®
2014 Annual Report
Delivering on the Potential
of Regenerative Medicine
Athersys is an international biotechnology company engaged in the discovery and development of
therapeutic product candidates designed to extend and enhance the quality of human life. We are developing
MultiStem® cell therapy, our patented and proprietary, adult-derived stem cell product, initially for disease indications
in the neurological, cardiovascular, and inflammatory and immune disease areas, and we have several ongoing
clinical trials evaluating this potential regenerative medicine product. MultiStem cell therapy has shown the ability to
promote tissue repair and healing in a variety of ways, such as through the production of therapeutic factors produced
in response to signals of inflammation and tissue damage. Our MultiStem therapy represents a unique “off-the-shelf”
stem cell product that can be manufactured in a scalable manner, may be stored for years in frozen form and is
administered without tissue matching or the need for immune suppression. Based upon its efficacy profile, its novel
mechanisms of action, and a favorable and consistent safety profile demonstrated in both preclinical and clinical
settings, MultiStem cell therapy could provide a meaningful benefit to patients, including those suffering from serious
diseases and conditions where the current standard of care is limited or ineffective.
We have forged a network of strategic alliances and collaborations with leading pharmaceutical and biotechnology
companies, as well as world-renowned research and clinical institutions in the United States, Europe and Japan to
further develop our platform and products. More information is available at www.athersys.com.
NEUROLOGICAL
Ischemic Stroke*
Traumatic Brain Injury
Multiple Sclerosis
Spinal Cord Injury
®
M
E
T
S
I
T
L
U
M
R
E
H
T
O
CARDIOVASCULAR
Acute Myocardial Infarction
PVD/PAD/CLI
Congestive Heart Failure
INFLAMMATORY & IMMUNE
Inflammatory Bowel Disease**
HSC Transplant/GvHD
Solid Organ Transplant
Acute Respiratory Distress
METABOLIC
5HT2c Agonist (obesity, other)
ORTHOPEDIC
Bone Allograft
(MAPC® technology)***
* Partnership with Chugai to develop in Japan announced March 2015
** Partnership with Pfizer Inc.
*** Partnership with RTI Surgical, Inc.
PRECLINICAL
IND/CTA
PHASE 1
PHASE 2
PHASE 3
NDA/BLA
COMMERCIAL
Enrollment
completed
$2.8 MM
Grant awarded
for Phase 2
ORPHAN DESIGNATION GRANTED (FDA & EMA)
Phase 2/3
design pending
~$3.2 MM in funding awarded to support Phase 2a (design pending)
a
To My Fellow Shareholders:
Our Company is committed to developing innovative
therapies for areas where there are serious unmet
medical needs, reflecting the limitations of current
standards of care. We believe that by developing safer
and more effective treatments, we will not only help
patients and their families by enhancing their recovery
and quality of life, but we can also create substantial
value for our shareholders in the process. We are
committed to developing best-in-class therapies and
wherever possible, to be first-in-class, as well. Over
the past year, we have made some exciting progress
in these pursuits.
timelines, reduce overall
development costs and
accelerate the path to market.
We are taking advantage of these
trends through research efforts
focused in disease areas such
as stroke and heart attack, with
high importance in an aging
population, and through utilizing
available regulatory pathways
to accelerate development and
shorten the time to market.
Gil Van Bokkelen, Ph.D.
Chairman and Chief Executive Officer
Early on, we recognized that we had the opportunity
to explore how our proprietary MultiStem® cell therapy
might be relevant in a wide range of therapeutic areas.
But, we also understood that in order to efficiently
identify which areas might represent the best
development opportunities, we were going to have to
work collaboratively with others. Over the past decade,
we have successfully established an international
network of collaborative relationships and partnerships
that have helped us identify and explore the potential
relevance of MultiStem therapy in a number of
exciting areas.
International interest in the field of regenerative
medicine and cell therapy has grown substantially over
the past few years. With each year, more evidence has
been generated that suggests these types of therapies
are poised to fundamentally change and improve
medical care in many areas. The focus at Athersys has
been to develop our portfolio of programs in a deliberate
and methodical manner, and to focus on challenges
where we feel we can make the biggest difference—by
effectively addressing major areas of clinical need.
Demographic pressures are escalating, as policymakers
grasp the dramatic impact to national healthcare
systems and budgets expected from aging populations.
There is growing recognition that innovation and novel
therapies will be key to improving care and reducing
the burden to government and society. Regulators
are undertaking initiatives and implementing new
approaches with the potential to shorten development
Recognizing that our success will be judged on the
advancement of our preclinical and clinical programs,
we believe that we have an attractive pipeline of
programs and are well-positioned to help patients and
address unmet needs, thereby creating substantial
value. Further, we continue to advance these
opportunities and establish commercial partnerships
to improve our development trajectory.
The aging global population
We believe that in order to become a leading company,
it pays to consider when and where major market trends
The elderly segment of the
population (i.e., individuals over
the age of 65) in the United States,
European Union and Japan is
projected to double in size between
the years 2010 and 2030, and
national demographic profiles will be
changed dramatically.
2014 Annual Report 1
are occurring, and how our technologies might be
deployed to address these trends. In the field of
healthcare and medicine, one of the most important
trends is the dramatic expansion of the elderly segment
of the global population.
home care and intensive family support. Through
technology, we can improve patient quality of life and
shift the efficiency boundary that enables us to treat
more patients, and do so more effectively with the
limited resources available.
According to economists, this expansion of the global
elderly population will have a significant effect on
healthcare systems, quality of life and long-term
economic prosperity. The elderly segment of the
population (i.e., individuals over the age of 65) in the
United States, European Union and Japan is projected
to double in size between the years 2010 and 2030,
and national demographic profiles will be changed
dramatically. In Japan, the problem is particularly
daunting, as it has the fastest growth rate of the elderly
population. By the year 2030, individuals over the
age of 65 in Japan will comprise more than 30% of
its population, and within roughly two decades, the
population over the age of 80 will more than double in
Japan. In the United States, the group over the age of
65 is projected to grow by more than 80% between the
years 2010 and 2030, representing an increase from
40 million individuals to more than 72 million people
in only two decades. In Europe, this segment of the
population will swell to more than 125 million people
by 2030. As the elderly populations in these countries
and other parts of the world continue to dramatically
increase in number, it will have an escalating impact
on healthcare systems around the world. As we age,
we become much more susceptible to a range of
diseases and conditions, like heart disease, stroke and
other conditions. As a result, aggregate demand for
healthcare resources will continue to rise—creating
enormous pressures on healthcare systems around the
world. When coupled with other key trends, such as
the growing shortage of physicians and nurses, it will
unavoidably result in rationing and shortages of care…
unless something changes.
Emerging technologies could help address some
of these challenges. Through the development of
novel technologies and approaches like regenerative
medicine, we hope to be able to overcome existing
limitations in treatment and care, and dramatically
improve clinical outcomes. These technologies could
enable us to enhance patient recovery and well-
being, and potentially lessen the need for extended
hospitalization, full-time institutional care, professional
2 Athersys
Emerging regulatory trends
Governments and policymakers around the world have
recognized the growing evidence of the potential of
innovative technologies like regenerative medicine.
Rather than simply hope that such technology may be
successfully developed someday, in the past several
years, regulatory leadership and policymakers have
taken action to specifically focus on the design and
implementation of new frameworks that can have a
dramatic impact on accelerating the development of
novel treatment approaches that are both safe and
that can effectively address significant areas of unmet
medical need.
In the United States, sanctioned by Congress and
the President, the United States Food and Drug
Administration has adopted new policies that are
designed to promote the development of “breakthrough
therapies” for disease conditions and areas where
existing care is limited or altogether ineffective. In
Europe, similar steps have recently been taken, and a
pilot program has been implemented to promote the
concept of a “conditional approval” system.
Perhaps the most exciting recent advance is what has
occurred in Japan, where an entirely new regulatory
framework has been implemented that is designed
specifically for regenerative medicine therapies. This
We and others are very encouraged by
the evident safety profile
and the potential for
benefit to stroke patients
treated with MultiStem
cell therapy within 36
hours, and what this
could mean for ischemic
stroke victims.
approach, passed by the Japanese government with
overwhelming support late in 2013, went into effect
recently. While it’s too early to say just what impact it
will have, the signs are clear that the overall regulatory
environment is changing for the better, and the
emphasis on regenerative medicine technology is
particularly exciting.
When the regulatory environment improves, it offers
up the potential for a shorter, more efficient and more
cost effective development path. This, in turn, offers up
the potential for an accelerated path to market and an
expedited ability to create value for shareholders, while
also serving the needs of patients that need help.
Our portfolio of clinical and
preclinical programs
As the landscape has continued to improve and
mature, more and more attention is being focused on
our progress and achievements. Because we are a
recognized leader in the regenerative medicine field,
the international investment community, potential
partners and competitors are tracking our progress
carefully. With each advance, we better position the
Company to achieve our ultimate goal, which is to
successfully develop new products and become a
market leader.
We are currently focused on advancing key
therapeutic programs in several areas. These include
the treatment of neurological disease, cardiovascular
disease, and inflammatory and immune conditions.
Most of our programs revolve around the concept of
treating serious acute conditions that are associated
with a high degree of morbidity and mortality,
especially those conditions where current standards
of care are ineffective or lacking altogether.
In the neurological area, we are intently focused on our
ongoing international Phase 2 clinical trial evaluating
the intravenous administration of MultiStem to patients
that have suffered a debilitating stroke. Extensive
preclinical work has demonstrated that administration
of MultiStem provides a durable and robust benefit in
animal models of acute neurological injury.
We recently announced initial data from the trial
demonstrating that MultiStem therapy is safe
and well-tolerated in these patients and, based on
post-hoc analyses, appears to provide meaningful
benefits to patients if treatment occurs within 36
hours of the stroke. In this post-hoc analyses of the
patients receiving MultiStem treatment within 36 hours
compared to placebo patients, there was an increase
in the proportion of patients achieving an Excellent
Outcome, independence as measured by a modified
Rankin Scale (mRS) score of 0-2, an improvement of
75% or more in the NIH Stroke Scale (NIHSS) score,
and a Barthel Index score of 95 or 100. We also saw
reduced mortality and life-threatening serious adverse
events, lower pulmonary events and infection rates,
and evidence of a faster time to recovery in patients
that received treatment with MultiStem. Although
the study did not meet the primary and secondary
endpoints that we originally envisioned, we and others
are very encouraged by the evident safety profile and
the potential for benefit to stroke patients treated with
MultiStem cell therapy within 36 hours, and what this
could mean for ischemic stroke victims.
In addition to our work in stroke, we have also
completed substantial work in exploring the potential
application of MultiStem for traumatic brain injury
(a leading cause of death and disability among
young people), acute spinal cord injury, and
chronic neurological conditions like primary and
secondary progressive multiple sclerosis. We believe
that MultiStem cell therapy has the potential to
meaningfully improve standard of care in multiple
neurological indications.
In 2015, we are launching a Phase 2
clinical trial evaluating treatment of
patients that have suffered damage from
the most common type
of heart attack, and
the program is being
supported with $2.8
million in funding from
the National Heart
Lung and Blood Institute,
part of the National
Institutes of Health.
2014 Annual Report 3
In the cardiovascular area, we are exploring the
application of MultiStem for the treatment of
significant damage from a heart attack, or acute
myocardial infarction. In 2015, we are launching a
Phase 2 clinical trial evaluating treatment of patients
that have suffered damage from the most common
type of heart attack, and the program is being
supported with $2.8 million in funding from the
National Heart Lung and Blood Institute, part of the
National Institutes of Health.
Chugai has a strong history of successful development
of innovative biological therapies in Japan. We believe
this sets the stage for what could be a powerful alliance,
enabling us to achieve important development and
commercialization goals in Japan that could translate
to significant value creation for our shareholders.
Over the year ahead, we expect to explore and evaluate
other potential development and commercialization
partnerships that can improve and accelerate
our programs.
We also continue to advance other programs in the
inflammatory and immune area. In January 2015,
we announced that, in collaboration with the Cell
Therapy Catapult based in London, we were awarded
a £2 million grant from Innovate U.K. to support a
clinical trial evaluating MultiStem cell therapy for
the treatment of acute respiratory distress syndrome
(ARDS). In the United States, European Union and
Japan, it is estimated that ARDS affects more than
450,000 people annually and carries a high rate of
morbidity and mortality since, currently, there is no
effective standard of care. We look forward to the
launch of this trial later this year.
As our portfolio of clinical and preclinical programs
continues to mature and expand, we are seeing
increased interest from potential partners.
Establishing value enhancing
partnerships
Interest in the regenerative medicine area has
grown over the past several years. This has
enabled us to engage in discussions with potential
development partners, including in Japan where
interest has increased significantly. In March 2015,
we were pleased to announce a new partnership
with Chugai Pharmaceuticals Co. Ltd., focused on
the development of MultiStem cell therapy for the
treatment of ischemic stroke in Japan.
We are excited about this partnership for several
reasons. First, we believe Chugai will be a good partner.
Like Athersys, Chugai is committed to developing best-
in-class and first-in-class therapeutics that have the
potential to address significant areas of unmet medical
need. Chugai’s leadership places a heavy emphasis on
helping the patient, and we share core ideals in that
regard. Second, Chugai has established one of the
leading hospital products sales forces in Japan. Third,
4 Athersys
Over the past few years, we have worked extremely
hard to achieve key goals and advance our programs.
Our progress reflects an extraordinary commitment of
everyone that is part of our organization, and I would
like to thank all of our employees and collaborators
for their tenacity and hard work. It also reflects the
continued faith and support of our shareholders, and
on behalf of everyone at Athersys, I would also like to
thank you for your continued support.
Sincerely,
Gil Van Bokkelen, Ph.D.
Chairman and Chief Executive Officer
Athersys, Inc.
May 1, 2015
When the regulatory environment
improves, it offers up the potential for a
shorter, more efficient and more cost effective
development path. This,
in turn, offers up
the potential for an
accelerated path to
market and an expedited
ability to create value
for shareholders, while
also serving the needs of
patients that need help.
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, 2014
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
No
(cid:0)
⌧
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
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.
⌧
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):
(cid:0)
⌧
Large accelerated filer
Non-accelerated filer
(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
The aggregate market value at June 30, 2014, 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 $1.79 of such stock as quoted on the NASDAQ Capital Market on such date) held by non-affiliates of the registrant was
approximately $132.1 million.
The registrant had 80,236,133 shares of common stock outstanding on March 9, 2015.
(cid:0)
No
⌧
Accelerated filer
Smaller reporting company
⌧
(cid:0)
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
PART II
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
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
3
20
31
31
31
31
32
33
34
44
44
64
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80
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84
2
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 Phase 2 clinical trials, as well as an investigator-led Phase 1 trial,
and plans are underway for a Phase 2/3 registration clinical trial. Our current clinical development programs are focused on treating
neurological conditions, cardiovascular disease, inflammatory and immune disorders, and other conditions where the current standard of
care is limited or inadequate for many patients. 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 potential 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 cell therapy may 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 have durability.
We believe the therapeutic and commercial potential for MultiStem cell 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 biologic therapies typically may be used to treat only a single disease or a narrowly defined set of related conditions, MultiStem cell
therapy appears 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 cell therapy 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 explored the
potential for MultiStem therapy to be used as a treatment of acute and chronic forms of neurological conditions, cardiovascular disease,
inflammatory and immune disorders, certain pulmonary conditions and other areas of unmet medical need. At present, we have five
MultiStem clinical stage programs and plans to add a sixth in 2015. Each of these programs targets an area of significant medical need
and represents major commercial market opportunities.
In the neurological area, we are evaluating the potential for MultiStem treatment of patients who have suffered neurological damage from
an ischemic stroke. This is a double blind, randomized and placebo controlled study evaluating the administration of MultiStem cell
therapy to patients 24 to 48 hours following the occurrence of a serious stroke. If effective, this would represent a substantial increase in
the time window for treatment, which currently is limited to several hours. In February 2015, we established a collaboration with Chugai
Pharmaceutical Co., Ltd., or Chugai, to develop and commercialize MultiStem for the treatment of ischemic stroke in Japan. Chugai will
be responsible for the development and commercialization of MultiStem for ischemic stroke in Japan on an exclusive basis, and we will
have the primary responsibility for the manufacture of product for both clinical and commercial purposes.
We are also in the process of initiating a Phase 2 clinical study for the administration of MultiStem cell therapy to patients that have
suffered an acute myocardial infarction, or AMI. 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. Previously we completed a Phase 1 clinical trial involving administration of MultiStem
cell therapy to patients that have suffered an AMI, and the results of this trial demonstrated consistent safety and encouraging evidence of
therapeutic benefit among patients with severely compromised heart function. We are completing preparations for the launch of this
study, which we anticipate will commence on the second quarter of 2015.
3
Additionally, we evaluated in a completed Phase 1 clinical study the potential for MultiStem cell 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. Initiation of this trial 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.
We are also engaged in the preparation stages for clinical studies in other targeted areas, including the treatment of acute respiratory
distress syndrome, or ARDS. ARDS is a serious immunological and inflammatory condition characterized by widespread
inflammation in the lungs. Currently, there are limited interventions and no effective drug treatments for ARDS, making it an area of
high unmet clinical need with high treatment costs. Given the high treatment costs of ARDS, a successful cell therapy could be
expected to generate significant savings for the healthcare system by reducing days on a ventilator, days in the intensive care unit and
total days in the hospital, and importantly, could reduce mortality and improve quality of life for those suffering from the
condition. The medical need for a safe and effective treatment of ARDS is significant due to its high mortality rate, and it affects
annually approximately 400,000 to 500,000 patients in Europe, the United States and Japan, together. In 2015, we were awarded a
grant from Innovate UK, formerly the Technology Strategy Board, of up to approximately £2.0 million in support of a Phase 2a
clinical study evaluating the administration of MultiStem cell therapy to ARDS patients. The study will be conducted with the
assistance of the Cell Therapy Catapult, or Catapult, and we anticipate that the trial will commence in the second half of 2015.
MultiStem cell therapy is also being evaluated in other ongoing clinical trials. Our collaborative partner, Pfizer Inc., or Pfizer, is
completing a Phase 2 clinical study exploring administration of MultiStem to patients with ulcerative colitis, or UC, a common form
of inflammatory bowel disease, or IBD. Preliminary results were announced in the spring of 2014. 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 cell therapy to patients undergoing a liver transplant. Previously published work involving preclinical
models of organ transplantation demonstrated that administration of MultiStem cell therapy can help induce immune tolerance to
organ allografts, and eliminated the need for long-term immune suppression.
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 is designed to enable
rapid conditional authorization of qualified regenerative medicine therapies. We believe such initiatives could accelerate the
development and commercialization of products like MultiStem cell therapy, 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. 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 have the potential to provide superior weight loss, while also
achieving a superior safety and tolerability profile. In addition, we demonstrated that our compounds are complementary with other
agents that have been approved by the FDA for treating obesity. Furthermore, we 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. Further, small molecule compounds may be
used to enhance the production or therapeutic effectiveness of MultiStem or related products. These compounds may increase
biological potency for certain indications and lead to second or third generation products in the regenerative medicine area.
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.
4
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 –
including neurological conditions, cardiovascular disease, and inflammatory and immune system dysfunctions. 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, EMA, Pharmaceuticals and Medical Devices Agency, or
PMDA, and other regulatory agencies 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 the cells that comprise the MultiStem product 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 and optimizing
new manufacturing techniques, 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 our
clinical development and commercialization capabilities, and increase our ability to generate value from our proprietary
technologies. To date, we entered into technology licensing arrangements and established product commercialization and co-
development partnerships with companies such as Chugai, Pfizer, Bristol-Myers Squibb Company, or Bristol-Myers Squibb,
Johnson & Johnson, Wyeth Pharmaceuticals, Inc., RTI Surgical, Inc., or RTI, and other companies. 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
neurological conditions, cardiovascular disease, inflammatory and immune disorders, and other areas. We are committed to
exploring potential clinical indications where our therapies may achieve best-in-class profile, and where we believe we can
effectively address significant unmet medical needs. In order to achieve this goal, over the past decade, we 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 studied MultiStem therapy in a range of
preclinical models that reflect various types of human disease or injury in the neurological, cardiovascular and immunological
areas. These collaborative relationships have enabled us to cost effectively explore where MultiStem cell therapy may have
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 160 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 54 patents associated with our other technologies and small molecule programs.
5
Our Current Programs
By applying our proprietary MultiStem cell therapy product, we established therapeutic product development programs treating
neurological conditions, cardiovascular disease, inflammatory and immune disorders, and other conditions. Our programs in the
clinical development stage include the following:
• 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 the thrombolytic tPA, which must be
administered within three to four 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 therapy, even one week 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. Enrollment was completed in December 2014. We anticipate announcing the
interim safety and initial efficacy results in April 2015, following the ninety-day patient evaluation and receipt of the
unblinded clinical data. Also, in February 2015, we established a collaboration with Chugai to develop and commercialize
MultiStem for the treatment of ischemic stroke in Japan.
• Acute Myocardial Infarction: We evaluated the administration of MultiStem to patients that suffered an AMI in a
Phase 1 clinical study. The results of this study demonstrated 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, and one-year follow-up data suggested that the benefit
observed was sustained over time. We were awarded a grant for up to $2.8 million to support the advancement of this
clinical program, and we are completing preparations for the launch of this Phase 2 clinical study, which we anticipate will
commence in the second quarter of 2015.
• Acute Respiratory Distress Syndrome: We were awarded a grant for up to approximately £2.0 million to support an
initial trial to treat patients suffering from ARDS. ARDS is a serious immunological and inflammatory condition
characterized by widespread inflammation in the lungs. ARDS can be triggered by pneumonia, sepsis, or other trauma and
represents a major cause of morbidity and mortality in the critical care setting. The medical need for a safe and effective
treatment of ARDS is significant due to its high mortality rate, and it annually affects approximately 400,000 to 500,000
patients in Europe, the United States and Japan, together. The grant supporting this Phase 2a clinical trial was awarded by
Innovate UK to our subsidiary, Athersys Limited in the United Kingdom, or UK, in conjunction with Catapult. We are
currently preparing for the trial, which we anticipate will commence in the second half of 2015.
• 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 transplant. Such patients are at significant risk for serious
complications, including graft-versus-host disease, or GvHD, an imbalance of immune system function caused by
transplanted immune cells that attack various tissues and organs in the patient. Data from the study demonstrated the safety
of MultiStem cells in this indication and suggested that the therapy may have a beneficial effect in reducing the incidence
and severity of GvHD, as well as providing other benefits. The MultiStem product has been designated as an orphan drug
for the GvHD prophylaxis indication by both the FDA and EMA, which may provide market exclusivity and other
substantial incentives and benefits. We have interacted with both the FDA and EMA to finalize the design of a single
registration study. In February 2015, the MultiStem product was granted Fast Track designation by the FDA for
prophylaxis therapy against GvHD following hematopoietic cell transplantation. Currently, we are staging this program for
future registration-directed development dependent on our other clinical programs and the achievement of certain business
development and financial objectives.
• 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 study is being concluded
by our collaborative partner, Pfizer, and we released interim results in April 2014. Data collection for the study has run
through 2014 to complete the secondary evaluations, and subsequent analysis, such as biomarker evaluation and one year
safety assessment, are being completed by Pfizer in 2015. The interim results obtained from the trial showed that a single
administration of MultiStem to a patient population with longstanding, chronic advanced disease failed to show a
meaningful clinical effect at the eight-week evaluation period. Despite not showing a significant improvement compared to
placebo in the primary efficacy endpoints, the MultiStem therapy demonstrated favorable safety and tolerability in the
eight weeks following treatment. Furthermore, at four weeks, patients getting MultiStem treatment had a significantly
higher proportion of rectal bleeding responders than placebo patients, suggesting the possibility of a transient effect from
the single MultiStem dose. In the event that Pfizer does not move forward with the program, development and
commercialization rights would revert to us.
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In addition to the programs described above, we are also conducting or supporting clinical activity in other areas, such as solid organ
transplant, which is an investigator initiated study being conducted at a leading transplant center in Europe. We are also engaged in
the preparation stages for translational and clinical studies in other targeted areas.
In addition to our current and anticipated clinical development activities, we are engaged in preclinical development and evaluation of
MultiStem therapy in other neurological, cardiovascular and inflammatory and immune disease areas, as well as certain other
indications. We conduct such work both through our own internal research efforts and through a broad global network of
collaborators.
We are routinely in discussions with third parties about collaborating in the development of MultiStem therapy for various programs
and may enter into one or more business partnerships to advance these programs over time.
We also partnered with RTI on the development of products for certain orthopedic applications using our stem cell technologies in the
bone graft substitutes market. We began recognizing royalty revenue from product sales in 2014 and 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. 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
developed that exhibit favorable attributes, including outstanding receptor selectivity, as well as greater potency and activity than
other 5HT2c agonists. We 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 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.
MultiStem cell therapy 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.
7
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:
•
•
•
•
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 favorable 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 clinical
data generated to date.
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 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.
MultiStem for Treating Neurological Conditions, Cardiovascular Disease, and Inflammatory and Immune Disorders
Healthcare represents a significant part of the global economy. In the United States, it represented approximately 17.2% of all
economic activity in 2013, or about $2.9 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 four to ten times more on healthcare annually at age 65 or beyond 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.
8
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 studied the impact of
MultiStem cell therapy in a range of preclinical models that reflect various types of human disease or injury in the neurological,
cardiovascular, and immunological areas. To date, we and our collaborators have published research results illustrating the potential
benefits of MultiStem cell therapy in a range of indications including ischemic stroke, traumatic brain injury, or TBI, brain damage
due to restricted blood flow in newborns, spinal cord injury, myocardial infarction, vascular disease, acute pulmonary distress, 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.
Based on preclinical results, we have advanced MultiStem therapy to clinical development stage in several clinical indications or
disease areas: treatment for stroke caused by a blockage of blood flow in the brain; treatment of damage caused by myocardial
infarction; support in the hematologic malignancy setting to reduce certain complications associated with traditional bone marrow or
hematopoietic stem cell, or HSC, transplantation; and treatment of IBD, initially focused on UC. Additionally, in collaboration with a
leading transplant center in Europe, we advanced a program in the solid organ transplant area into clinical development and plan to
begin clinical development for treatment of ARDS.
We may expand to other clinical indication areas as results warrant and resources permit.
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. 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 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. 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.
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. 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.
9
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 recently completed enrollment in our double-blind, placebo-controlled Phase 2 clinical trial exploring the administration of
MultiStem to patients that have suffered an ischemic stroke in the United States and Europe. In this trial, MultiStem was administered
one to two days after the stroke had 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 anticipate
announcing the interim safety and initial efficacy results in April 2015, following the ninety-day patient evaluation and receipt of the
unblinded clinical data.
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. 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 and expect to complete this research mid-2015.
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.
Over the past several years, we have been utilizing grant funding to investigate the potential for MultiStem treatment for chronic
progressive multiple sclerosis, or 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 continued to advance our MS program with support
from Fast Forward.
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Cardiovascular Disease — Evaluating MultiStem for Treating Damage from a Heart Attack
Cardiovascular disease is an area of significant clinical need and its prevalence is expected to grow 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 2010, according to the
American Heart Association 2014 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 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.
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 the results showed that MultiStem treatment was
well tolerated at all dose levels, exhibited a favorable safety profile, and that patients who 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 an AMI, which we anticipate
will commence in the second quarter of 2015. In 2013, we were awarded a grant from the National Institutes of Health for up to $2.8
million to support the funding of the program.
Immunological Disorders — MultiStem for Acute Pulmonary Distress, 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 acute
inflammatory conditions, autoimmune diseases and other conditions.
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In animal models, MultiStem cells have demonstrated an ability to reduce the severity of pulmonary distress, reduce alveolar edema
and return lung endothelial permeability to normal. Intravenous MultiStem treatment early following the onset of the condition may
ameliorate the initial hyper-inflammation and reduce the fibrotic activity that follows, thereby speeding the return to and improving
the likelihood of more normal lung function, and helping patient recovery. In January 2015, we announced that our subsidiary,
Athersys Limited, received a grant award of up to approximately £2.0 million from Innovate UK to support a Phase 2a clinical study
evaluating the administration of MultiStem cell therapy to ARDS patients. We intend to initiate this study in the second half of 2015.
ARDS is a serious immunological and inflammatory condition characterized by widespread inflammation in the lungs. ARDS can be
triggered by pneumonia, sepsis, or other trauma and represents a major cause of morbidity and mortality in the critical care setting. It
has significant implications, as it prolongs intensive care unit, or ICU, and hospital stays, and requires convalescence in the hospital
and rehabilitation. There are limited interventions and no effective drug treatments for ARDS, making it an area of high unmet
clinical need with high treatment costs. Given ARDS high treatment costs, a successful cell therapy could be expected to generate
significant savings for the healthcare system by reducing days on a ventilator, days in the intensive care unit and total days in the
hospital, and importantly, could reduce mortality and improve quality of life for those suffering from the condition. The medical need
for a safe and effective treatment of ARDS is significant due to its high mortality rate, and it affects annually approximately 33,000
patients in the UK and 400,000 to 500,000 patients in Europe, the United States and Japan, alone.
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 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 were 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. The initiation of the trial will depend on the progress in
our clinical trials and the achievement of certain business development and financial objectives. In February 2015, we were granted
designation by the FDA as a Fast Track product for prophylaxis therapy against GvHD following hematopoietic cell transplantation.
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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 and
Crohn’s disease, which are estimated to affect four million people or more in the United States, five major European markets (UK,
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. In April 2014, we and Pfizer reported the initial interim results of the trial. The interim
results obtained from the trial showed that a single administration of MultiStem to a patient population with longstanding, chronic
advanced disease failed to show a meaningful clinical effect at the eight-week evaluation period. Despite not showing a significant
improvement compared to placebo in the primary efficacy endpoints, the MultiStem therapy demonstrated favorable safety and
tolerability in the eight weeks following treatment. Furthermore, at four weeks, patients getting MultiStem treatment had a significantly
higher proportion of rectal bleeding responders than placebo patients, suggesting the possibility of a transient effect from the single
MultiStem dose. However, given the limited evidence of benefit in this study, it remains possible that MultiStem is not beneficial or well
suited to this indication. In the event that Pfizer does not move forward with the program, development and commercialization rights
would revert to us.
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.
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 conducted with compounds that we 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 developed that
exhibit outstanding receptor selectivity and are working toward the selection of a clinical development candidate for this program.
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Certain potent and highly selective compounds that we 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, as well as for certain programs involving MultiStem.
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 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 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
Chugai
In February 2015, we entered into a license agreement with Chugai to develop and commercialize MultiStem cell therapy for
ischemic stroke in Japan on an exclusive basis. Under the agreement, Chugai will be responsible for the development and
commercialization of MultiStem for ischemic stroke in Japan, and we will have the primary responsibility for the manufacture of
product for both clinical and commercial purposes. The parties will coordinate Japanese and global regulatory activities and clinical
development plans for MultiStem treatment of ischemic stroke.
Under the terms of the agreement, we received an up-front cash payment of $10 million from Chugai and are entitled to receive a
potential near-term payment of $7 million tied to the results of our ongoing Phase 2 clinical trial in ischemic stroke. We may also
receive additional success-based development and regulatory milestones aggregating up to $38 million, as well as potential sales
milestones of up to 17.5 billion yen (approximately $150 million based on the current exchange rate). With commercialization and
until the agreement has expired or been terminated, Chugai would pay us royalties on net sales, starting in the low double digits and
increasing incrementally to the high teens depending on net sales levels. Additionally, we would receive payments for product
supplied to Chugai.
The agreement will expire automatically upon the later of the date the licensed product is no longer covered by a patent claim in
Japan, or the expiration of the re-evaluation period under Article 14-2 of the Pharmaceutical Affairs Law of Japan or any revision or
replacement, unless extended as set forth below. Additionally, Chugai may terminate the agreement under certain circumstances,
including for material breach and without cause upon advance written notice. We may terminate the agreement if Chugai fails to
make certain payments to us and, in certain cases, if there is an uncured material breach of the agreement. Chugai may extend the
term of the agreement for two successive two-year periods at its sole election, and thereafter, the agreement shall be automatically and
repeatedly extended for two-year periods unless prior notice is provided by either party not to extend the term.
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Following termination of the agreement, the licenses granted to Chugai to develop and commercialize MultiStem for ischemic stroke
in Japan will terminate and ownership of regulatory documents and clinical data will revert to us. Further, our nonexclusive license to
intellectual property developed by Chugai during the collaboration shall be expanded to include Japan and shall survive termination.
We maintain rights to develop and commercialize MultiStem for ischemic stroke outside of Japan, and, for all other indications in
Japan, provided that we give Chugai the first right to negotiate to add such indications to the license in Japan.
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 on an exclusive basis. 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, 2014. 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. We may elect to co-develop with Pfizer, in which case the parties will share development and
commercialization expenses and profits, if any, on an agreed-upon basis beginning at Phase 3 clinical development. Alternatively, we
may elect to not co-develop with Pfizer, in which case Pfizer will pay us tiered single-digit royalties on worldwide commercial sales
of MultiStem IBD products. Any royalties may be subject to certain reductions related to market exclusivity, patent claims and credits
from sales milestone payments. The duration of royalty payments is on a country-by-country and product-by-product basis, and shall
continue until the later of the date the licensed product is no longer covered by a patent claim in such country, or twelve years from
product launch in such country.
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 in its sole discretion or in the event of certain material
breaches. 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 due to material breach, the licenses granted to Pfizer will remain in effect according to their terms and payments
to us will be reduced from what was otherwise payable.
University of Minnesota
In 2003, we acquired the exclusive rights to the MAPC technology originally developed at the University of Minnesota pursuant to a
license agreement with the University. Over the past several years, we further developed this technology and the manufacturing of the
cells for use in ongoing clinical trials. We refer to the lead cell therapy as the MultiStem product platform. We are obligated to pay
the University of Minnesota a royalty based on worldwide commercial sales of licensed products if covered by a valid licensed patent.
The low single-digit royalty rate may be reduced if third-party payments for intellectual property rights are necessary or commercially
desirable to permit the manufacture or sale of the product. The royalty payment obligation and the term of the license agreement
expire upon the last to expire licensed patent. Based on our current patent portfolio, and absent any continuations, renewals or
extensions of existing patents, the last licensed patent to expire under the license agreement is currently expected to expire in 2028.
The license agreement does not have a specific termination date, but the University of Minnesota can terminate the license agreement
for an uncured event of default, as defined, or upon our bankruptcy and we can terminate the license agreement at any time.
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 on an exclusive basis. 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 receive tiered royalties on worldwide commercial sales of implants using our technologies based on a royalty rate
starting in the mid-single digits and increasing into the mid-teens. We began receiving royalties from RTI in 2014. Royalties may be
subject to a reduction if third-party payments for intellectual property rights are necessary or commercially desirable to permit the
manufacture or sale of the product.
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The term of the agreement is the longer of (i) five years from the effective date in 2010, (ii) two years after the last sale of a licensed
product, (iii) the last to expire of any past, present or future licensed patent, and (iv) the life of trade secrets applicable to the licensed
product. Either party can terminate the agreement upon the other party’s bankruptcy or for an uncured material breach. RTI can
terminate the agreement if our rights to our technology expire such that there is a material effect on the development and
commercialization of the licensed products. We can terminate the agreement if RTI has not reached a specified target of sales of the
licensed product within five years of the effective date or a specified target of annual sales each year thereafter.
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. As of December 31, 2014, 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., and Mesoblast has a partnership with
Cephalon, Inc., or Cephalon, now owned by Teva Pharmaceuticals, Inc., for treating 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. In
2014, another new drug combination was approved, Contrave (a proprietary combination of naltrexone and bupropion), which was
developed by Orexigen. 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.
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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 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.
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 200 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 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 approximately
160 issued patents (of which seventeen are United States patents) and more than 180 global patent applications around our stem cell
technology and MultiStem product platform. This includes fourteen United States patents and more than 100 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 been active in the development, improvement and protection of our intellectual property portfolio through our prosecution
efforts, collaborative research efforts, and in-licensing, among other things. From time-to-time, we will also engage in adversarial
processes, such as interference or litigation, to protect or advance certain patents or applications. These activities represent an
important cost of doing business, and can result in successes and setbacks due to the nature of the processes. For example, over the
past several years, we have been involved in several proceedings in the United States with a third party focused on a technology
developed after the MAPC technology. In an earlier proceeding, our success resulted in the issuance of a patent. However, in a more
recent proceeding, an interference board ruled that this patent and another application of ours should be cancelled, but such ruling
may be advanced into an appeal process. Over time, we expect to be involved in similar proceedings with the objective of developing
the portfolio to support and protect development and commercialization of our or our licensees’ cell therapy products.
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 37 issued patents (16
United States patents and 21 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 and nine patent applications 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.
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We believe that we have broad freedom to use and commercially develop our technologies and product candidates. However, in the
event that we or our collaborators are developing, manufacturing, or selling potential products that are claimed to infringe a third
party’s intellectual property, a loss in litigation may prevent us from commercializing our products, unless that party grants us rights
to use its intellectual property. Further, 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 $23.4 million in 2014, $20.5 million in 2013 and $19.6 million in 2012.
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, or CPMP, to standardize review
and approval across EU member nations. In Japan, the 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 Authorization, 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 (if possible) 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 product for 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.
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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 ten to fifteen 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. The
FDA and other Regulatory agencies such as EMA and PMDA have regulations that allow for faster approval paths and review cycles
that may reduce clinical development phase completion to between five and seven years to commercialization. Such regulations
include but are not limited to accelerated/conditional approval paths and review cycles of between six to ten months
(priority/accelerated review cycles). However, there are specific criteria that must be met to qualify for these paths, such as high
unmet medical need, orphan designation, fast track, exceptional circumstances and breakthrough designation.
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.
In addition to regulations enforced by the FDA and international regulatory agencies, 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, 2014, we employed 57 full-time employees, including 18 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 incurred significant losses and negative cash flows from operations. We incurred net losses of $22 million in
2014, $31 million in 2013 and $15 million in 2012. As of December 31, 2014, we had an accumulated deficit of $287 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 $26 million in 2014, $23 million in 2013 and $18 million in 2012.
At December 31, 2014, we had $26 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;
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;
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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 $23.5 million under the purchase agreement as of December 31, 2014,
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;
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.
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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.
Currently, our material collaborations and licensing arrangements are our collaborations with (a) Chugai to develop and
commercialize MultiStem cell therapy for the treatment of ischemic stroke in Japan, (b) Pfizer to develop and commercialize
MultiStem for the treatment of IBD and (c) 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.
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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.
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;
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.
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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.
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.
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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.
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 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 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 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.
26
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.
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:
27
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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;
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;
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 entered into with regard to our technology or business.
28
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
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:
•
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•
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
29
•
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.
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 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:
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•
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;
30
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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.
Increased information technology security threats and more sophisticated and targeted computer crime could pose a risk to our
systems, networks, and products.
Increased global information technology security threats and more sophisticated and targeted computer crime pose a risk to the
security of our systems and networks and the confidentiality, availability and integrity of our data and communications. While we
attempt to mitigate these risks by employing a number of measures, including employee refreshers, monitoring of our networks and
systems, and maintenance of backup and protective systems, our systems, networks and products remain potentially vulnerable to
advanced persistent threats. Depending on their nature and scope, such threats could potentially lead to the compromising of
confidential information and communications, improper use of our systems and networks, manipulation and destruction of data,
defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation,
competitiveness 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.
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
approximately $220,000 and is subject to adjustments based on an inflationary index. Our total rent expense for all properties was
$517,000 in 2014. We also have an option for additional space in Belgium that expires in August 2015.
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.
31
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, 2014:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year ended December 31, 2013:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$1.74
$1.99
$3.50
$4.33
$2.52
$1.99
$2.42
$1.89
$1.13
$1.31
$1.08
$2.51
$1.52
$1.47
$1.54
$1.07
Holders
As of March 5, 2015, 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 the Depository Trust
Company, 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.
32
2014
$
286 $
1,337
1,623
23,366
6,909
360
(29,012)
Year Ended December 31,
2012
2011
2013
2010
755 $ 7,380 $ 9,015 $ 6,685
2,254
8,939
1,329
10,344
1,328
8,708
1,683
2,438
20,484
6,065
346
18,930
4,916
278
(24,457) (16,001) (13,780)
19,636
4,753
320
14,779
5,387
284
(11,511)
—
(6,324)
38
2,404
(1,138)
6,591
86
(22,335)
253
—
812
134
(778)
(11,377)
(30,743) (14,735) (13,746)
—
—
—
$(22,082) $(30,743) $(14,735) $(13,746) $(11,377)
$ (0.29) $ (0.53) $ (0.45) $ (0.59) $ (0.60)
18,930
32,557
$ (0.31) $ (0.53) $ (0.45) $ (0.59) $ (0.60)
18,930
32,557
23,239
23,239
57,675
57,675
78,541
76,955
2014
2013
December 31,
2012
2011
2010
$ 26,127 $ 31,948 $ 25,533 $ 8,785 $ 2,105
—
13,076
3,999
9,106
21,831
7,014
19,106
27,603 15,701
—
983
9,005
7,298
—
22,556
28,718
3,131
20,895
—
28,487
34,188
9,999
19,821
2,878
20,247
ITEM 6.
SELECTED FINANCIAL DATA
(in thousands, except 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 income (expense):
Income (expense) from change in fair value of warrants
Other income (expense), net
Loss before income taxes
Income tax benefit
Net loss
Net loss per share, basic
Weighted average shares outstanding, basic
Net loss per share, diluted
Weighted average shares outstanding, diluted
Consolidated Balance Sheet Data:
Cash and cash equivalents
Available-for-sale securities, short-tem
Working capital
Total assets
Warrant liabilities and note payable
Total stockholders’ equity
33
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 is currently being evaluated in multiple clinical trials. 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 established therapeutic product development programs treating
inflammatory and immune disorders, neurological conditions, cardiovascular disease, and other conditions. Our programs in the
clinical development stage include the following:
• 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 the thrombolytic tPA, which must be
administered within three to four 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 therapy, even one week 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. Enrollment was completed in December 2014. We anticipate announcing the
interim safety and initial efficacy results in April 2015, following the ninety-day patient evaluation and receipt of the
unblinded clinical data. Also, in February 2015, we established a collaboration with Chugai to develop and commercialize
MultiStem for the treatment of ischemic stroke in Japan.
• Acute Myocardial Infarction: We evaluated the administration of MultiStem to patients that suffered an AMI in a
Phase 1 clinical study. The results of this study demonstrated 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, and one-year follow-up data suggested that the benefit
observed was sustained over time. We were awarded a grant for up to $2.8 million to support the advancement of this
clinical program, and we are completing preparations for the launch of this Phase 2 clinical study, which we anticipate will
commence in the second quarter of 2015.
• Acute Respiratory Distress Syndrome: We were awarded a grant for up to approximately £2.0 million to support an
initial trial to treat patients suffering from ARDS. ARDS is a serious immunological and inflammatory condition
characterized by widespread inflammation in the lungs. ARDS can be triggered by pneumonia, sepsis, or other trauma and
represents a major cause of morbidity and mortality in the critical care setting. The medical need for a safe and effective
treatment of ARDS is significant due to its high mortality rate, and the number of patients it affects annually. The grant
supporting this Phase 2a clinical trial was awarded by Innovate UK to our UK subsidiary, Athersys Limited., in
conjunction with Catapult. We are currently preparing for the trial, which we anticipate will commence in the second half
of 2015.
• 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 transplant. Such patients are at significant risk for serious
complications, including graft-versus-host disease, or GvHD, an imbalance of immune system function caused by
transplanted immune cells that attack various tissues and organs in the patient. Data from the study demonstrated the safety
of MultiStem cells in this indication and suggested that the therapy may have a beneficial effect in reducing the incidence
and severity of GvHD, as well as providing other benefits. The MultiStem product has been designated as an orphan drug
for the GvHD prophylaxis indication by both the FDA and EMA, which may provide market exclusivity and other
substantial incentives and benefits. We have interacted with both the FDA and EMA to finalize the design of a single
registration study. In February 2015, the MultiStem product was granted Fast Track designation by the FDA for
prophylaxis therapy against GvHD following hematopoietic cell transplantation. Currently, we are staging this program for
future registration-directed development dependent on our other clinical programs and the achievement of certain business
development and financial objectives.
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• 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 study is being concluded
by our collaborative partner, Pfizer, and we released interim results in April 2014. Data collection for the study has run
through 2014 to complete the secondary evaluations, and subsequent analysis, such as biomarker evaluation and one year
safety assessment, are being completed by Pfizer in 2015. The interim results obtained from the trial showed that a single
administration of MultiStem to a patient population with longstanding, chronic advanced disease failed to show a
meaningful clinical effect at the eight-week evaluation period. Despite not showing a significant improvement compared to
placebo in the primary efficacy endpoints, the MultiStem therapy demonstrated favorable safety and tolerability in the
eight weeks following treatment. Furthermore, at four weeks, patients getting MultiStem treatment had a significantly
higher proportion of rectal bleeding responders than placebo patients, suggesting the possibility of a transient effect from
the single MultiStem dose. In the event that Pfizer does not move forward with the program, development and
commercialization rights would revert to us.
In addition to the programs described above, we are also conducting or supporting clinical activity in other areas, such as solid organ
transplant, which is an investigator initiated study being conducted at a leading transplant center in Europe. We are also engaged in
the preparation stages for translational and clinical studies in other targeted areas.
In addition to our current and anticipated clinical development activities, we are engaged in preclinical development and evaluation of
MultiStem therapy in other neurological, cardiovascular and inflammatory and immune disease areas, as well as certain other
indications. We conduct such work both through our own internal research efforts and through a broad global network of
collaborators.
We are routinely in discussions with third parties about collaborating in the development of MultiStem therapy for various programs
and may enter into one or more business partnerships to advance these programs over time.
We also partnered with RTI on the development of products for certain orthopedic applications using our stem cell technologies in the
bone graft substitutes market. We began recognizing royalty revenue from product sales in 2014 and 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
In February 2015, we entered into a collaboration with Chugai to develop and commercialize MultiStem for the treatment of ischemic
stroke in Japan. Under the terms of the agreement, we received an up-front cash payment of $10 million and are entitled to receive a
potential near-term payment of $7 million tied to the results of our ongoing Phase 2 clinical trial in ischemic stroke. We may also
receive additional success-based development and regulatory milestones aggregating up to $38 million, as well as potential sales
milestones of up to 17.5 billion yen (approximately $150 million based on the current exchange rate). We are also eligible for
royalties on net sales, starting in the low double digits and increasing incrementally to the high teens depending on net sales levels.
Additionally, we would receive payments for product supplied to Chugai.
In January 2014, we completed a registered direct offering generating net proceeds of approximately $18.8 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.
We have in place an equity purchase agreement with Aspire Capital, which provides us the ability to sell shares to Aspire Capital
from time-to-time, as appropriate. As of December 31, 2014, we can elect to sell to Aspire Capital up to an additional $23.5 million of
shares of common stock under the agreement. During the quarter ended December 31, 2014, no shares were sold under the Aspire
equity purchase agreement, and during the year ended December 31, 2014, we sold 250,000 shares to Aspire Capital at an average
price of $3.78. Also, since January 1, 2015 through March 9, 2015, we sold shares for approximately $3.3 million, in aggregate, to
Aspire Capital.
35
During the year ended December 31, 2014, we received proceeds of approximately $938,000 from the exercise of warrants, resulting
in the issuance of 928,924 shares of common stock in the aggregate.
In 2015, we were awarded a grant from Innovate UK, which will support a Phase 2a clinical study evaluating the administration of
MultiStem cell therapy to ARDS patients. The grant is expected to provide up to approximately £2.0 million in support over the
course of the study, which will be conducted at leading clinical sites in the UK in conjunction with Catapult, a not-for-profit center
focused on the development of the UK cell therapy industry. We also received new grant awards in 2014 tied to process development
and preclinical initiatives.
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, but we receive royalties on commercial sales by a licensee of products using our technologies. Research
and development expenses consist primarily of external clinical and preclinical study fees, manufacturing costs, salaries and related
personnel costs, legal expenses resulting from intellectual property prosecution 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, professional fees and other
corporate expenses. We expect to continue to incur substantial losses through at least the next several years.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Revenues. Revenues decreased to $1.6 million for the year ended December 31, 2014 from $2.4 million in 2013, reflecting a $0.3
million decrease in our Pfizer contract revenues and a $0.4 million decrease in milestone payments from Bristol-Myers Squibb,
partially offset by an increase of $0.2 million in royalty payments from RTI. Absent any new collaborations, we expect our contract
revenues to be comprised of revenues associated with our recent Chugai collaboration, royalty payments from RTI, potential
commercial milestone payments from RTI, and potential milestone payments and royalties from Bristol-Myers Squibb. Grant revenue
decreased $0.3 million for the year ended December 31, 2014 compared to the year ended December 31, 2013, primarily due to
completed grants and the timing of grant-funded projects. Our grant revenues fluctuate from period-to-period based on new grant
awards, completed grants and the timing of grant-related activities.
Research and Development Expenses. Research and development expenses increased to $23.4 million for the year ended
December 31, 2014 from $20.5 million for the year ended December 31, 2013. The increase of $2.9 million related primarily to an
increase in personnel costs of $0.9 million, an increase in research supplies of $0.6 million, an increase in clinical and preclinical
development costs of $0.5 million, an increase in stock-based compensation of $0.5 million, an increase in legal and professional fees
of $0.1 million, and an increase in other research and development costs of $0.3 million for the year ended December 31, 2014 from
the comparable period in 2013. Personnel costs rose due to selective personnel additions and annual compensation increases. The
increase in research supplies was due to an increase in internal process development activities. 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 increase in our
clinical and preclinical costs is primarily due to increased clinical study costs. Stock-based compensation increased primarily due to
additional months of ratable expense from restricted stock units granted in June 2013, and the implementation of an annual equity
incentive program in June 2013. The increase in legal fees resulted from increased patent expenses associated with patent prosecution,
national filings, and interparty proceedings and related filings. Based on our planned clinical development and manufacturing process
development activities, we expect our 2015 annual research and development expenses to be higher in 2015 as compared to 2014,
reflecting increased clinical development costs, 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 $6.9 million in 2014 from $6.1 million in
2013. The $0.8 million increase in 2014 compared to 2013 was due primarily to an increase of $0.6 million in stock-based
compensation and an increase in personnel costs of $0.3 million. Stock-based compensation increased in 2014 compared to 2013
primarily due to additional months of ratable expense from restricted stock units granted in June 2013, and the implementation of an
annual equity incentive program in June 2013. The increase in personnel costs related to the addition of personnel over the past
twelve months and annual compensation increases. We expect our general and administrative expenses to continue at similar levels in
2015.
36
Depreciation. Depreciation expense increased to $0.4 million in 2014 from $0.3 million in 2013 due to depreciation on new capital
purchases.
Income (Expense) from Change in Fair Value of Warrants. Income of $6.6 million and expense of $6.3 million was recognized during the
years ended December 31, 2014 and 2013, respectively, for the market value change in our warrant liabilities. The fluctuation is related to
the impact of new warrant issuances and changes in warrant value, primarily affected by our stock price and the remaining lives of the
issued warrants.
Income Tax Benefit. The income tax benefit in 2014 represents refundable foreign tax credits.
Other Income (Expense), net. Other income (expense), net, for the years ended December 31, 2014 and 2013 remained relatively
consistent and was comprised of interest income and expense, and foreign currency gains and losses.
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. Grant revenue increased $0.4 million for the year
ended December 31, 2013 compared to the year ended December 31, 2012, primarily due to completed grants being replaced with new,
larger awards, as our grants are focused now on late-stage preclinical and early-stage clinical development programs.
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 $0.6 million, an increase in personnel costs of $0.5 million, an increase in stock-based compensation expense of $0.5
million, an increase in facility costs of $0.1 million, and an increase in research supplies of $0.1 million 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 $0.6 million and a decrease in sponsored research costs of $0.3 million in 2013 compared to 2012. The increase in patent legal
fees resulted from increased patent expenses associated with patent prosecution, national filings, and interparty proceedings and related
filings. 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 2013 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 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. 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 $0.6 million in stock-based compensation, an
increase in other general and administrative costs of $0.3 million related to outside services and recruiting costs, an increase in legal and
professional fees of $0.3 million related primarily to SEC filings, and an increase in personnel costs of $0.2 million. The increase in stock-
based compensation in 2013 compared to 2012 related primarily to restricted stock units granted to our named executive officers in 2013
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.
Depreciation. Depreciation expense was $0.3 million in both 2013 and 2012.
Income (Expense) 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.
37
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.
Liquidity and Capital Resources
Our sources of liquidity include our cash balances and any available-for-sale securities. At December 31, 2014, we had $26.1 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.
We incurred losses since inception of operations in 1995 and had an accumulated deficit of $287 million at December 31, 2014. 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 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 2014, 2013
and 2012, 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 $18.8 million, $18.4 million and $29.2
million, respectively.
In January 2014, we completed a registered direct offering generating net proceeds of approximately $18.8 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 and an expiration date of March 31, 2015. 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 January
2015, we amended all of the 2013 warrants to purchase 3,500,000 shares of common stock to increase the exercise price to $2.75 per
share and extend the expiration date to May 31, 2015.
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 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 to 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 years ended December 31, 2014 and 2013, we sold 250,000 and 6,566,666 shares, respectively, to Aspire Capital at average
prices of $3.78 and $1.70 per share, respectively. As of December 31, 2014, we received proceeds of approximately $14.4 million in
aggregate under the Aspire equity purchase agreements since its inception in 2011. Also, since January 1, 2015 through March 9, 2015,
we sold shares for approximately $3.3 million, in aggregate, to Aspire Capital.
Investors in certain of our equity offerings have received warrants to purchase shares of our common stock, of which warrants to
purchase an aggregate of 9.3 million shares remain outstanding at December 31, 2014 with a weighted average exercise price of $2.49
per share. The exercise of warrants could provide us with cash proceeds. During the year ended December 31, 2014, we received
proceeds of approximately $938,000 from the exercise of warrants, resulting in the issuance of 928,924 shares of common stock in the
aggregate. During the year ended December 31, 2013, we received proceeds of approximately $402,000 from the exercise of warrants,
resulting in the issuance of 397,826 shares of common stock in the aggregate. No warrants were exercised in 2012 and 2011. Also, since
January 1, 2015, we received proceeds of approximately $1.0 million from the exercise of 966,184 warrants.
38
In connection with our license agreement with Chugai, we received an up-front cash payment of $10 million and are entitled to
receive a potential near-term payment of $7 million tied to the results of our ongoing Phase 2 clinical trial in ischemic stroke. We may
also receive additional success-based development and regulatory milestones aggregating up to $38 million, as well as potential sales
milestones of up to 17.5 billion yen (approximately $150 million based on the current exchange rate). We are also eligible for
royalties on net sales, starting in the low double digits and increasing incrementally to the high teens depending on net sales levels.
Additionally, we would receive payments for product supplied to Chugai.
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, 2014. Pfizer pays us for
manufacturing product for clinical development and commercialization purposes. We may elect to co-develop with Pfizer, in which
case, the parties would share development and commercialization expenses and profits (if any) on an agreed basis beginning at Phase
3 clinical development. Alternatively, we may elect to not co-develop with Pfizer, in which case Pfizer will pay us tiered single-digit
royalties on worldwide commercial sales of MultiStem IBD products. Any royalties may be subject to certain reductions related to
market exclusivity, patent claims and credits from sales milestone payments.
Under the terms of our RTI agreement, we are eligible to receive cash payments aggregating up to $35.5 million 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, 2014. In addition, we are entitled to receive tiered royalties on worldwide
commercial sales of implants using our technologies based on a royalty rate starting in the mid-single digits and increasing into the
mid-teens, and we began receiving royalty payments 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.
We are obligated to pay the University of Minnesota a royalty based on worldwide commercial sales of licensed products if covered
by a valid licensed patent. The low single-digit royalty rate may be reduced if third-party payments for intellectual property rights are
necessary or commercially desirable to permit the manufacture or sale of the product.
In 2012, we entered into an arrangement with the Global Cardiovascular Innovation Center, or GCIC, 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 preclinical work.
Interest on the loan accrues at a fixed rate of 4.25% per annum and is added to the outstanding principal. The loan is forgivable based
on the achievement of a certain milestone within three to four years. GCIC has agreed to the four-year term, with an expiration date of
March 31, 2016. As of December 31, 2014, we had drawn $166,000 of this financing ($183,000 including accrued interest).
In 2015, we were awarded a grant from Innovate UK, which will support a Phase 2a clinical study evaluating the administration of
MultiStem cell therapy to ARDS patients. The grant is expected to provide up to approximately £2.0 million in support over the
course of the study, which will be conducted at leading clinical sites in the UK in conjunction with Catapult, a not-for-profit center
focused on the development of the UK cell therapy industry. We also received new grant awards in 2014 tied to process development
and preclinical initiatives. 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.
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, 2014,
we had available cash and cash equivalents of $26 million, and 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 staging 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.
39
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.
Cash Flow Analysis
Net cash used in operating activities was $25.8 million, $22.8 million and $17.7 million in 2014, 2013 and 2012, respectively, and
represented the use of cash to fund operations, clinical trials, and preclinical and process development activities. We expect that net cash
used in operating activities will be higher in total in 2015 compared to 2014 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 $(0.3) million, $(0.4) million and $3.9 million in 2014, 2013 and 2012,
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 $297,000, $385,000 and $347,000 in 2014, 2013 and 2012, respectively. We
expect that our capital equipment expenditures will continue at similar levels in 2015 compared to 2014.
Financing activities provided cash of $20.3 million in 2014 related to the January 2014 registered direct offering, the exercise of
common stock warrants, and equity sales to Aspire Capital, net of treasury stock purchases. 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 equity sales to
Aspire Capital. Financing activities provided cash of $30.5 million in 2012 related to the March 2012 private placement, the October
2012 public offering, and equity sales to Aspire Capital.
Our contractual payment obligations as of December 31, 2014 are as follows:
Payment due by Period
Contractual Obligations
Operating leases for facilities and equipment
leases
Note payable(1)
Total
Less than 1 Year
1 – 3 Years
3 – 5 Years More than 5 Years
$437,000
183,000
$620,000
$
$
370,000
—
370,000
$ 67,000
183,000
$250,000
$ —
—
$
—
—
(1) Consists of a loan pursuant to an arrangement with the GCIC 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 approximately $220,000
is subject to adjustments based on an inflationary index. We also have an option for additional space in Belgium that expires in August
2015. Our total rent expense for all properties was $517,000 in 2014.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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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:
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. 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.
Revenues that we earned through December 31, 2014 have been recognized under our accounting policy prior to the adoption of ASU
2009-13, Multiple Deliverable Revenue Arrangement on 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.
In 2015, we will review our license agreement with Chugai for potential multiple elements and deliverables under ASC 605-25.
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.
41
We recognize revenue from royalties relating to the sale by a licensee of the licensed product. Royalty revenue is recognized on an
accrual basis in accordance with the substance of the relevant agreement and based on the receipt from the licensee of the relevant
information to enable calculation of the royalty due.
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. Currently, our only collaboration accounted for on a net basis
is our cost-sharing collaboration with Angiotech, which was terminated in 2011. In 2015, we will review our license agreement and
collaboration with Chugai for potential accounting as a collaborative arrangement.
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.
Pending Adoption of New Accounting Pronouncements
Refer to Note B to the consolidated financial statements for a discussion of recently issued accounting standards.
42
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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to raise capital to fund our operations;
the timing and nature of 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 stroke, AMI, IBD, ARDS 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 the United States, Europe and 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.
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,
2014, 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 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, 2014, 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
Athersys, Inc.
Consolidated Financial Statements
Years Ended December 31, 2014, 2013 and 2012
Contents
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations and Comprehensive Loss for each of the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for each of the years ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
46
48
49
50
51
52
45
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Athersys, Inc.
We have audited the accompanying consolidated balance sheets of Athersys, Inc. as of December 31, 2014 and 2013, 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, 2014. 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, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2014, 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, 2014, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our
report dated March 12, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 12, 2015
46
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Athersys, Inc.
We have audited Athersys, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
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, 2014, 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, 2014 and 2013, 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, 2014 of
Athersys, Inc. and our report dated March 12, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 12, 2015
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
Deferred tax assets
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, 2014 and December 31, 2013
Common stock, $0.001 par value; 150,000,000 shares authorized, 77,706,816 and 70,749,212
shares issued at December 31, 2014 and December 31, 2013, respectively, and 77,706,816 and
70,683,480 shares outstanding at December 31, 2014 and December 31, 2013, 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,
2014
2013
$ 26,127
694
427
27,248
1,270
200
$ 28,718
$ 31,948
520
387
32,855
1,333
—
$ 34,188
$
2,767
1,060
126
664
75
4,692
183
2,948
$
2,243
1,067
88
884
86
4,368
176
9,823
—
—
78
307,337
—
(286,520)
20,895
$ 28,718
71
284,323
(135)
(264,438)
19,821
$ 34,188
48
Athersys, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In Thousands, Except Share and Per Share Amounts)
Revenues
Contract revenue
Grant revenue
Total revenues
Costs and expenses
Research and development (including stock compensation expense of $1,158,
$639 and $150 in 2014, 2013 and 2012, respectively)
General and administrative (including stock compensation expense of $1,447,
$884 and $331 in 2014, 2013 and 2012, respectively)
Depreciation
Total costs and expenses
Loss from operations
Income (expense) from change in fair value of warrants, net
Other income (expense), net
Loss before income taxes
Income tax benefit
Net loss
Net loss per common share, basic
Weighted average shares outstanding, basic
Net loss per common share, diluted
Weighted average shares outstanding, diluted
Items included in other comprehensive loss:
2014
Year Ended December 31,
2013
2012
$
$
286
1,337
1,623
$
755
1,683
2,438
7,380
1,328
8,708
23,366
20,484
19,636
6,909
360
30,635
(29,012)
6,591
86
(22,335)
253
(22,082)
$
$
(0.29)
76,954,503
$
(0.31)
78,541,447
6,065
346
26,895
(24,457)
(6,324)
38
(30,743)
—
(30,743)
$
$
(0.53)
57,674,833
4,753
320
24,709
(16,001)
2,404
(1,138)
(14,735)
—
(14,735)
$
$
(0.45)
32,556,781
(0.53)
$
57,674,833
(0.45)
$
32,556,781
Proportional share of comprehensive loss of equity method investment
—
Comprehensive loss
See accompanying notes.
$
(22,082)
$
—
(30,743)
(28)
(14,763)
$
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
28 $
—
(218,960) $
—
7,298
481
—
—
—
(28)
—
—
—
—
—
—
—
—
—
—
—
27,231
—
(14,735)
—
(14,735)
—
(233,695)
—
(28)
20,247
1,523
—
797
—
28,267
—
(30,743)
(264,438)
—
(270)
(30,743)
19,821
2,605
—
938
—
20,061
—
—
— $
—
(22,082)
(286,520) $
(448)
(22,082)
20,895
Balance at January 1, 2012
Stock based compensation
Issuance of common stock and
— $ — 24,487,260 $
— —
— —
24 $ 226,206 $ — $
481
warrants, net of issuance costs
—
— 28,561,553
29
27,202
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
Issuance of common stock and
warrants, net of issuance costs
Issuance of common stock under
equity compensation plans
Net loss
Balance at December 31, 2013
Stock based compensation
Issuance of common stock from
warrant exercises
Issuance of common stock and
warrants, net of issuance costs
Issuance of common stock under
equity compensation plans
Net loss
Balance at December 31, 2014
See accompanying notes.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,819 —
— —
—
— 53,058,632
—
— —
53
— —
—
397,826 —
797
— 16,899,999
17
28,113
327,023
—
—
— 70,683,480
—
—
1
— —
71
—
—
928,924
— 5,250,000
1
5
1
—
—
—
253,889
1,523
1
—
284,323
2,605
868
19,698
—
—
—
137
(272)
—
(135)
—
69
358
— —
—
—
—
$ — 77,706,816 $
844,412
— —
(157)
—
(292)
—
78 $ 307,337 $ — $
50
Year Ended December 31,
2013
2014
2012
$(22,082) $(30,743) $(14,735)
360
2,605
346
— —
1,523
— —
6,324
7
(6,591)
(193)
(174)
(40)
335
(11)
(30)
(101)
(196)
86
(22,784)
(25,791)
320
(183)
481
1,005
(2,404)
14
199
580
198
(3,140)
(17,665)
—
(297)
(297)
—
(385)
(385)
4,237
(347)
3,890
19,621
30,357
29,454
938
402
—
(292)
—
(272)
—
—
166
20,267
30,523
29,584
(5,821)
16,748
6,415
31,948
8,785
25,533
$ 26,127 $ 31,948 $ 25,533
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
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
Proceeds from maturities of available-for-sale securities
Purchases of equipment
Net cash (used in) provided by investing activities
Financing activities
Proceeds from issuance of common stock and warrants, net
Proceeds from exercise of warrants
Purchase of treasury stock
Proceeds from note payable
Net cash provided by financing activities
(Decrease) 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.
51
Athersys, Inc.
Notes to Consolidated Financial Statements
A. Background
We are an international biotechnology 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 an investment in an inactive joint venture in 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. 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.
Revenues that we have earned through December 31, 2014 have been recognized under our accounting policy prior to the adoption of
ASU 2009-13, Multiple-Deliverable Revenue Arrangements on January 1, 2011. The performance period for our multiple element
arrangements have 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 (“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.
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.
52
We recognize revenue from royalties relating to the sale by a licensee of the licensed product. Royalty revenue is recognized on an accrual
basis in accordance with the substance of the relevant agreement and based on the receipt from the licensee of the relevant information to
enable calculation of the royalty due.
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. Currently, we have no collaborations accounted for on a net basis.
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, 2014.
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. 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.
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.
53
Patent Costs and Rights
Costs of prosecuting and maintaining patents and patent rights are expensed as incurred. 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
agreements. Registered common stock warrants that could require cash settlement 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. Changes in the fair market value of the warrants are reflected in the consolidated
statement of operations as income (expense) from change in fair value of warrants.
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, 2014, we had no
shares of common stock held in treasury, and at December 31, 2013, we had 65,732 shares of common stock held in treasury and
available for reissuance.
Comprehensive Loss
The proportional share of comprehensive income and loss of our equity method investment, which was liquidated in 2012, is the only
component of accumulated other comprehensive loss.
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, 2014, the majority of our accounts
receivable are due from collaborators. 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.
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.
54
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
Income Taxes
2014
104.0%
2.1%
6.09 years
0.0%
December 31,
2013
109.2%
1.5%
6.14 years
0.0%
2012
117.3%
0.8%
5.72 years
0.0%
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, 2014 and 2013. 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 have been computed using the weighted-average number of shares of common stock outstanding
during the period. For each reporting period, we evaluate the income from our warrant liabilities and consider whether it results in a
potentially dilutive effect to net loss per share. For the year ended December 31, 2014, we had such a dilutive reconciliation related to
our warrants with an exercise price of $1.01, which are included in the table below. Any such warrants are then omitted from the
subsequent following table of instruments that were excluded from the calculation of diluted net loss per share. The table below
reconciles the net loss and the number of shares used to calculate basic and diluted net loss per share for the years ended
December 31, 2014, 2013 and 2012, in thousands.
Numerator:
Net loss attributable to common stockholders - basic
Less: income from change in fair value of warrants
Net loss attributable to common stockholders used to calculate
diluted net loss per share
Denominator:
Weighted-average shares outstanding - basic
Potentially dilutive common shares outstanding:
Warrants
Weighted-average shares used to calculate diluted net loss per share
Basic – net loss per share
Dilutive – net loss per share
Year ended December 31,
2013
2012
2014
$(22,082)
(2,141)
$(30,743)
—
$(14,735)
—
$(24,223)
$(30,743)
$(14,735)
76,955
57,675
32,557
1,586
78,541
$ (0.29)
$ (0.31)
—
57,675
$ (0.53)
$ (0.53)
—
32,557
$ (0.45)
$ (0.45)
55
We have outstanding options, restricted stock units and warrants that are not used in the calculation of diluted net loss per share
because to do so would be antidilutive. The following instruments were excluded from the calculation of diluted net loss per share
because their effects would be antidilutive:
Stock options
Restricted stock units
Warrants
Year ended December 31,
2013
2014
6,383,457
1,889,267
6,310,000
14,582,724
5,129,579
2,449,346
8,909,027
16,487,952
2012
4,058,184
70,814
5,806,853
9,935,851
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with
Customers. ASU 2014-09 requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. To achieve that core principle, the amendment provides five steps that an entity should apply when recognizing revenue. The
amendment also specifies the accounting of some costs to obtain or fulfill a contract with a customer and expands the disclosure
requirements around contracts with customers. An entity can either adopt this amendment retrospectively to each prior reporting
period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of initial
application. The amendment is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not
permitted. We are in the process of evaluating, but have not determined, the impact that the adoption of ASU 2014-09 will have on
our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern, Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern, which establishes management’s responsibility to evaluate whether there is
substantial doubt about an entity’s ability to continue as a going concern and, if so, to provide related footnote disclosures. ASU
2014-15 provides a definition of the term ‘substantial doubt’ and requires an assessment for a period of one year after the date that the
financial statements are issued or available to be issued. Management will also be required to evaluate and disclose whether its plans
alleviate that doubt. The guidance is effective for the annual periods ending after December 15, 2016 and interim periods thereafter
with early adoption permitted. We are in the process of evaluating the impact the new guidance will have on our disclosures.
C. Equipment
Equipment consists of (in thousands):
Laboratory equipment
Office equipment and leasehold improvements
Accumulated depreciation
December 31,
2014
$ 6,162
2,849
9,011
(7,741)
$ 1,270
2013
$ 6,703
2,814
9,517
(8,184)
$ 1,333
In 2014 and 2013, we disposed of approximately $0.8 million and $1.5 million, respectively, 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
Level 2
Unadjusted quoted prices in active markets for identical assets or liabilities.
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.
56
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, 2014 Using
Balance as of
December 31,
2014
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
$
2,948
$
—
$
—
Significant
Unobservable
Inputs (Level 3)
2,948
$
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
$
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. 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. The following inputs were used at December 31, 2014:
Expected volatility
Risk-free interest rate
Expected life
Fair value at December 31, 2014
(in thousands)
Warrants Issued
January 2014
Warrants Issued
December 2013
Warrants Issued
March 2012
Warrants Issued
February 2011
81.2%
0.67%
1.54 years
57.0%
0.04%
0.25 years
67.0%
0.67%
2.20 years
63.2%
0.25%
1.09 years
$
293
$
42
$
2,507
$
106
A roll-forward of fair value measurements using significant unobservable inputs (Level 3) for the warrants is as follows (in
thousands):
Balance January 1, 2014
Issuance of warrants January 2014
Settlements from exercise
Income for the period
Balance December 31, 2014
Year ended
December 31, 2014
9,823
$
2,012
(2,296)
(6,591)
2,948
$
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 approximately $220,000,
subject to adjustments based on an inflationary index. We also have an option for additional space in Belgium that expires in August
2015.
Aggregate rent expense was approximately $517,000, $491,000 and $415,000 in 2014, 2013 and 2012, respectively. The future
annual minimum lease commitments at December 31, 2014 are approximately $370,000 for 2015 and $67,000 for 2016.
57
In 2012, we entered into an arrangement with the Global Cardiovascular Innovation Center (“GCIC”) 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. GCIC has agreed to the four-year term, with an expiration date
of March 31, 2016. As of December 31, 2014 and 2013, we have drawn $166,000 of this financing ($183,000 including interest),
which is reflected on the balance sheet as a non-current note. The fair value of our note payable at December 31, 2014 is not
determinable due to lack of marketability of the note payable.
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.
We paid no interest during the three years ended December 31, 2014.
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 on an exclusive basis. Under the terms of the agreement, we
received a non-refundable up-front payment from Pfizer and research funding and support through June 2012. 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, which is recognized in the period
that the manufacturing services are performed. Pfizer has responsibility for development and regulatory activities, including decision-
making regarding the advancement or cessation of further development under the collaboration. If the product is successfully
developed, Pfizer would also have sole responsibility for commercialization. We may elect to co-develop with Pfizer, in which case,
the parties would share development and commercialization expenses and profits, if any, on an agreed-upon basis beginning at Phase
3 clinical development. Alternatively, we may elect to not co-develop with Pfizer, in which case Pfizer will pay us tiered single-digit
royalties on worldwide commercial sales of MultiStem IBD products. Any royalties may be subject to certain reductions related to
market exclusivity, patent claims and credits from sales milestone payments. In the event that Pfizer does not move the program
forward, the development and commercialization rights would revert to us.
RTI Surgical, Inc.
In 2010, we entered into an agreement with RTI Surgical, Inc. (“RTI”) to develop and commercialize biologic implants using our
technology for certain orthopedic applications in the bone graft substitutes market on an exclusive basis. Under the terms of the
agreement, we received a non-refundable license fee in installments and performed certain services that were concluded in 2012. We
are eligible to receive 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. No milestone revenue has been recognized to date. In addition, we are
entitled to receive tiered royalties on worldwide commercial sales of implants using our technologies based on a royalty rate starting
in the mid-single digits and increasing into the mid-teens. Any royalties may be subject to a reduction if third-party payments for
intellectual property rights are necessary or commercially desirable to permit the manufacture or sale of the product.
F. Capitalization and Warrant Liability
Capitalization
At both December 31, 2014 and 2013, we had 150.0 million shares of common stock and 10.0 million shares of undesignated
preferred stock authorized. No shares of preferred stock have been issued as of December 31, 2014.
58
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
Warrants to purchase common stock — 2014 offering
December 31
2014
9,903,583
—
1,310,000
3,021,077
3,500,000
1,500,000
19,234,660
2013
11,020,510
149,026
1,310,000
3,950,001
3,500,000
—
19,929,537
As of December 31, 2014, the terms of our outstanding warrants to purchase shares of common stock with a weighted average
exercise price of $2.49 were as follows:
Number of
Underlying Shares
1,310,000
3,021,077
3,500,000
1,500,000
9,331,077
Exercise Price
$3.55
$1.01
$2.50
$4.50
Expiration
February 2, 2016
March 14, 2017
March 31, 2015
July 15, 2016
In January 2014, we completed a registered direct offering generating net proceeds of approximately $18.8 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.
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 and an expiration date of March 31, 2015. When the 3,500,000 warrants were issued, 1,401,218 were 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 January 2015, we amended all of the
December 2013 warrants to purchase 3,500,000 shares of common stock to increase the exercise price from $2.50 to $2.75 per share,
and to extend the expiration date from March 31, 2015 to May 31, 2015.
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. Warrants to purchase 2,292,934 shares of common stock have been exercised to date, resulting in
aggregate proceeds of $2.3 million.
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.
59
Aspire Capital
In November 2011, we entered into an equity purchase agreement with Aspire Capital Fund, LLC (“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. 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 and received 266,667 additional shares as compensation for its commitment. As of
September 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 years ended December 31, 2014 and 2013, we sold 250,000 and 6,566,666 shares, respectively, to Aspire Capital at
average prices of $3.78 and $1.70 per share, respectively. As of December 31, 2014, we received proceeds of approximately $14.4
million in aggregate under the Aspire equity purchase agreements since their inception in 2011, and we can elect to sell to Aspire
Capital up to an additional $23.5 million of shares of common stock under the current agreement. Since January 1, 2015 through
March 9, 2015, we sold shares for approximately $3.3 million, in aggregate, to Aspire Capital.
Warrant Liabilities
The warrants we issued in the January 2014 and December 2013 registered direct offerings 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, and the exercise price was reduced in February 2013 to $1.01 per share as a result of
the October 2012 public offering.
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.
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, 2014, a total of 1,596,417 shares of common stock have been issued under our equity incentive plans.
As of December 31, 2014, a total of 1,630,859 shares were available for issuance under our equity compensation plans and stock-
based awards to purchase 8,272,724 shares of common stock were outstanding. We recognized $2,605,000, $1,523,000 and $481,000
of stock-based compensation expense in 2014, 2013 and 2012, respectively.
Stock Options
The weighted average fair value of options granted in 2014, 2013 and 2012 was $1.29, $1.42 and $1.21 per share, respectively. The
total fair value of options vested during 2014, 2013 and 2012 was $940,000, $585,000 and $420,000, respectively. At December 31,
2014, total unrecognized estimated compensation cost related to unvested stock options was approximately $2,559,000, which is
expected to be recognized by mid-2018 using the straight-line method. The weighted average contractual life of unvested options at
December 31, 2014 was 9.07 years. The aggregate intrinsic value of fully vested option shares and option shares expected to vest as
of December 31, 2014 was $30,000.
60
A summary of our stock option activity and related information is as follows:
Outstanding January 1, 2012
Granted
Forfeited / Terminated / Expired
Outstanding December 31, 2012
Granted
Exercised
Forfeited / Expired
Outstanding December 31, 2013
Granted
Exercised
Forfeited / Expired
Outstanding December 31, 2014
Vested during 2014
Vested and exercisable at December 31, 2014
Number
of Options
4,499,601
290,150
(731,567)
4,058,184
1,336,928
(1,312)
(264,221)
5,129,579
1,420,800
(103,481)
(63,441)
6,383,457
661,971
4,437,285
Weighted
Average
Exercise
Price
$
$
$
$
4.63
1.44
4.92
4.36
1.71
1.26
3.36
3.72
1.68
1.75
1.98
3.31
1.75
4.03
Exercise Price
$1.13 – 2.94
$3.10 – 5.00
$5.28 – 7.80
Options Outstanding
Options Vested and Exercisable
December 31, 2014
Number
of
Options
3,221,457
3,054,500
107,500
6,383,457
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Number
of
Options
8.34 $
2.42 $
4.98 $
1.77 1,289,785
4.87 3,040,000
107,500
5.28
7.25 $
2.39 $
4.98 $
1.93
4.88
5.28
4,437,285
Restricted Stock Units
A summary of our restricted stock unit activity and related information is as follows:
Number
of
Restricted
Stock Units
39,300
56,716
(9,819)
(15,383)
70,814
2,851,964
(468,359)
(5,073)
2,449,346
460,112
(1,013,446)
(6,745)
1,889,267
1,491,624
Weighted
Average
Fair Value
2.69
$
1.43
2.69
1.88
1.86
1.71
1.72
1.77
1.71
1.65
1.71
1.68
1.70
1.72
$
$
Outstanding January 1, 2012
Granted
Vested-common stock issued
Forfeited/expired
Outstanding December 31, 2012
Granted
Vested-common stock issued
Forfeited/expired
Outstanding December 31, 2013
Granted
Vested-common stock issued
Forfeited/expired
Outstanding December 31, 2014
Vested/Issued cumulative at December 31, 2014
61
The total fair value of restricted stock units vested during 2014, 2013 and 2012 was $1,734,000, $805,000 and $26,000, respectively.
At December 31, 2014, total unrecognized estimated compensation cost related to unvested restricted stock units was approximately
$2,991,000, which is expected to be recognized by mid-2018 using the straight-line method.
H. Income Taxes
At December 31, 2014, we had U.S. federal net operating loss and research and development tax credit carryforwards of
approximately $88,283,000 and $2,934,000, respectively. Such operating losses and tax credits may be used to reduce future taxable
income and tax liabilities and will expire at various dates between 2019 and 2035. We also had foreign net operating loss and foreign
tax credit carryforwards of approximately $12,170,000 and $200,000, respectively. Such foreign operating losses do not expire and
tax credits will expire between 2015 and 2019. We also had state and city net operating loss carryforwards aggregating approximately
$35,994,000. Such operating losses may be used to reduce future taxable income and tax liabilities and will expire at various dates
between 2015 and 2035.
The utilization of net operating loss and tax credit carryforwards generated prior to October 2012 (“Section 382 Limited Attributes”)
is substantially limited under Section 382 of the Internal Revenue Code as a result of our equity offering in October 2012. U.S.
federal net operating loss carryforwards of $48,213,000, research and development tax credits of $2,723,000, and state and local net
operating loss carryforwards of $29,218,000 generated in 2014 and 2013, as well as foreign net operating loss carryforwards of
$12,170,000 and foreign tax credits of $200,000, are not subject to annual limitations. The Section 382 Limited Attributes may be
used to reduce future taxable income and tax liabilities and will expire at various dates between 2015 and 2031.
Significant components of our deferred tax assets are as follows (in thousands):
Net operating loss carryforwards
Research and development credit carryforwards
Compensation expense
Other
Total deferred tax assets
Valuation allowance for deferred tax assets
Net deferred tax assets
December 31,
2014
$ 34,657
3,134
3,177
1,084
42,052
(41,852)
200
$
2013
$ 20,707
1,473
3,353
509
26,042
(26,042)
$ —
Because of our cumulative losses, substantially all of the deferred tax assets have been offset by a valuation allowance. We have not
paid income taxes for the three-year period ended December 31, 2014. In 2014, we recognized a refundable tax benefit related to
research and development credits associated with our foreign subsidiary.
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 $284,000 in 2014, $97,000 in 2013, and $98,000 in
2012.
J. Subsequent Events
Chugai Collaboration
In February 2015, we entered into a collaboration with Chugai Pharmaceutical Co., Ltd (“Chugai”) to develop and commercialize
MultiStem cell therapy for ischemic stroke in Japan on an exclusive basis. Under the agreement, Chugai will be responsible for the
development and commercialization of MultiStem for ischemic stroke in Japan, and we will have the primary responsibility for the
manufacture of product for both clinical and commercial purposes. The parties will coordinate Japanese and global regulatory
activities and clinical development plans for MultiStem treatment of ischemic stroke.
62
In accordance with the agreement, we received an up-front cash payment of $10 million and are entitled to receive a potential near-
term payment of $7 million tied to the results of our ongoing Phase 2 clinical trial in ischemic stroke. We may also receive additional
success-based development and regulatory milestones aggregating up to $38 million, as well as potential sales milestones of up to
17.5 billion yen (approximately $150 million based on the current exchange rate). We are also eligible for royalties on net sales,
starting in the low double digits and increasing incrementally to the high teens depending on net sales levels. Additionally, we would
receive payments for product supplied to Chugai.
Grant Award
In 2015, we were awarded a grant from Innovate UK in support of a Phase 2a clinical study evaluating the administration of
MultiStem cell therapy to acute respiratory distress syndrome patients. The grant is expected to provide up to approximately
£2.0 million (approximately $3.1 million based on the current exchange rate) in support over the course of the study, which will be
conducted at leading clinical sites in the United Kingdom in conjunction with the Cell Therapy Catapult, a not-for-profit center
focused on the development of the United Kingdom cell therapy industry.
K. Quarterly Financial Data (unaudited)
The following table presents quarterly data for the years ended December 31, 2014 and 2013, in thousands, except per share data:
First
Quarter
Second
Quarter
2014
Third
Quarter
Fourth
Quarter Full Year
Revenues
Net income (loss)
Basic net income (loss) per common share
Diluted net loss per common share
Revenues
Net loss
Basic and diluted net loss per common share
707 $ 388 $
$
235 $ 1,623
$(11,484) $ 675 $(4,719) $(6,554) $(22,082)
$ (0.15) $ 0.01 $ (0.06) $ (0.08) $ (0.29)
$ (0.15) $ (0.04) $ (0.08) $ (0.08) $ (0.31)
293 $
2013
Third
Quarter
Second
Quarter
First
Quarter
920 $ 2,438
$
$(9,388) $(5,946) $(5,614) $(9,795) $(30,743)
$ (0.18) $ (0.11) $ (0.10) $ (0.15) $ (0.53)
Fourth
Quarter
571 $
621 $
326 $
Full Year
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.
63
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, 2014, 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 2013 framework in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation
under the 2013 framework in Internal Control — Integrated Framework, management concluded that our internal control over
financial reporting was effective as of December 31, 2014. The effectiveness of our internal control over financial reporting as of
December 31, 2014 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 2014, 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 27, 2015, 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 (the “Plan”) for the year ended December 31, 2015 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, 2015 through December 31, 2015. 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, executing against the established operating plan and capital acquisition objectives, and advancement of strategic
partnership and program activities. 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 10.50 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 12, 2015.
Age Current Position and Office
54 Chief Executive Officer, Chairman and Director
Name
Gil Van Bokkelen, Ph.D.
William (B.J.) Lehmann, Jr., J.D. 49 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
47 Chief Scientific Officer, Executive Vice President and Director
63 Executive Vice President of Regenerative Medicine
51 Vice President of Finance
59 Director (Lead Director)
58 Director
71 Director
53 Director
59 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 is also the Chairman of the Board of Governors for the National
Center for Regenerative Medicine. He 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 served ex officio from 2013 to 2014. He 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.
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.
65
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 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, UK in 2008. Dr. Kola has
also been appointed a Visiting Professor at Oxford University, Nuffield School of Medicine, Oxford UK, since September 2012.
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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.
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 on the audit committee and is a member of the compliance and
nominations and governance committees, and Nanosphere, Inc. (NASDAQ: NSPH) since 2008, where he serves as chairman of the audit
committee. He previously served on the boards of directors of Tengion, Inc. (OTCQB: TNGN) from 2008 to 2014, where he served as
chairman of the audit committee and a member of the compensation committee, and 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, which specializes in investing in and enabling companies to execute strategies to build
and unlock stockholder value, since 2009. Mr. Traub is also currently a 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. 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 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 chairman of the strategic committee; and (iii) Vitesse Semiconductor Corp. (NASDAQ: VTSS) since March 2013, where he is a
member of the compensation 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, 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 and served
on the board of Xyratex Limited (NASDAQ: XRTX) from June 2013 through its sale in March 2014, where he was a member of the
audit 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.
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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.
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 2014 by persons who were, at any
time during fiscal year 2014, 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.
68
The following are the highlights of our 2014 compensation and benefit programs:
•
•
•
increased the base salaries of our named executive officers;
paid cash bonuses to our named executive officers; and
granted stock options and restricted stock unit awards to our named executive officers under our annual equity
compensation program.
The following discussion and analysis of our compensation and benefit programs for 2014 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 2015 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 2014 Annual Meeting of Stockholders, approximately 82% 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.
69
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 2014, 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 2014 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 2014, 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. 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 2014, 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 2014 against many key goals and objectives, as measured
against the metrics of key programmatic achievements (e.g., clinical, preclinical and core capability development), business
development objectives, operational and financial performance (e.g., budgetary goals, capital acquisition and management), and
intellectual property (e.g., patent issuances and new filings, competitive positioning), 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, nearly half of corporate goals were achieved in
2014, taking into account that a business partnership was not achieved, which was, and continues to be, an important goal.
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 comparative market data 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 were as follows: Mr. Lehmann – 2.05%; Dr. Harrington – 2.06%;
Dr. Deans – 2.04%; and Ms. Campbell – 2.07%.
For 2015, the Compensation Committee and the Board of Directors approved an increase in base salary of 1.75% for 2015 as
compared to 2014 for the Chief Executive Officer, an adjustment based on both performance and comparative market data provided
to the Compensation Committee by Arnosti. Also for 2015, the Compensation Committee and the Board of Directors approved
increases for each of the other named executive officer’s salary for 2015 as compared to 2014 based primarily on Company
performance for the year ended December 31, 2014. The increases are as follows: Mr. Lehmann – 1.83%; Dr. Harrington – 1.84%;
Dr. Deans – 1.66%; and Ms. Campbell – 1.81%.
70
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 corporate objectives and
for 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.
The Compensation Committee recommended and the Board approved a cash bonus incentive program for the year ended
December 31, 2014 for our named executive officers. Under the 2014 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
60%
45%
45%
40%
30%
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 2014 corporate
goals included program and collaboration goals, including new business development, progress on MultiStem clinical development
and cash management objectives. However, any bonus ultimately paid under our annual incentive program is 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. We do not have a formally adopted plan
document for the 2014 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 2014
incentive program as a result of individual performance and the achievement of operational and strategic objectives in 2014,
specifically the achievement of patient enrollment and regulatory approval goals for the Company’s clinical studies, capital
management and the receipt of new grant funding, and other core program development and sector leadership goals, resulting in the
payment of bonuses based on a percentage of such officers’ 2014 base salaries as follows:
Dr. Van Bokkelen
Dr. Harrington
Mr. Lehmann
Dr. Deans
Ms. Campbell
Bonus Achieved
28.5%
21.6%
21.6%
16.8%
14.6%
Cash Bonus Paid
133,000
$
82,000
$
82,500
$
55,000
$
36,000
$
For the year ending December 31, 2015, the Compensation Committee recommended and the Board of Directors approved a
similar cash bonus incentive plan for our named executive officers, with no changes to the target bonus percentage for our named
executive officers from 2014.
The 2015 corporate goals include strategic partnership objectives, advancing and achieving clinical development and related
support activities for MultiStem, program advancement objectives, 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.
71
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;
• equity-based awards have the potential to increase in value based on our performance and 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 2014, we granted 657,664 stock options and 292,352 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 in
connection with the termination of an outdated incentive program and the initiation of an ordinary-course annual equity award
program.
Annual equity awards 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 and RSU awards were granted to our named executive officers
in June 2014 as part of our program for annual equity-based awards, which vest quarterly over a four-year period:
Dr. Van Bokkelen
Dr. Harrington
Mr. Lehmann
Dr. Deans
Ms. Campbell
Stock Options
207,680
121,152
121,152
103,840
103,840
Restricted Stock Units
92,320
53,856
53,856
46,160
46,160
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 make
employer contributions to our 401(k) retirement plan and contributed approximately $285,000 in 2014. 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.
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.
72
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 “2014 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 $1.0 million in any taxable year, unless the compensation is performance-based. The Compensation
Committee manages our incentive programs to qualify for the performance-based exemption; however, it also reserves the right to
provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances our
business objectives.
73
2014 Summary Compensation Table
The following table and narrative set forth certain information with respect to the compensation earned during the fiscal year
ended December 31, 2014 by our named executive officers.
Name and Principal
Position
Gil Van Bokkelen,
Chief Executive
Officer (6)
Laura Campbell,
Vice President
of Finance
William (BJ) Lehmann, Jr.,
President and
Chief Operating Officer
John Harrington,
Chief Scientific Officer and
Executive Vice President (6)
Robert Deans,
Executive Vice President,
Regenerative Medicine
Year
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
2012
Salary
($)
$
466,815
$
450,000
430,000
$
247,265
$
239,300
$
231,562
$
382,015
$
371,400
$
358,849
$
380,015
$
369,400
$
357,116
$
326,570
$
$
318,000
$
307,500
Bonus
(1)($)
133,000
$
$
118,800
$
107,500
36,000
$
$
42,000
$
40,500
82,500
$
84,000
$
77,000
$
82,000
$
$
83,500
$
77,800
55,000
$
$
65,000
$
62,300
Stock
Awards
(2, 3)($)
$
152,328
1,188,518
$
0
$
76,164
$
632,028
$
0
$
88,862
$
980,924
$
0
$
88,862
$
975,642
$
0
$
76,164
$
839,887
$
0
$
Option
Awards
(4)($)
$
286,598
264,550
$
$
0
143,299
$
85,800
$
$
0
167,190
$
164,450
$
$
0
167,190
$
$
143,000
$
0
$
143,299
114,400
$
$
0
All Other
Compensation
($)
22,273
12,620
12,620
13,109
5,109
5,109
11,163
4,673
4,673
10,523
4,355
4,355
10,420
5,620
5,620
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total
(5)
$
1,061,014
2,034,488
$
550,120
$
515,837
$
1,004,237
$
277,171
$
731,730
$
$
1,605,447
$
440,522
728,590
$
$
1,575,897
$
439,271
$
611,453
1,342,907
$
375,420
$
(1) The target bonuses as a percentage of salary were increased in 2014.
(2) Amounts do not reflect cash compensation actually received by our named executive officers. The amounts for annual stock
(3)
awards that began in 2014 for our named executive officers represent the grant date full value of restricted stock units that vest
over a four-year period. 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 the Notes to the audited consolidated financial statements included herein for the fiscal year ended
December 31, 2014.
In 2005, in connection with a restructuring of internal programs and to retain and motivate executives, Athersys entered into
incentive agreements that provided the executives financial participation in the event of certain merger or acquisition or asset
sale transactions. The agreements were established prior to our common stock being publicly traded, had precluded the granting
of routine equity awards to officers, and had become outdated. In 2013, the Board approved arrangements whereby the officers
agreed to terminate their incentive agreements in return for one-time grants of RSUs for their past service and performance and
the ability to receive routine annual grants of equity-based awards, to better align management incentives with corporate
objectives. The amounts for these 2013 stock awards represent the grant date full value of the RSUs that vest over a three-year
period. The fair value of RSUs is calculated in accordance with ASC 718, excluding the impact of potential forfeitures.
Assumptions used in the calculation of these amounts are included in the Notes to the audited consolidated financial statements
included herein for the fiscal year ended December 31, 2014.
(4) Amounts do not reflect cash 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 years ended December 31, 2014 and 2013 in
accordance with ASC 718, excluding the impact of potential forfeitures. Assumptions used in the calculation of these amounts
are included in the Notes to the audited consolidated financial statements included herein for the fiscal year ended December 31,
2014.
(5) Total column includes salary, bonus and non-cash compensation related to stock-based awards. For example, Dr. Van Bokkelen
salary was $450,000 in 2013, but the $2,034,488 total includes non-cash compensation related to a stock-based award that was
received in 2013 tied to the termination of an incentive agreement. See Note 3 above.
(6) Drs. Van Bokkelen and Harrington also served as our Directors for 2014, 2013 and 2012 but did not receive any compensation
as our Directors.
74
The following table sets forth plan-based equity awards granted to our named executive officers during 2014 under our equity
compensation plans.
Grants of Plan-Based Awards for 2014
Name
Gil Van Bokkelen
Laura Campbell
William (BJ) Lehmann, Jr.
John Harrington
Robert Deans
Grant Date
June 17, 2014 (1)
June 17, 2014 (2)
June 17, 2014 (1)
June 17, 2014 (2)
June 17, 2014 (1)
June 17, 2014 (2)
June 17, 2014 (1)
June 17, 2014 (2)
June 17, 2014 (1)
June 17, 2014 (2)
All Other Stock
Awards:
Number of
Shares of Stock
or Units
(#)
92,320
All Other
Option Awards:
Number of
Securities
Underlying
Options
(#)
46,160
53,856
53,856
46,160
207,680 $
103,840 $
121,152 $
121,152 $
103,840 $
Exercise or
Base Price of
Option Awards
($/sh)
Grant Date Fair
Value of Stock
and Option
Awards
($)(3)
152,328
286,598
76,164
143,299
88,862
167,190
88,862
167,190
76,164
143,299
$
1.65 $
$
1.65 $
$
1.65 $
$
1.65 $
$
1.65 $
(1) RSUs 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 2015 is $475,000 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 2015) and an automobile for business use (which was eliminated in 2014). 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 2015 is $387,000 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 2015). 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.
75
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 2015 is
$251,750 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 change 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 2015 is $389,000 and his target annual incentive bonus is 45% of
his base salary. Mr. Lehmann 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.” Mr. Lehmann has also entered
into a non-competition and confidentiality agreement with us under which, during his employment and for a period of twelve months
thereafter, he is restricted from, among other things, competing with us.
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 2015 is $332,000 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 1,630,859 shares remain available for issuance at December 31, 2014.
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 2014, 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 2014 at a maximum rate of 100% of the first $3,000 of participant
contributions, plus 40% of participant contributions in excess of $3,000 per participant, which amounted to approximately $284,000
in 2014. The 401(k) plan is intended to qualify under Section 401 of the Internal Revenue Code, so that contributions to the 401(k)
plan and income earned on the 401(k) plan contributions are not taxable until withdrawn, and so that any contributions we make will
be deductible when made.
76
Outstanding Equity Awards at 2014 Fiscal Year-End
The following table sets forth outstanding options held by our named executive officers at December 31, 2014.
Option Awards
Stock Awards
Name
Gil Van Bokkelen
Laura Campbell
William (BJ) Lehmann
John Harrington
Robert Deans
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
25,960
69,375
25,000
712,500
—
—
12,980
22,500
17,500
200,000
—
—
15,144
43,125
22,500
400,000
—
—
15,144
37,500
22,500
700,000
—
—
12,980
30,000
20,000
240,000
—
—
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Option
Exercise
Price
($)
Option Expiration
Date
—
—
—
—
181,720 $ 1.65
115,625 $ 1.71
June 17, 2024 (1)
June 18, 2023 (1)
0 $ 5.28 December 23, 2019 (2)
0 $ 5.00
June 8, 2017 (3)
— —
— —
90,860 $ 1.65
37,500 $ 1.71
June 17, 2024 (1)
June 18, 2023 (1)
0 $ 5.28 December 23, 2019 (2)
0 $ 5.00
June 8, 2017 (3)
— —
— —
106,008 $ 1.65
71,875 $ 1.71
June 17, 2024 (1)
June 18, 2023 (1)
0 $ 5.28 December 23, 2019 (2)
0 $ 5.00
June 8, 2017 (3)
— —
— —
106,008 $ 1.65
62,500 $ 1.71
June 17, 2024 (1)
June 18, 2023 (1)
0 $ 5.28 December 23, 2019 (2)
June 8, 2017 (3)
0 $ 5.00
— —
— —
90,860 $ 1.65
50,000 $ 1.71
June 17, 2024 (1)
June 18, 2023 (1)
0 $ 5.28 December 23, 2019 (2)
0 $ 5.00
June 8, 2017 (3)
— —
— —
—
—
—
—
—
—
—
—
—
—
Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($)
—
—
—
—
Number of
Shares or
Units of
Stock
That Have
Not
Vested
(#)
—
—
—
—
347,520 (4) $549,082 (5)
80,780 (6) $127,632 (5)
—
—
—
—
184,801 (4) $291,986 (5)
40,390 (6) $ 63,816 (5)
—
—
—
—
286,818 (4) $453,172 (5)
47,124 (6) $ 74,456 (5)
—
—
—
—
285,275 (4) $450,735 (5)
47,124 (6) $ 74,456 (5)
—
—
—
—
245,580 (4) $388,016 (5)
40,390 (6) $ 63,816 (5)
—
—
—
—
—
—
—
—
—
—
—
—
(1) Options vest 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
(4)
thereafter (on a quarterly basis), and thus were fully exercisable on June 8, 2010.
In 2005, in connection with a restructuring of internal programs and to retain and motivate executives, Athersys entered into
incentive agreements that provided the executives financial participation in the event of certain merger or acquisition or asset
sale transactions. The agreements were established prior to our common stock being publicly traded, had precluded the granting
of routine equity awards to officers, and had become outdated. In 2013, the Board approved arrangements whereby the officers
agreed to terminate their incentive agreements in return for one-time grants of RSUs for their past service and performance and
the ability to receive routine annual grants of equity-based awards, to better align management incentives with corporate
objectives. These RSUs vest over three years on a quarterly basis.
77
(5) Value is based on the closing price of our common stock of $1.58 on December 31, 2014, as reported on The Nasdaq Capital
Market.
(6) The stock awards reflected in this column consist of RSUs granted on June 17, 2014, which vest over four years on a quarterly
basis.
None of our named executive officers exercised any stock options during 2014. The following table provides information on all
stock awards vested and the value realized upon vesting, by the named executive officers during fiscal 2014:
2014 Options Exercised and Stock Vested
Name
Gil Van Bokkelen
Laura Campbell
William (BJ) Lehmann
John Harrington
Robert Deans
Stock Awards
Number of Shares
Acquired on Vesting
(#)
243,220
128,974
197,946
196,916
169,490
Value Realized on
Vesting (1)
($)
482,359
256,036
394,493
392,414
337,777
$
$
$
$
$
(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.
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, 2014, each of the named executive officers held unvested stock options and
RSUs, as reflected in the Outstanding Equity Awards at 2014 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, 2014 and thus includes amounts earned through such time and are estimates of the
amounts that would be paid out to executives upon their termination.
78
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
700,223
$
$
30,591
$ 730,814
382,015
$
$
—
$ 382,015
570,023
$
$
30,591
$ 600,614
163,285
$
$
—
$ 163,285
123,633
$
$
—
$ 123,633
The following table summarizes compensation paid to our non-employee Directors in 2014:
Director Compensation Table for 2014
Name(a)
Lee E. Babiss
Ismail Kola
Lorin J. Randall
Kenneth H. Traub
Jack L. Wyszomierski
Fees Earned or
Paid in Cash
($)(b)
$
$
$
$
$
80,000
45,000
70,000
52,500
57,500
Option
Awards
($)(1)(d)
$36,600
$36,600
$36,600
$36,600
$36,600
Total
($)(h)
$116,600
$ 81,600
$106,600
$ 89,100
$ 94,100
(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, 2014, in
accordance with ASC 718. Assumptions used in the calculation of these amounts are included in the notes to the 2014 audited
consolidated financial statements included herein. The Directors had option awards outstanding as of December 31, 2014 for
shares of common stock as follows: Lee Babiss — 165,000; Ismail Kola 165,000; Lorin Randall — 105,000; Kenneth Traub —
90,000; and Jack Wyszomierski — 165,000.
Under our Director compensation program for non-employee Directors, new Directors receive an initial stock option grant to
purchase 50,000 shares 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 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 2014, Directors Babiss, Kola, Randall, Traub and Wyszomierski
each received an anniversary stock option award of 30,000 shares. 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.
79
Our Directors receive annual cash compensation retainers as set forth below:
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
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 2014, 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.
Compensation Committee Report
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, 2014.
Compensation Committee
Board of Directors
Lee E. Babiss
Lorin J. Randall
Kenneth H. Traub
Jack W. Wyszomierski
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, 2014,
unless otherwise indicated.
Number of
securities
to be issued
upon
exercise of
outstanding
awards
(a) (1)
7,274,292
998,432
8,272,724
Weighted-
average
exercise price
of outstanding
awards
(b)(2)
$
$
3.28
3.48
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected
in column (a))
(c)(1)
1,209,291
421,568
1,630,859
Plan Category
Equity compensation plan approved by security
holders
Equity compensation plan not approved by security
holders (3)
Total
80
Included in column (a) and (c) are both stock option and RSU awards under our equity compensation plans.
(1)
(2) Reflects the weighted-average exercise price of outstanding options only, as opposed to RSUs that do not have an exercise price.
(3) 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 on Form 10-K.
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, 2015 (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 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, RSUs and warrants held by that person that are exercisable within 60 days of February 28, 2015 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 79,937,970 shares of common
stock outstanding as of February 28, 2015.
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
A.M. Pappas & Associates, 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(8)
Laura Campbell(9)
Robert Deans(10)
William (BJ) Lehmann, Jr.(11)
All Directors and executive officers as a group (10
persons)
Number of
Shares
4,092,400
1,388,396
157,500
1,061,914
157,500
97,500
100,625
157,500
489,228
497,420
649,957
4,757,540
Percent of Class
5.1%
1.7%
*
1.3%
*
*
*
*
*
*
*
6.0%
Less than 1%.
*
(1) A Schedule 13G/A filed with the SEC on February 17, 2015 reported that A.M. Pappas & Associates, LLC, or Pappas, an
investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is deemed to be the beneficial owner of
4,092,400 shares of common stock as a result of acting as investment adviser to various Pappas clients. Pappas has sole voting
and dispositive power over 4,092,400 shares of common stock. The address for Pappas is 2520 Meridian Parkway, Suite 400,
Durham, North Carolina 27713.
Includes vested options for 857,378 shares of common stock at a weighted average exercise price of $4.55 per share and 63,690
RSUs that vest within 60 days of February 28, 2015.
Includes vested options for 157,500 shares of common stock at a weighted average exercise price of $2.48 per share.
(2)
(3)
81
(4)
(5)
(6)
(7)
(8)
(9)
Includes vested options for 788,966 shares of common stock at a weighted average exercise price of $4.73 per share and 50,912
RSUs that vest within 60 days of February 28, 2015.
Includes vested options for 157,500 shares of common stock at a weighted average exercise price of $2.30 per share.
Includes vested options for 97,500 shares of common stock at a weighted average exercise price of $1.96 per share.
Includes vested options for 80,625 shares of common stock at a weighted average exercise price of $1.60 per share.
Includes vested options for 157,500 shares of common stock at a weighted average exercise price of $2.43 per share.
Includes vested options for 263,220 shares of common stock at a weighted average exercise price of $4.44 per share and 33,686
RSUs that vest within 60 days of February 28, 2015.
(10) Includes vested options for 314,470 shares of common stock at a weighted average exercise price of $4.44 per share and 43,815
RSUs that vest within 60 days of February 28, 2015.
(11) Includes vested options for 495,529 shares of common stock at a weighted average exercise price of $4.53 per share and 51,169
RSUs that vest within 60 days of February 28, 2015.
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 2014 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 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 2014, we sold an aggregate 250,000 shares to Aspire Capital at an average price of $3.78 per share under the equity purchase
agreement. As of December 31, 2014, we received aggregate proceeds of approximately $14.4 million under both equity purchase
agreements since their inception. Also, since January 1, 2015 through March 9, 2015, we sold shares for approximately $3.3 million,
in aggregate, to Aspire Capital.
82
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 $450,640 for the fiscal year ended December 31, 2014 and $639,100 for the fiscal
year ended December 31, 2013. The decrease related primarily to services for registration statements filed in 2013.
Audit-Related Fees. There were no fees paid to Ernst & Young LLP for audit-related services in 2014 and 2013.
Tax Fees. Fees paid to Ernst & Young LLP associated with tax compliance and tax consultation were $27,500 and $29,250 for the
fiscal years ended December 31, 2014 and 2013, respectively.
All Other Fees. There were no other fees paid to Ernst & Young LLP in 2014 or 2013.
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, 2014, 100% of the services described above were pre-approved by the Audit Committee
in accordance with the Company’s formal policy on auditor independence.
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, 2014 and 2013
Consolidated Statements of Operations and Comprehensive Loss for each of the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flow for each of the years ended December 31, 2014, 2013 and 2012
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, 2014
Deducted from asset accounts:
Allowance for doubtful accounts- note receivable
Tax valuation allowances
Total 2014
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
Balance at
Beginning of
Year
Additions
Deductions
Balance at
End of Year
$
$
$
$
$
$
$
$
$
341
26,042
26,383
$
11
$15,810
$15,821
$ —
$ —
$ —
352(A)
$
$ 41,852
$ 42,204
330
34,222
34,552
11
$
$10,126
$10,137
$ —
$ 18,306(B)
$ 18,306
341(A)
$
$ 26,042
$ 26,383
307
29,272
29,579
$
23
$ 4,950
$ 4,973
$ —
$ —
$ —
330(A)
$
$ 34,222
$ 34,552
(A) – Reserve on note receivable; fully-reserved.
(B) – Substantially all of our deferred tax assets are offset by valuation allowances.
84
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 inapplicable and, therefore, omitted.
(a)(3) Exhibits.
Exhibit No.
Exhibit Description
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1*
10.2*
10.3*
10.4
10.5
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 Amendment No. 1 to Common Stock Purchase Warrant (incorporated herein by reference to Exhibit 4.4 to
the registrant’s Post-Effective Amendment No. 1 to Form S-3 (Registration No. 333-185991)
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)
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)
85
10.6
10.7
10.8
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
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)
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)
86
10.22†
10.23†
10.24†
10.25†
10.26†
10.27†
10.28*
10.29
10.30
10.31*
10.32*
10.33
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 (incorporated herein by reference to Exhibit 10.24 to the registrant’s Annual Report on Form
10-K for the year ended December 31, 2013 (Commission No. 001-33876) filed with the Commission on March 13, 2014)
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)
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)
87
10.34
10.35*
10.36†
10.37†
10.38†
10.39†
10.40
10.41†
10.42†
10.43
10.44
10.45
10.46
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 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 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 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 (Registration No. 001-33876)
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)
10.47†
Summary of Athersys, Inc. 2014 Cash Bonus Incentive Plan (incorporated herein by reference to Exhibit 10.55 to the
registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 (Commission No. 001-33876) filed with
the Commission on March 13, 2014)
88
10.48
10.49
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)
10.50†
Summary of Athersys, Inc. 2015 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
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 12, 2015.
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 12 , 2015
March 12 , 2015
Executive Vice President, Chief Scientific
Officer and Director
March 12 , 2015
Director
Director
Director
Director
Director
March 12 , 2015
March 12 , 2015
March 12 , 2015
March 12 , 2015
March 12 , 2015
*
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
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
4.5
10.1*
10.2*
10.3*
10.4
10.5
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 Amendment No. 1 to Common Stock Purchase Warrant (incorporated herein by reference to Exhibit 4.4 to
the registrant’s Post-Effective Amendment No. 1 to Form S-3 (Registration No. 333-185991)
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)
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)
91
10.6
10.7
10.8
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
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)
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)
92
10.22†
10.23†
10.24†
10.25†
10.26†
10.27†
10.28*
10.29
10.30
10.31*
10.32*
10.33
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 (incorporated herein by reference to Exhibit 10.24 to the registrant’s Annual Report on Form
10-K for the year ended December 31, 2013 (Commission No. 001-33876) filed with the Commission on March 13, 2014)
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)
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)
93
10.34
10.35*
10.36†
10.37†
10.38†
10.39†
10.40
10.41†
10.42†
10.43
10.44
10.45
10.46
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 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 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 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 (Registration No. 001-33876)
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)
10.47†
Summary of Athersys, Inc. 2014 Cash Bonus Incentive Plan (incorporated herein by reference to Exhibit 10.55 to the
registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 (Commission No. 001-33876) filed with
the Commission on March 13, 2014)
94
10.48
10.49
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)
10.50†
Summary of Athersys, Inc. 2015 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
95
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 12, 2015
/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 12, 2015
/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, 2014, 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)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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 12, 2015
/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.
Executive Officers
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
Directors and Executive Officers
Board of Directors
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
Lee E. Babiss, Ph.D.
Lead Director
Chief Scientific Officer and Executive Vice President of
Discovery Innovation of PPD, Inc. and Chief Executive Officer
of X-Rx, a majority-owned 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., and
i-STAT Corp.
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
Stock Performance Graph
Notwithstanding any statement to the contrary in any of our previous or future filings with the Securities and Exchange
Commission, the following information relating to the price performance of our common stock shall not be deemed “filed” with
the Commission or “soliciting material” under the Securities Exchange Act of 1934 and shall not be incorporated by reference
into any such filings.
The following graph shows a comparison from
December 31, 2009 through December 31,
2014 of cumulative total return for the NASDAQ
Composite Index (NCI), our common stock (ATHX)
and the NASDAQ Biotechnology Index (NBI),
assuming $100 was invested on December 31,
2009 in the NCI, NBI or our common stock. Data
for the NCI and the NBI assumes reinvestment of
dividends. We have never paid dividends on our
common stock and have no present plans to do so.
Note that on December 21, 2009, just prior to the
baseline data, Athersys announced a collaboration
with Pfizer, Inc. The returns here are based on
historical results and are not intended to suggest
future performance.
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 and Transfer Agent
Computershare
250 Royall Street
Canton, MA 02021
T: (781) 575-2598
F: (781) 575-4647
www-us.computershare.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