Agreement, dated as of May 31, 2007, by and between Advanced Biotherapeutics,
Inc. and Laura Campbell (incorporated herein by reference to Exhibit 10.21 to the registrant’s Current Report on Form
8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Employment Agreement, dated as of October 3, 2003, by and between Advanced Biotherapeutics, Inc. and Robert
Deans, Ph.D. (incorporated herein by reference to Exhibit 10.25 to the registrant’s Current Report on Form 8-K
(Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Employment Agreement, dated as of May 31, 2007, by and between Advanced Biotherapeutics,
Inc. and Robert Deans (incorporated herein by reference to Exhibit 10.26 to the registrant’s Current Report on Form 8-
K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Non-Competition and Confidentiality Agreement, dated as of October 3, 2003, by and among Athersys, Inc.,
Advanced Biotherapeutics, Inc. and Robert Deans (incorporated herein by reference to Exhibit 10.27 to the registrant’s
Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Employment Agreement, dated as of January 1, 2004, by and between Advanced Biotherapeutics, Inc. and William
Lehmann (incorporated herein by reference to Exhibit 10.28 to the registrant’s Current Report on Form 8-K
(Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Employment Agreement, dated as of May 31, 2007, by and between Advanced Biotherapeutics,
Inc. and William Lehmann (incorporated herein by reference to Exhibit 10.29 to the registrant’s Current Report on
Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 2 to Employment Agreement, dated as of January 24, 2014, by and between Advanced
Biotherapeutics, Inc. and William Lehmann
Non-Competition and Confidentiality Agreement, dated as of September 10, 2001, by and among Athersys, Inc.,
Advanced Biotherapeutics, Inc. and William Lehmann (incorporated herein by reference to Exhibit 10.30 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Form Incentive Agreement by and between Advanced Biotherapeutics, Inc. and named executive officers, and
acknowledged by Athersys, Inc. and ReGenesys, LLC (incorporated herein by reference to Exhibit 10.31 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
86
10.27†
10.28†
10.29*
10.30
10.31
10.32*
10.33*
10.34
10.35
10.36*
10.37†
10.38†
10.39†
10.40†
10.41†
Form Amendment No. 1 to Incentive Agreement by and between Advanced Biotherapeutics, Inc. and named
executive officers, and acknowledged by Athersys, Inc. and ReGenesys, LLC (incorporated herein by reference to
Exhibit 10.32 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the
Commission on June 14, 2007)
Form Amendment No. 2 to Incentive Agreement by and between Advanced Biotherapeutics, Inc. and named
executive officers, and acknowledged by Athersys, Inc. and ReGenesys, LLC (incorporated herein by reference to
Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission
on June 20, 2013)
Exclusive License Agreement, dated as of May 17, 2002, by and between Regents of the University of Minnesota and
MCL LLC, assumed by ReGenesys, LLC through operation of merger on November 4, 2003 (incorporated herein by
reference to Exhibit 10.34 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the
Commission on June 14, 2007)
Amendment No. 1 to Cell Line Collaboration and License Agreement, dated as of January 1, 2006, by and between
Athersys, Inc. and Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 10.36 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Form Indemnification Agreement for Directors, Officers and Directors and Officers (incorporated herein by reference
to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the
Commission on August 6, 2007)
Collaboration and License Agreement, dated as of December 18, 2009, by and between Athersys, Inc., ABT Holding
Company, and Pfizer (incorporated herein by reference to Exhibit 10.42 to the registrant’s Annual Report on Form
10-K for the year ended December 31, 2009 (Commission No. 001-33876) filed with the Commission on March 11,
2010)
Stand-by License Agreement, dated as of December 18, 2009, by and between Regents of the University of
Minnesota, ABT Holding Company and Pfizer (incorporated herein by reference to Exhibit 10.43 to the registrant’s
Annual Report on Form 10-K for the year ended December 31, 2009 (Commission No. 001-33876) filed with the
Commission on March 11, 2010)
Amendment dated as of March 31, 2009 to the Extended Collaboration and License Agreement, by and between
Athersys, Inc. and Bristol-Myers Squibb Company effective January 1, 2006 (incorporated herein by reference to
Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Commission No. 001-33876) filed with the Commission
on April 9, 2009)
Amendment No. 4 to Amended and Restated Registration Rights Agreement, dated as of March 8, 2010, by and
among Athersys, Inc. and the Existing Stockholders (as defined therein) (incorporated herein by reference to Exhibit
10.45 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 (Commission No. 001-
33876) filed with the Commission on March 11, 2010)
License and Technical Assistance Agreement, dated as of September 10, 2010, between ABT Holding Company and
RTI (incorporated herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q
(Commission No. 001-33876) filed with the Commission on November 8, 2010)
Form of Incentive Stock Option Agreement (incorporated herein by reference to Exhibit 10.47 to the registrant’s
Annual Report on Form 10-K for the year ended December 31, 2010 (Commission No. 001-33876) filed with the
Commission on March 25, 2011)
Form of Nonqualified Stock Option Agreement for Non-Employee Directors (incorporated herein by reference to
Exhibit 10.48 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2010 (Commission
No. 001-33876) filed with the Commission on March 25, 2011)
Athersys, Inc. Amended and Restated 2007 Long-Term Incentive Plan (Amended and Restated Effective June 16,
2011) (incorporated herein by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K (Commission No.
001-33876) filed with the Commission on June 20, 2011
Athersys, Inc. Amended and Restated 2007 Long-Term Incentive Plan (Amended and Restated Effective June 18,
2013) (incorporated herein by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K (Commission No.
001-33876) filed with the Commission on June 18, 2013
Form of Nonqualified Stock Option Agreement for Non-Employee Directors pursuant to the Athersys, Inc. Amended
and Restated 2007 Long-Term Incentive Plan (Amended and Restated Effective June 16, 2011) (incorporated herein
by reference to Exhibit 10.49 to the registrant’s Quarterly Report on Form 10-Q (Commission No. 001-33876) filed
with the Commission on May 6, 2011)
87
10.42
10.43
10.44
10.45†
10.46†
10.47
10.48
10.49
10.50
10.51
10.52†
10.53
10.54
Common Stock Purchase Agreement, dated as of November 11, 2011, by and between Athersys, Inc. and Aspire
Capital Fund, LLC (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on November 14, 2011)
First Amendment to Common Stock Purchase Agreement, dated as of November 17, 2011, by and between Athersys,
Inc. and Aspire Capital Fund, LLC (incorporated by reference to Exhibit 10.47 to the registrant’s Registration
Statement on Form S-1 (Commission No. 333-178418) filed with the Commission on December 9, 2011)
Common Stock Purchase Agreement, dated as of October 22, 2013, by and between Athersys, Inc. and Aspire Capital
Fund, LLC (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on October 23, 2013)
Form of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.2 to the registrant’s
Quarterly Report on Form 10-Q (Commission No. 001-33876) filed with the Commission on August 10, 2011)
Form of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current
Report on Form 8-K (Commission No. 001-33876) filed with the Commission on June 20, 2013)
Registration Rights Agreement, dated as of November 11, 2011, by and between Athersys, Inc. and Aspire Capital
Fund, LLC (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on November 14, 2011)
Registration Rights Agreement, dated as of October 22, 2013, by and between Athersys, Inc. and Aspire Capital
Fund, LLC (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on October 23, 2013)
Amendment No. 3 to Extended Collaboration and License Agreement, dated January 31, 2012, by and between ABT
Holding Company and Bristol-Myers Squibb Company (incorporated by reference to Exhibit 10.3 to the registrant’s
Quarterly Report on Form 10-Q (Commission No. 001-33876) filed with the Commission on May 14, 2012)
First Amendment to License and Technical Assistance Agreement, dated September 17, 2012, by and between ABT
Holding, Inc. and RTI Biologics, Inc. (incorporated herein by reference to Exhibit 10.52 to the registrant’s
Registration Statement on Form S-1/A (Commission No. 001-33876) filed with the Commission on October 23,
2012)
Registration Rights Agreement, dated as of March 9, 2012, by and between Athersys, Inc. and the signatories thereto
(incorporated herein by reference to Exhibit 10.53 to the registrant’s Current Report on Form 8-K (Commission No.
001-33876) filed with the Commission on March 15, 2012)
Summary of Athersys, Inc. 2013 Cash Bonus Incentive Plan (incorporated herein by reference to Exhibit 10.54 to the
registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 (Commission No. 001-33876) filed
with the Commission on March 12, 2013)
Form of Securities Purchase Agreement (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current
Report on Form 8-K (Commission No. 001-33876) filed with the Commission on November 29, 2013)
Form of Securities Purchase Agreement (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current
Report on Form 8-K (Commission No. 001-33876) filed with the Commission on January 13, 2014)
10.55†
Summary of Athersys, Inc. 2014 Cash Bonus Incentive Plan
21.1
23.1
24.1
31.1
31.2
32.1
List of Subsidiaries
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
Power of Attorney
Certification of Gil Van Bokkelen, Chairman and Chief Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-
14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Laura K. Campbell, Vice President of Finance, pursuant to SEC Rules 13a-14(a) and 15d-14(a)
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Gil Van Bokkelen, Chairman and Chief Executive Officer, and Laura Campbell, Vice President of
Finance, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
88
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*
†
Confidential treatment requested as to certain portions, which portions have been filed separately with the SEC
Indicates management contract or compensatory plan, contract or arrangement in which one or more directors or executive
officers of the registrant may be participants
89
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Cleveland, State of Ohio, on March 13, 2014.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date indicated.
ATHERSYS, INC.
By: /s/ Gil Van Bokkelen
Gil Van Bokkelen
Title: Chief Executive Officer
Signature
/s/ Gil Van Bokkelen
Gil Van Bokkelen
/s/ Laura K. Campbell
Laura K. Campbell
*
John J. Harrington
*
Lorin J. Randall
*
Kenneth H. Traub
*
Jack L. Wyszomierski
*
Lee E. Babiss
*
Ismail Kola
Title
Chief Executive Officer and Chairman of
the Board of Directors (Principal
Executive Officer)
Vice President of Finance (Principal
Financial Officer and Principal
Accounting Officer)
Date
March 13 , 2014
March 13, 2014
Executive Vice President, Chief Scientific
Officer and Director
March 13, 2014
Director
Director
Director
Director
Director
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
*
Gil Van Bokkelen, by signing his name hereto, does hereby sign this Form 10-K on behalf of each of the above named and
designated directors of the Company pursuant to Powers of Attorney executed by such persons and filed with the Securities and
Exchange Commission.
By: /s/ Gil Van Bokkelen
Gil Van Bokkelen
Attorney-in-fact
90
90
EXHIBIT INDEX
Exhibit No.
3.1
Exhibit Description
Certificate of Incorporation of Athersys, Inc., as amended as of June 28, 2013 (incorporated herein by reference to
Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-Q (Commission No. 000-52108) filed with the
Commission on August 13, 2013)
3.2
4.1
4.2
4.3
4.4
10.1*
10.2*
10.3*
10.4
10.5
10.6
10.7
10.8
10.9
10.10†
10.11†
Bylaws of Athersys, Inc., as amended as of October 30, 2007 (incorporated herein by reference to Exhibit 3.1 to
the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on October
31, 2007)
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on January 28, 2011)
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on March 15, 2012)
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on November 29, 2013)
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on January 13, 2014)
Research Collaboration and License Agreement, dated as of December 8, 2000, by and between Athersys, Inc.
and Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current
Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Cell Line Collaboration and License Agreement, dated as of July 1, 2002, by and between Athersys, Inc. and
Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current
Report on Form 8-K/A (Commission No. 000-52108) filed with the Commission on September 27, 2007)
Extended Collaboration and License Agreement, dated as of January 1, 2006, by and between Athersys, Inc. and
Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 10.3 to the registrant’s Current
Report on Form 8-K/A (Commission No. 000-52108) filed with the Commission on September 27, 2007)
License Agreement, effective as of May 5, 2006, by and between Athersys, Inc. and Angiotech (incorporated herein by
reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the
Commission on June 14, 2007)
Sublicense Agreement, effective as of May 5, 2006, by and between Athersys, Inc. and Angiotech (incorporated herein
by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the
Commission on June 14, 2007)
Amended and Restated Registration Rights Agreement, dated as of April 28, 2000, by and among Athersys, Inc. and the
stockholders of Athersys, Inc. parties thereto (incorporated herein by reference to Exhibit 10.6 to the registrant’s Current
Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Athersys, Inc. Amended and Restated Registration Rights Agreement, dated as of January 29,
2002, by and among Athersys, Inc., the New Stockholders, the Investors, Biotech and the Stockholders (each as defined
in the Amended and Restated Registration Rights Agreement, dated as April 28, 2000, by and among Athersys, Inc. and
the stockholders of Athersys, Inc. parties thereto) (incorporated herein by reference to Exhibit 10.7 to the registrant’s
Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 2 to Athersys, Inc. Amended and Restated Registration Rights Agreement, dated as of November 19,
2002, by and among Athersys, Inc., the New Stockholders, the Investors, Biotech and the Stockholders (each as defined
in the Amended and Restated Registration Rights Agreement, dated as April 28, 2000, as amended, by and among
Athersys, Inc. and the stockholders of Athersys, Inc. parties thereto) (incorporated herein by reference to Exhibit 10.8 to
the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 3 to Amended and Restated Registration Rights Agreement, dated as of May 15, 2007, by and among
Athersys, Inc. and the Existing Stockholders (as defined therein) (incorporated herein by reference to Exhibit 10.9 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Athersys, Inc. Equity Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.11 to the registrant’s
Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amended and Restated Employment Agreement, dated as of December 1, 1998 but effective as of April 1, 1998, by and
between Athersys, Inc. and Dr. Gil Van Bokkelen (incorporated herein by reference to Exhibit 10.14 to the registrant’s
Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
91
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
10.23†
10.24†
10.25†
10.26†
10.27†
10.28†
Amendment No. 1 to Amended and Restated Employment Agreement, dated as of May 31, 2007, by and between
Advanced Biotherapeutics, Inc. and Gil Van Bokkelen (incorporated herein by reference to Exhibit 10.15 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Non-Competition and Confidentiality Agreement, dated as of December 1, 1998, by and between Athersys, Inc. and Dr.
Gil Van Bokkelen (incorporated herein by reference to Exhibit 10.16 to the registrant’s Current Report on Form 8-K
(Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amended and Restated Employment Agreement, dated as of December 1, 1998 but effective as of April 1, 1998, by and
between Athersys, Inc. and Dr. John J. Harrington (incorporated herein by reference to Exhibit 10.17 to the registrant’s
Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Amended and Restated Employment Agreement, dated as of May 31, 2007, by and between
Advanced Biotherapeutics, Inc. and John Harrington (incorporated herein by reference to Exhibit 10.18 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Non-Competition and Confidentiality Agreement, dated as of December 1, 1998, by and between Athersys, Inc. and Dr.
John J. Harrington (incorporated herein by reference to Exhibit 10.19 to the registrant’s Current Report on Form 8-K
(Commission No. 000-52108) filed with the Commission on June 14, 2007)
Employment Agreement, dated as of May 22, 1998, by and between Athersys, Inc. and Laura K. Campbell
(incorporated herein by reference to Exhibit 10.20 to the registrant’s Current Report on Form 8-K (Commission No.
000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Employment Agreement, dated as of May 31, 2007, by and between Advanced Biotherapeutics,
Inc. and Laura Campbell (incorporated herein by reference to Exhibit 10.21 to the registrant’s Current Report on Form
8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Employment Agreement, dated as of October 3, 2003, by and between Advanced Biotherapeutics, Inc. and Robert
Deans, Ph.D. (incorporated herein by reference to Exhibit 10.25 to the registrant’s Current Report on Form 8-K
(Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Employment Agreement, dated as of May 31, 2007, by and between Advanced Biotherapeutics,
Inc. and Robert Deans (incorporated herein by reference to Exhibit 10.26 to the registrant’s Current Report on Form 8-K
(Commission No. 000-52108) filed with the Commission on June 14, 2007)
Non-Competition and Confidentiality Agreement, dated as of October 3, 2003, by and among Athersys, Inc., Advanced
Biotherapeutics, Inc. and Robert Deans (incorporated herein by reference to Exhibit 10.27 to the registrant’s Current
Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Employment Agreement, dated as of January 1, 2004, by and between Advanced Biotherapeutics, Inc. and William
Lehmann (incorporated herein by reference to Exhibit 10.28 to the registrant’s Current Report on Form 8-K
(Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Employment Agreement, dated as of May 31, 2007, by and between Advanced Biotherapeutics,
Inc. and William Lehmann (incorporated herein by reference to Exhibit 10.29 to the registrant’s Current Report on
Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 2 to Employment Agreement, dated as of January 24, 2014, by and between Advanced
Biotherapeutics, Inc. and William Lehmann
Non-Competition and Confidentiality Agreement, dated as of September 10, 2001, by and among Athersys, Inc.,
Advanced Biotherapeutics, Inc. and William Lehmann (incorporated herein by reference to Exhibit 10.30 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Form Incentive Agreement by and between Advanced Biotherapeutics, Inc. and named executive officers, and
acknowledged by Athersys, Inc. and ReGenesys, LLC (incorporated herein by reference to Exhibit 10.31 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Form Amendment No. 1 to Incentive Agreement by and between Advanced Biotherapeutics, Inc. and named executive
officers, and acknowledged by Athersys, Inc. and ReGenesys, LLC (incorporated herein by reference to Exhibit 10.32
to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14,
2007)
Form Amendment No. 2 to Incentive Agreement by and between Advanced Biotherapeutics, Inc. and named executive
officers, and acknowledged by Athersys, Inc. and ReGenesys, LLC (incorporated herein by reference to Exhibit 10.2 to
the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 20,
2013)
92
10.29*
10.30
10.31
10.32*
10.33*
10.34
10.35
10.36*
10.37†
10.38†
10.39†
10.40†
10.41†
10.42
10.43
10.44
Exclusive License Agreement, dated as of May 17, 2002, by and between Regents of the University of Minnesota and
MCL LLC, assumed by ReGenesys, LLC through operation of merger on November 4, 2003 (incorporated herein by
reference to Exhibit 10.34 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the
Commission on June 14, 2007)
Amendment No. 1 to Cell Line Collaboration and License Agreement, dated as of January 1, 2006, by and between
Athersys, Inc. and Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 10.36 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Form Indemnification Agreement for Directors, Officers and Directors and Officers (incorporated herein by reference
to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the
Commission on August 6, 2007)
Collaboration and License Agreement, dated as of December 18, 2009, by and between Athersys, Inc., ABT Holding
Company, and Pfizer (incorporated herein by reference to Exhibit 10.42 to the registrant’s Annual Report on Form 10-
K for the year ended December 31, 2009 (Commission No. 001-33876) filed with the Commission on March 11, 2010)
Stand-by License Agreement, dated as of December 18, 2009, by and between Regents of the University of Minnesota,
ABT Holding Company and Pfizer (incorporated herein by reference to Exhibit 10.43 to the registrant’s Annual Report
on Form 10-K for the year ended December 31, 2009 (Commission No. 001-33876) filed with the Commission on
March 11, 2010)
Amendment dated as of March 31, 2009 to the Extended Collaboration and License Agreement, by and between
Athersys, Inc. and Bristol-Myers Squibb Company effective January 1, 2006 (incorporated herein by reference to
Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Commission No. 001-33876) filed with the Commission
on April 9, 2009)
Amendment No. 4 to Amended and Restated Registration Rights Agreement, dated as of March 8, 2010, by and among
Athersys, Inc. and the Existing Stockholders (as defined therein) (incorporated herein by reference to Exhibit 10.45 to
the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 (Commission No. 001-33876)
filed with the Commission on March 11, 2010)
License and Technical Assistance Agreement, dated as of September 10, 2010, between ABT Holding Company and
RTI (incorporated herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q (Commission
No. 001-33876) filed with the Commission on November 8, 2010)
Form of Incentive Stock Option Agreement (incorporated herein by reference to Exhibit 10.47 to the registrant’s
Annual Report on Form 10-K for the year ended December 31, 2010 (Commission No. 001-33876) filed with the
Commission on March 25, 2011)
Form of Nonqualified Stock Option Agreement for Non-Employee Directors (incorporated herein by reference to
Exhibit 10.48 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2010 (Commission No.
001-33876) filed with the Commission on March 25, 2011)
Athersys, Inc. Amended and Restated 2007 Long-Term Incentive Plan (Amended and Restated Effective June 16,
2011) (incorporated herein by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K (Commission No.
001-33876) filed with the Commission on June 20, 2011
Athersys, Inc. Amended and Restated 2007 Long-Term Incentive Plan (Amended and Restated Effective June 18,
2013) (incorporated herein by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K (Commission No.
001-33876) filed with the Commission on June 18, 2013
Form of Nonqualified Stock Option Agreement for Non-Employee Directors pursuant to the Athersys, Inc. Amended
and Restated 2007 Long-Term Incentive Plan (Amended and Restated Effective June 16, 2011) (incorporated herein by
reference to Exhibit 10.49 to the registrant’s Quarterly Report on Form 10-Q (Commission No. 001-33876) filed with
the Commission on May 6, 2011)
Common Stock Purchase Agreement, dated as of November 11, 2011, by and between Athersys, Inc. and Aspire
Capital Fund, LLC (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on November 14, 2011)
First Amendment to Common Stock Purchase Agreement, dated as of November 17, 2011, by and between Athersys,
Inc. and Aspire Capital Fund, LLC (incorporated by reference to Exhibit 10.47 to the registrant’s Registration
Statement on Form S-1 (Commission No. 333-178418) filed with the Commission on December 9, 2011)
Common Stock Purchase Agreement, dated as of October 22, 2013, by and between Athersys, Inc. and Aspire Capital
Fund, LLC (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on October 23, 2013)
93
10.45†
10.46†
10.47
10.48
10.49
10.50
10.51
10.52†
10.53
10.54
Form of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.2 to the registrant’s
Quarterly Report on Form 10-Q (Commission No. 001-33876) filed with the Commission on August 10, 2011)
Form of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current
Report on Form 8-K (Commission No. 001-33876) filed with the Commission on June 20, 2013)
Registration Rights Agreement, dated as of November 11, 2011, by and between Athersys, Inc. and Aspire Capital
Fund, LLC (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on November 14, 2011)
Registration Rights Agreement, dated as of October 22, 2013, by and between Athersys, Inc. and Aspire Capital Fund,
LLC (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Commission
No. 001-33876) filed with the Commission on October 23, 2013)
Amendment No. 3 to Extended Collaboration and License Agreement, dated January 31, 2012, by and between ABT
Holding Company and Bristol-Myers Squibb Company (incorporated by reference to Exhibit 10.3 to the registrant’s
Quarterly Report on Form 10-Q (Commission No. 001-33876) filed with the Commission on May 14, 2012)
First Amendment to License and Technical Assistance Agreement, dated September 17, 2012, by and between ABT
Holding, Inc. and RTI Biologics, Inc. (incorporated herein by reference to Exhibit 10.52 to the registrant’s Registration
Statement on Form S-1/A (Commission No. 001-33876) filed with the Commission on October 23, 2012)
Registration Rights Agreement, dated as of March 9, 2012, by and between Athersys, Inc. and the signatories thereto
(incorporated herein by reference to Exhibit 10.53 to the registrant’s Current Report on Form 8-K (Commission No.
001-33876) filed with the Commission on March 15, 2012)
Summary of Athersys, Inc. 2013 Cash Bonus Incentive Plan (incorporated herein by reference to Exhibit 10.54 to the
registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 (Commission No. 001-33876) filed
with the Commission on March 12, 2013)
Form of Securities Purchase Agreement (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current
Report on Form 8-K (Commission No. 001-33876) filed with the Commission on November 29, 2013)
Form of Securities Purchase Agreement (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current
Report on Form 8-K (Commission No. 001-33876) filed with the Commission on January 13, 2014)
10.55†
Summary of Athersys, Inc. 2014 Cash Bonus Incentive Plan
21.1
23.1
24.1
31.1
31.2
32.1
List of Subsidiaries
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
Power of Attorney
Certification of Gil Van Bokkelen, Chairman and Chief Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-
14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Laura K. Campbell, Vice President of Finance, pursuant to SEC Rules 13a-14(a) and 15d-14(a)
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Gil Van Bokkelen, Chairman and Chief Executive Officer, and Laura Campbell, Vice President of
Finance, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*
†
Confidential treatment requested as to certain portions, which portions have been filed separately with the SEC
Indicates management contract or compensatory plan, contract or arrangement in which one or more directors or executive
officers of the registrant may be participants
94
EXHIBIT 31.1
CERTIFICATIONS
I, Gil Van Bokkelen, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Athersys, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
March 13, 2014
/s/ Gil Van Bokkelen
Gil Van Bokkelen
Chief Executive Officer and
Chairman of the Board of Directors
EXHIBIT 31.2
CERTIFICATIONS
I, Laura K. Campbell, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Athersys, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
March 13, 2014
/s/ Laura K. Campbell
Laura K. Campbell
Vice President of Finance
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Athersys, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2013, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the
Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,
to such officer’s knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company as of the dates and for the periods expressed in the Report.
Date: March 13, 2014
/s/ Gil Van Bokkelen
Name: Gil Van Bokkelen
Title: Chairman and Chief Executive Officer
/s/ Laura K. Campbell
Name: Laura K. Campbell
Title: Vice President of Finance
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or
as a separate disclosure document.
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DirectorS anD executive officerS
BoarD of DirectorS
management
gil van Bokkelen, ph.D.
Chairman and
Chief Executive Officer
William (B.J.) lehmann Jr., J.D.
President and
Chief Operating Officer
John J. harrington, ph.D.
Executive Vice President and
Chief Scientific Officer
robert J. Deans, ph.D.
Executive Vice President,
Regenerative Medicine
laura K. campbell, c.p.a.
Vice President of Finance
gil van Bokkelen, ph.D.
Chairman and Chief Executive Officer
of Athersys, Inc.
Chairman of the Board of Governors
of the National Center for Regenerative
Medicine and
Chairman (ex officio) of the Alliance
for Regenerative Medicine
lee e. Babiss, ph.D.
Chief Scientific Officer and Executive
Vice President of Discovery Innovation
of PPD, Inc. and Chief Executive Officer
of X-Rx, a subsidiary of PPD, Inc.
John J. harrington, ph.D.
Executive Vice President and
Chief Scientific Officer of Athersys, Inc.
ismail Kola, ph.D.
Executive Vice President of UCB S.A.
and President of UCB New Medicines,
a subsidiary of UCB S.A.
lorin J. randall
Financial Consultant;
former Senior Vice President and
Chief Financial Officer of
Eximias Pharmaceutical Corp.,
i-STAT Corp. and CFM Technologies, Inc.
Kenneth h. traub
President and Chief Executive Officer
of Ethos Management LLC and
General Partner of Rosemark Capital
Jack l. Wyszomierski
Retired; former Executive
Vice President and Chief Financial
Officer of VWR International, LLC
and financial officer at
Schering-Plough Corp.
StocKholDer
information
corporate heaDquarterS
Athersys, Inc.
3201 Carnegie Avenue
Cleveland, OH 44115-2634
t: (216) 431-9900
F: (216) 361-9495
www.athersys.com
inDepenDent auDitorS
ernst & Young llp
Cleveland, OH 44115
legal counSel
Jones Day
Cleveland, OH 44114
regiStrar & tranSfer agent
Computershare
250 Royall Street
Canton, MA 02021
t: (781) 575-2598
F: (781) 575-4647
www-us.computershare.com
inveStor relationS
In-Site, Inc. Healthcare
Investor Relations
lisa M. Wilson, president
new York, nY 10021
ir@athersys.com
StocKholDer inquirieS
Questions regarding stock transfer
requirements, lost certificates
and changes of address should
be directed to the transfer agent
listed herein. Other stockholder
or investors inquiries, including
requests for our filings with the u.S.
Securities and exchange Commission
or other information, should be
directed to ir@athersys.com.
StocK liSting
the Company’s common stock
trades on the nASDAQ Capital
Market under the symbol “AtHX.”
®
ATHERSYS.COM
3201 Carnegie Avenue
Cleveland, Ohio 44115-2634