Bringing
Regenerative Medicine
to Patients Around
the World
2015 Annual Report
Company Profile
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, 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. MultiStem
impact
for multidimensional
therapy’s potential
distinguishes it from traditional biopharmaceutical therapies focused on a single mechanism of benefit. 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 on evidence from our preclinical and clinical studies to date, MultiStem’s efficacy
profile, novel mechanisms of action, and good tolerability and safety profile suggest that the therapy could
provide a meaningful benefit to patients, including those suffering from serious diseases and conditions with
unmet medical need.
therapeutic
We have forged strategic partnerships and collaborations with leading pharmaceutical and biotechnology
companies, as well as world-renowned research institutions to further develop our platform and products.
More information is available at www.athersys.com.
To My Fellow Shareholders
Our core values and corporate culture at Athersys are built on several
important concepts that create the foundation for everything we
do. These include our company-wide commitment to excellence
and
innovation, teamwork through cooperation, honesty and
integrity, personal and corporate responsibility to humanity and
the environment, and creating a work environment where anything
is possible. These principles are embraced by the teams at Athersys
and our subsidiary, ReGenesys, and make us what we are - a truly
innovative and pioneering company that is unafraid to pursue major
challenges in medicine and develop new and more effective solutions
for areas of significant unmet medical need.
Over the past twenty years, as we have built this company and advanced
our technologies and programs, we have observed and tried to learn
from other organizations, particularly in the healthcare sector. We
have seen many instances where others have recognized opportunities
to change the world in a significant and positive way, but have backed
away from the challenge because it was too daunting. I’m proud of the
fact our company has always maintained the attitude that, as it relates
to our commitment to advance the boundaries of human medicine,
“anything is possible.”
Gil Van Bokkelen, Ph.D.
Chairman and Chief Executive Officer
Our philosophy and approach is predicated on applying our technologies, collective intellect and willpower,
passion for developing new and more effective ways to help patients, commitment to excellence – and to be fearless
in the pursuit of our goals. We pride ourselves on recognizing major challenges and critically evaluating them
as potential opportunities. We believe our technologies and capabilities could enable us to make a meaningful
difference, and we relentlessly pursue our objectives.
I’m proud of the fact our company
has always maintained the attitude
that, as it relates to our commitment
to advance the boundaries of human
medicine, “anything is possible.”
Our Core Values
2015 Annual Report 1
Helping Patients Recover from Stroke
From the results of our recently
completed Phase 2 clinical trial, we and
the clinical experts involved in the trial
observed that administration of a single
dose of MultiStem cell therapy following
an ischemic stroke is well tolerated, and
appears to provide meaningful and
lasting therapeutic benefit.
We recognize that the development of novel
therapeutics is inherently risky. Many studies have
shown that potential new therapies fail at a high rate,
especially during early to mid-stage development.
These studies also show that Phase 2 clinical
development is historically where we tend to learn
valuable lessons related to safety, efficacy, dosing and
clinical trial design. We need look no further than
our own recent experience to appreciate this. We
learn not only from our own experience, but from the
experience of others. When we apply that knowledge
effectively, powerful things can happen.
Over the past year we have made important progress
and learned valuable lessons in some of our key
programs, especially in our stroke clinical program.
From the results of our recently completed Phase 2
clinical trial, we and the clinical experts involved in
the trial observed that administration of a single dose
of MultiStem® cell therapy following an ischemic
stroke is well tolerated, and appears to provide
meaningful and lasting therapeutic benefit.
The interim results of the double-blind, placebo-
controlled, randomized trial were reported in April
2015 and showed that, although we missed the
pre-specified primary endpoint for the study, there
were favorable trends in certain clinically important
parameters. These include lower rates of life-
2 2015 Annual Report
threatening adverse events, infections and mortality
among patients that received MultiStem treatment
relative to the patients that received placebo. Study
investigators also observed a meaningfully higher
rate of patients that achieved an “Excellent Outcome,”
which is defined as the patient achieving complete or
nearly complete recovery in each of the three clinical
rating scales used to evaluate them.
Importantly, we observed that when we administered
MultiStem therapy within 36 hours of the stroke,
which was the time window that we had originally
specified for the trial, we saw evidence of a substantial
treatment effect. Meaningful benefit was apparent
across several dimensions and is consistent with
the observation that time-to-treatment is critical
for stroke and other acute neurological injuries –
meaning that there is a narrow window for effective
intervention, something that the stroke clinical
community has long recognized and appreciated.
Furthermore, biomarker data provided additional
evidence to support our therapeutic hypothesis that
regulation of the immune system is important to
limiting damage following a stroke and promoting
better recovery.
As study
the 2016
investigators reported at
International Stroke Conference (“ISC 2016”), the
one-year results from our trial provided encouraging
evidence of substantially better recovery over
time among MultiStem-treated patients. This was
demonstrated by the statistically significantly higher
that
proportion of MultiStem-treated patients
achieved an Excellent Outcome when evaluating all
subjects in the trial. This favorable outcome that
means the complete or nearly complete recovery of
stroke patients, was supported in particular by a robust
improvement in the Barthel Index, which measures a
patient’s ability to engage in activities of daily living.
These include a range of things that we may ordinarily
take for granted, such as walking, eating, dressing,
using the bathroom or bathing without the need for
support and assistance. When patients that received
treatment with MultiStem therapy within 36 hours
were considered, the treatment effect became even
more pronounced. Among subjects that received
standard of care – meaning either no reperfusion
therapy, tPA, or mechanical reperfusion, followed by
subsequent treatment with a single dose of MultiStem
cells within this window, more than 5 times as many
MultiStem patients achieved an Excellent Outcome
compared to patients receiving standard of care only.
Other benefits were also apparent when patients
were treated with MultiStem therapy when compared
with those receiving placebo, including a higher
proportion of subjects that achieved an “Optimal
Outcome,” meaning they achieved good or excellent
recovery in each of the three clinical rating scales and
did not experience life-threatening adverse events,
secondary infections or mortality. This benefit
was further evidenced by reduced hospitalization
times, less time in the intensive care unit, and fewer
complications and re-hospitalizations over time.
We and the trial investigators regard the results of the
trial as an exciting step forward that could eventually
enable us to extend the treatment window for stroke
patients in a meaningful way. The recent presentation
at the ISC 2016 and the release of the one-year follow-
up data has further increased the interest among
clinicians and experts in the stroke field, many of
whom have expressed their desire to participate in
our next clinical trial.
We have also continued to make progress in our other
ongoing clinical trials for myocardial infarction and
acute respiratory distress syndrome, as well as our
preclinical programs, including recent publications
that reflect progress in our acute neurological injury
programs, and research that supports our work in
pulmonary care and transplant support programs.
We have continued to pursue our objective to forge
new partnerships with other organizations that
are fully committed to a shared set of goals, and to
changing and advancing the standard of medical
care. Our new partner in Japan, HEALIOS K.K.
(“Healios”), shares our vision for the future of
regenerative medicine, and our teams are actively
working together to advance our stroke program in
Our new partner in Japan, Healios,
shares our vision for the future of
regenerative medicine, and our
teams are actively working together
to advance our stroke program in
Japan, as well as conduct collaborative
activities in some other exciting areas.
Forming Partnerships
2015 Annual Report 3
Opportunities in Japan
In approximately two years, we saw
the passage and implementation of
important new legislation authorizing
an accelerated regulatory framework
for regenerative medicine therapies in
Japan, successful implementation of the
new system, and the first two products
approved and receiving reimbursement
coverage. This has helped establish
Japan as a global leader both in the
field of regenerative medicine and the
development of innovative regulatory
approaches.
collaborators for their determination and hard work,
and to thank the patients that have participated in
the clinical trials and their families. This is also made
possible by the continued faith of our shareholders,
and on behalf of everyone at Athersys, I would also
like to once again thank you for your continued
support.
Sincerely,
Gil Van Bokkelen, Ph.D.
Chairman and Chief Executive Officer
Athersys, Inc.
May 2, 2016
Japan, as well as to conduct collaborative activities in
some other exciting areas.
We have seen continued improvement in the
regulatory environment, particularly
in Japan.
In approximately two years, we saw the passage
and implementation of important new legislation
authorizing an accelerated regulatory framework for
regenerative medicine therapies in Japan, successful
implementation of the new system, and the first two
products approved and receiving reimbursement
coverage. This has helped establish Japan as a global
leader both in the field of regenerative medicine and
the development of innovative regulatory approaches.
While we still have a lot of work to do, we are very
excited about the future. We believe that we can
help bring safe and effective regenerative medicine
treatments to patients around the world, and we are
committed to achieving that goal.
Our entire organization shares a passionate focus
on helping patients in need and on advancing
medical care in some profound ways. Our continued
progress reflects an extraordinary commitment by
everyone that is part of our organization, and I would
like to once again thank all of our employees and
4 2015 Annual Report
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
For the fiscal year ended December 31, 2015
OR
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-33876
Athersys, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
3201 Carnegie Avenue,
Cleveland, Ohio
(Address of principal executive offices)
20-4864095
(I.R.S. Employer
Identification No.)
44115-2634
(Zip Code)
Registrant’s telephone number, including area code (216) 431-9900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Name of each exchange on which registered
NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133) No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934. Yes (cid:133) 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:133)
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:133)
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):
Large accelerated filer (cid:133)
Non-accelerated filer (cid:133)
Accelerated filer
⌧
Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No ⌧
The aggregate market value at June 30, 2015, 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 $1.21 of such stock as quoted on the NASDAQ Capital Market on such date) held by non-affiliates of the
registrant was approximately $95.6 million.
The registrant had 83,720,154 shares of common stock outstanding on March 8, 2016.
Documents Incorporated By Reference.
Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement with respect to the 2016
Annual Meeting of Stockholders.
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 3A. Executive Officers of the Registrant
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
2
3
22
33
33
33
33
34
35
36
37
49
49
69
69
69
70
70
70
70
70
71
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 is
currently in later-stage clinical development. Our current clinical development programs are focused on treating neurological
conditions, cardiovascular disease, inflammatory and immune disorders, certain pulmonary conditions and other conditions where the
current standard of care is limited or inadequate for many patients. 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/or organs involved in injury response, 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.
We believe the therapeutic and commercial potential for MultiStem cell therapy to be very broad, applying to many areas of
significant unmet medical need, and 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 wide range of disease indications.
The MultiStem product is unique among regenerative medicine approaches because it has the potential to be manufactured on a large
scale, may be administered in an “off-the-shelf” manner with minimal processing, and can augment healing by providing biological
potency and therapeutic effects that other cell therapy approaches may not be able to achieve. Additionally, MultiStem treatment has
demonstrated good tolerability 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 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 have
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 advanced six MultiStem programs into clinical trials. Each of our programs targets an area of significant medical
need and represents major commercial market opportunities.
In the neurological area, we evaluated in a completed Phase 2 trial the potential for MultiStem treatment of patients who have
suffered neurological damage from an ischemic stroke. The results of this study demonstrated favorable tolerability and safety for
MultiStem, consistent with prior studies. While the study did not achieve the primary and component secondary endpoints for the
intent-to-treat population, the MultiStem treatment was associated with lower rates of mortality and life threatening adverse events,
infections and pulmonary events, and also a reduction in hospitalization. In addition, analyses show that patients who received
MultiStem treatment earlier (24 to 36 hours post-stroke) in the study’s treatment window had better recovery in comparison to
placebo. Analysis of biomarker data obtained from samples of study subjects indicated that MultiStem treatment reduces post-stroke
inflammation compared to placebo. Furthermore, it appears that this effect is more pronounced for subjects receiving MultiStem
earlier than 36 hours post-stroke. This effect is consistent with our hypothesis regarding mechanisms of action and related preclinical
data, and with the clinical data suggesting faster and improved recovery for MultiStem-treated patients relative to current standard of
care.
Importantly, the one-year follow-up data demonstrated that MultiStem-treated subjects on average continued to improve through one
year and had a significantly higher rate of “Excellent Outcome,” as defined below, compared to placebo subjects at one year when
evaluating all of the intent-to-treat subjects enrolled in the study. Achievement of an Excellent Outcome is important because it
means that a patient has substantially improved in each of the three clinical rating scales used to assess patient improvement and has
regained the ability to live and function independently with a high quality of life. The relative improvement in Excellent Outcome
was even more pronounced in the patients who received MultiStem treatment within 36 hours of the stroke. If the MultiStem therapy
is proven effective in a registrational study, this would represent a substantial increase in the time window for treatment, which
currently is limited to several hours.
3
Further analyses are being undertaken, and we are preparing for the next stage of clinical development of this program. In
January 2016, we established a collaboration with HEALIOS K.K., or Healios, to develop and commercialize MultiStem for the
treatment of ischemic stroke in Japan, and the collaboration may be expanded to two other indications, including acute respiratory
distress syndrome, or ARDS. Healios will be responsible for the development and commercialization of MultiStem for ischemic
stroke in Japan on an exclusive basis, and we will receive payments for product supplied to Healios. We had entered into a similar
arrangement with Chugai Pharmaceutical Co., Ltd., or Chugai, in February 2015, but agreed with Chugai to terminate the license
agreement in October 2015 when the parties were unable to reach an agreement on a potential modification of the financial terms of
the agreement and on the development strategy in Japan, in light of the 90-day interim results from our Phase 2 clinical study. We
have had several interactions with the United States Food and Drug Administration, or FDA, and Japan’s Pharmaceuticals and
Medical Devices Agency, or PMDA, regarding study design and the potential to accelerate the path to product approval. Further, we
and our partner, Healios, intend to take advantage of 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 commercialization of products like MultiStem cell therapy for ischemic stroke, if future clinical evaluation
demonstrates appropriate safety and therapeutic effectiveness.
We recently initiated a Phase 2 clinical study in the United States for the administration of MultiStem cell therapy to patients that
have suffered an acute myocardial infarction, or AMI. We were awarded a grant from the National Institutes of Health for up to $2.8
million to support 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. The ongoing Phase 2 study is currently enrolling
patients and we look forward to the results of this study upon completion.
We have also initiated a clinical study for the treatment of ARDS in the United Kingdom, or UK, and in the United States. 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. In 2015, we were awarded a grant from Innovate UK 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 is being conducted with the assistance of the
Cell Therapy Catapult, or Catapult, and is currently enrolling patients.
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 FDA and similar international agencies regarding study design and the
potential to accelerate the path to product approval. 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. In February 2015, the MultiStem product was granted Fast Track designation by the FDA for prophylaxis
therapy against GvHD following hematopoietic cell transplantation. Subsequently, our registration study design received a positive
opinion from the EMA through the Protocol Assessment/Scientific Advice procedure. Furthermore, in December 2015, the proposed
registration study received Special Protocol Assessment designation from the FDA, meaning that the trial is adequately designed to
support a Biologic License Application, or BLA, submission for registration if it is successful. Initiation of this trial will depend on
the progress in other clinical trials and the achievement of certain business development and financial objectives. We may elect to
enter into a development and commercialization collaboration for this program.
MultiStem cell therapy was also evaluated in 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, which was conducted by a collaborative partner,
Pfizer Inc., or Pfizer. Overall, the study results were disappointing, even though a single administration of the cell therapy may have
had some short-term beneficial effects. Taking these results into account and following an internal portfolio review, Pfizer determined
that it would not invest further in this program, as would be required by the collaboration, and notified us of this decision to terminate
the license agreement effective in the third quarter of 2015. In connection with the termination, all rights that Pfizer had to the
program reverted to us, all documents and data were returned to us, and intellectual property generated through the collaboration is
owned by us.
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 eliminate the need for long-term immune suppression.
4
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, and are actively pursuing such initiatives. These include recent
programs in the United States and Europe being implemented by the FDA and EMA involving existing and potentially broadened
application of accelerated review and approval pathways, 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. To date, Japan’s new
Regenerative Medicine regulatory framework that was enacted late in 2014 has resulted in the commercial approval of two cell
therapy products developed by other companies, and reimbursement of those products, and we hope to be also successfully utilize this
framework, such as by working with our partner Healios.
In addition to our MultiStem programs, we have developed 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 Belviq® which has been approved by the FDA 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. 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.
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 safety and efficacy proof
of concept and/or evidence of biological activity in a number of important disease areas where our cell therapies would be
expected to have benefit – including neurological conditions, cardiovascular disease, and inflammatory and immune
system dysfunctions. Our strategy is to conduct well-designed studies beginning early in the clinical development process,
thus establishing a robust foundation for later-stage development, partnering activity and expansion into complementary
areas. We are committed to a rigorous clinical and regulatory approach, which we believe has helped us to advance our
programs efficiently, providing high quality, transparent communications and regulatory submissions. Our discussions
with the FDA, the EMA and PMDA regulatory agencies have resulted in productive interactions that have 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 our MultiStem cells is their expansion capacity ex vivo relative to other cell types.
This allows for large scale production of the clinical product, which enables greater consistency, specificity and cost of
goods advantages over other cell therapies. We are building on this intrinsic biological advantage by advancing and
optimizing our production and process development approaches, working with contract manufacturers. We have already
begun to optimize new manufacturing techniques and the pharmacy-to-bedside approach to support late-stage development
and commercialization of the MultiStem product (e.g., bags to vials, vials to large vials). We are in the process of
developing a large-scale manufacturing process, which if successful, is expected to reduce the cost of the manufactured
cells substantially. 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.
5
•
•
•
Enter into Arrangements with Business Partners to Accelerate Development and Value Creation. In addition to our internal
development efforts, an important part of our 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
collaborative 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 with companies such as Healios, Chugai, Pfizer, Bristol-Myers Squibb
Company, or Bristol-Myers Squibb, Johnson & Johnson, Wyeth Pharmaceuticals, Inc., RTI Surgical, Inc., or RTI, and
others. 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 MultiStem product candidate has shown promise in many 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, 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, the
Medical College of Georgia at Augusta University, the University of Oregon Health Sciences Center, the University of
Texas Health Science Center at Houston, the University of Pittsburgh Medical Center, the Katholieke Universiteit Leuven,
or KUL, University of Regensburg, and other institutions. Through this network of collaborations, we have evaluated
MultiStem therapy in a range of preclinical models that reflect various types of human disease or injury. 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 standard of 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 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 over 230 patents related to our
technologies, providing protection in the United States, Europe, Japan and other areas.
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: We recently completed our Phase 2 study of MultiStem treatment of subjects suffering a moderate
to severe ischemic stroke. In April 2015, we announced the interim results from the clinical study, and in February 2016,
we announced the one-year follow-up data from the study. Our double blind, placebo-controlled trial was conducted at
leading stroke centers across the United States and UK. In the study, we treated patients one to two days after a stroke.
Published studies suggest that approximately 90% of ischemic stroke patients reach the hospital within 24 hours. By
contrast, the current standard of care, thrombolytic tPA, must be administered within 3 to 4.5 hours after a stroke, limiting
the proportion of patients receiving such treatment to less than 10% of ischemic stroke patients. Patients were assessed at
90 days and one-year in accordance with three well validated and commonly utilized clinical rating scales that are used to
assess recovery. These include the Modified Rankin Score, or mRS, (which is a scale from 0 to 6, with a score of 0
reflecting no patient disability and 6 indicating death) assessing overall disability; the NIH Stroke Scale, or NIHSS, which
assesses neurological and motor skill deficit (a scale from 0 to 42, with a score of 0 reflecting no disability, and 42
reflecting maximum disability in every category) assessing neurological and motor skill deficits; and the Barthel Index, or
BI, (a 100 point index, with a score of 100 representing the best possible score) evaluating the patient’s ability to engage in
activities of daily living.
6
The interim results following the 90-day patient evaluation demonstrate favorable tolerability and safety for
MultiStem, consistent with prior studies. With respect to the primary and component secondary endpoints for the intent-to-
treat population, the MultiStem treatment did not show a meaningful difference at 90 days compared to placebo. However,
MultiStem treatment was associated with lower rates of mortality and life threatening adverse events, infections and
pulmonary events, and also a reduction in hospitalization. Furthermore, a higher proportion of patients receiving
MultiStem achieved an “Excellent Outcome,” meaning complete or nearly full recovery, which is defined clinically as the
patient achieving excellent recovery in each of the three clinical rating scales, as evidenced by patients achieving a score of
mRS ≤1, NIHSS ≤1 and BI ≥95. Achievement of an Excellent Outcome is important because it means that a patient has
substantially improved in each of the three clinical rating scales used to assess patient improvement and has regained the
ability to live and function independently with a high quality of life. Among all subjects who received MultiStem
treatment, 15.4% of patients achieved an Excellent Outcome, compared to 6.6% of patients who received placebo
(p=0.10). Importantly, by one year, there was a significant difference between the groups with 23.1% of MultiStem
subjects having an Excellent Outcome compared to 8.2% of placebo subjects (p=0.02)
In addition, analyses show that patients who received MultiStem treatment earlier (24 to 36 hours post-stroke) in the
study’s treatment window had better recovery in comparison to placebo. For example, at 90 days post-stroke, patients who
were treated with MultiStem within 24 to 36 hours of the stroke (i.e. consistent with our original study design) had much
better outcomes compared to placebo patients as measured by recovery in each of the key secondary endpoints: mRS ≤2,
NIHSS Δ ≥75% and BI ≥95. Specifically, 41.9% of the MultiStem-treated patients achieved good or excellent recovery in
all three clinical scales, compared to only 24.6% of all patients receiving placebo, a difference of 17.3% (p = 0.08).
Additionally, MultiStem subjects had a significantly lower rate of secondary infections than placebo subjects (16.1% v.
47.5%, p<0.01) and of average initial hospital days (6.8 v. 9.8, p=0.02). At one year, such early-treated MultiStem patients
had a significantly higher rate of Excellent Outcome than all placebo subjects (29.0% v. 8.2%, p<0.01)
Furthermore, we evaluated the recovery at 90 days of patients who received treatment with MultiStem within 24 to 36
hours post stroke versus all patients receiving placebo, excluding in both groups patients who received both tPA and
mechanical reperfusion (and who were excluded in the original trial design). In this post-hoc analysis, patients in the
MultiStem group were more than two times as likely as the placebo group to achieve global recovery based on the Global
Test Statistic – the primary endpoint (p=0.06), demonstrated substantially better performance in the three component
secondary endpoints, and also exhibited accelerated improvement in comparison to patients receiving placebo. These
MultiStem-treated patients were also much more likely to achieve recovery in each of the key secondary endpoints, with
44.4% of these patients achieving such recovery on all three scales, compared to just 17.3% for the placebo group, a
difference of 27.1% (p < 0.01). Additionally, these MultiStem patients achieved significantly higher rates of Excellent
Outcome (p=0.03), and the patients in the MultiStem-treated group showed improvement on the Cochran-Mantel-Haenszel
“shift” analysis (p=0.03), which compares performance for the patient groups across the spectrum of mRS outcomes.
Hospitalization duration was significantly reduced for the MultiStem-treated patients (35% lower than the average for
placebo patients) and the average intensive care unit stay was also meaningfully reduced. One-year follow-up data
demonstrates that MultiStem-treated subjects, on average, continued to improve relative to placebo with significant
differences in Excellent Outcome, the “shift” analysis and Barthel Index.
Analysis of biomarker data obtained from samples of study subjects indicated that MultiStem treatment reduces post-
stroke inflammation compared to placebo, and it appears that this effect is more pronounced for subjects receiving
MultiStem earlier than 36 hours post-stroke. This effect is consistent with our hypothesis regarding mechanisms of action
and related preclinical data, and with the clinical data suggesting faster recovery for MultiStem-treated patients.
If the MultiStem therapy is proven effective in a registrational study, this would represent a substantial increase in the
time window for treatment for ischemic stroke victims, which currently is limited to several hours. Further analyses are
being undertaken, and we are preparing for the next stage of clinical development of this program.
• Acute Myocardial Infarction: We recently initiated a Phase 2 clinical study in the United States for the
administration of MultiStem cell therapy to patients that have suffered an AMI. We previously 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 in funding to support the advancement of this clinical program, and we are currently
enrolling patients in our Phase 2 clinical study, evaluating the safety and efficacy of MultiStem treatment in subjects who
have a non-ST elevated myocardial infarction. The study is double-blind, sham-controlled and is being conducted at
leading cardiovascular centers in the United States.
7
• Acute Respiratory Distress Syndrome: We have also initiated a clinical study for the treatment of ARDS in the UK
and in the United States. In 2015, we were awarded a grant from Innovate UK for up to approximately £2.0 million in
support of a Phase 2a clinical study evaluating the administration of MultiStem cell therapy to ARDS patients. 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 Phase 2a
clinical trial is being conducted with the assistance of Catapult and is currently enrolling patients.
• Hematopoietic Stem Cell Transplant / GvHD: We completed a Phase 1 clinical study of the administration of
MultiStem cell therapy 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 GvHD, an imbalance of immune system function caused by transplanted cells that trigger an
attack against various tissues and organs in the patient. Data from the study demonstrated the safety of MultiStem cell
therapy in this indication and suggested that the treatment may have a beneficial effect in reducing the incidence and
severity of GvHD, as well as providing other benefits. We were granted orphan drug designation by the FDA and the EMA
for MultiStem treatment in the prevention of GvHD. In February 2015, the MultiStem product was granted Fast Track
designation by the FDA for prophylaxis therapy against GvHD following hematopoietic cell transplantation. Subsequently,
our registration study design received a positive opinion from the EMA through the Protocol Assessment/Scientific Advice
procedure. Furthermore, in December 2015, the proposed registration study received Special Protocol Assessment
designation from the FDA, meaning that the trial is adequately designed to support a BLA submission for registration if it
is successful. Currently, we are staging this program for future registration-directed development dependent on the
achievement of certain business development and financial objectives.
• Inflammatory Bowel Disease: MultiStem therapy has been evaluated in a Phase 2 clinical study involving
administration of MultiStem to patients suffering from UC, the most common form of IBD, which was conducted by a
collaborative partner, Pfizer. Overall, the study results released in 2014 were disappointing, in 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. Subsequent analyses suggest that MultiStem treatment has an impact on relevant biomarkers shortly after
treatment compared to placebo, suggesting the possibility of improved benefit from a different treatment regime. Taking
these results into account and following an internal portfolio review of its IBD programs, Pfizer determined that it would
not invest further in this program as required by the collaboration and notified us of its decision to terminate the license
agreement effective in the third quarter of 2015. In connection with the termination, all rights to the program reverted to us,
and we are free to use preclinical and clinical data for development in this area and in other areas, including immunology
and inflammatory conditions.
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.
In January 2016, we entered into a license agreement with Healios to develop and commercialize MultiStem cell therapy for ischemic
stroke in Japan, and to provide Healios with access to our proprietary multipotent adult progenitor cell technology, or MAPC®, for
use in Healios’ proprietary “organ bud” program, initially for transplantation to treat liver disease or dysfunction. Under the
agreement, Healios also obtained a right to expand the scope of the collaboration to include the exclusive rights to develop and
commercialize MultiStem for the treatment of two additional indications in Japan, which include ARDS and another indication in the
orthopedic area, as well as all indications for the organ bud program. Healios will develop and commercialize the MultiStem product
in Japan, and we will provide the manufactured product to Healios.
We had entered into a similar arrangement with Chugai early in 2015 for the development and commercialization of MultiStem
therapy for stroke in Japan, but we terminated the license agreement in October 2015 when the parties were unable to reach an
agreement on a potential modification of the financial terms of the agreement and on the development strategy in Japan as proposed
by Chugai following the initial results from our Phase 2 clinical study.
8
We also have a collaboration with RTI for the development of products for certain orthopedic applications using our stem cell
technologies in the bone graft substitutes market, we have been earning royalty revenue from product sales since 2014 and may
receive other payments upon the successful achievement of certain commercial milestones.
We are also have been developing novel small molecule therapies to treat obesity and other conditions, such as schizophrenia, and
believe our compounds 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 several
of our programs are in later-stage clinical development.
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. 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.
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.
9
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 17.4% 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.
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 Medical College of Georgia at Augusta
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; treatment for ARDS; 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.
We may expand to other clinical indication areas as results warrant and resources permit.
10
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 more than 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.
Despite the fact that ischemic stroke is one of the leading causes of death and disability in the United States, there has been limited
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. Recent advancements in the development of clot extraction devices may help additional patients, but such
treatments are limited to certain types of strokes and to an early time window. 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.
In preclinical studies conducted by investigators, including at the University of Minnesota, the Medical College of Georgia at
Augusta 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. 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 American Heart Association International Stroke Conference 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 in
animal models. These results confirmed 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 our first clinical study in stroke, which was a 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. The results of this
study demonstrated favorable safety and tolerability for MultiStem, consistent with prior clinical studies in other indications. While
the study did not achieve the primary and component secondary endpoints for the intent-to-treat population, the MultiStem treatment
was associated with lower rates of mortality and life threatening adverse events, infections and pulmonary events, and also a
reduction in hospitalization. In addition, analyses show that patients who received MultiStem treatment earlier (24 to 36 hours post-
stroke) in the study’s treatment window had better recovery in comparison to placebo, and this treatment effect appeared to be more
pronounced the earlier the MultiStem administration within this timeframe. Analysis of biomarker data obtained from samples of
study subjects indicated that MultiStem treatment reduces post-stroke inflammation compared to placebo. Furthermore, it appears that
this effect is more pronounced for subjects receiving MultiStem earlier than 36 hours post-stroke. This effect is consistent with our
hypothesis regarding mechanisms of action and related preclinical data, and with the clinical data suggesting faster recovery for
MultiStem-treated patients. Further analyses are being undertaken, and we are preparing for the next stage of clinical development of
this program. If effective, this would represent a substantial increase in the time window for treatment, which currently is limited to
several hours.
11
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, or NIH. 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 to advance our TBI program into the second
phase of the two-stage federal grant award and expect to complete this research in 2016. Upon completion of this research, we expect
to be in a position to file an IND for clinical development of MultiStem for treating TBI if we elect to move the program forward into
the clinic.
We are also conducting preclinical work exploring the application of MultiStem treatment in other neurological indications. We and
collaborators at the Center for Stem Cell and Regenerative Medicine and Case Western Reserve University were awarded $1.0
million in 2010 through the Ohio Third Frontier Biomedical Program to support preclinical and translational research into the
MultiStem treatment of spinal cord injury, or SCI. In 2012, we presented data at the Annual Society for Neuroscience meeting that
demonstrated that intravenous MultiStem administration one day after SCI results in statistically significant and sustained
improvements in gross locomotor function, fine locomotor function and bladder control compared to control treated animals. In 2015,
we published in a peer-reviewed article in Nature’s Scientific Reports new findings that showed that MultiStem cell therapy was
effective in improving the health of animals after acute rodent spinal cord injury. Intravenous administration of our cells one day after
injury prevented loss of spinal cord tissue, resulting in significant improvement of walking function and urinary control. Further, in
2015 we published of an article in the peer-reviewed Journal of Neuroinflammation that provides further evidence that the MAPC
cells have the potential to provide benefit following hypoxic ischemia, an injury caused by oxygen deprivation to the brain before or
during birth and a leading cause of cerebral palsy. The article also describes the biological mechanisms through which this cell
therapy delivers benefit. These findings are consistent with previous findings in related areas, such as ischemic stroke, and add to the
scientific foundation supporting MultiStem cell therapy for the treatment of acute neurological injuries.
Over the past several years, we have been utilizing grant funding to investigate the potential for MultiStem treatment for chronic
progressive MS based on initial results in preclinical models. In 2012, in collaboration with scientists from Case Western Reserve
University, and with the support of Fast Forward and the National Multiple Sclerosis Society, we reported research results that
demonstrate the potential benefits of MultiStem therapy for treating MS. In standard preclinical models of MS, researchers observed
that MultiStem administration results in sustained behavioral improvements, arrests the demyelination process that is central to the
pathology of MS, and supports remyelination of affected axons. We have completed several preclinical studies and intend to continue
to advance our MS program with support from Fast Forward.
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 5.7 million individuals in the United States were suffering from heart failure in 2011, according to the American Heart
Association 2015 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 786,600 deaths that occurred from all forms of
cardiovascular disease, including 433,600 individuals that died as a result of coronary heart disease or heart failure. According to
projections published recently by the American Heart Association in 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.
12
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 recently initiated a Phase 2 clinical study for the administration of MultiStem cell therapy to patients that have suffered an AMI.
We were awarded a grant for up to $2.8 million in funding from the NIH to support the advancement of this clinical program, and we
are currently enrolling patients in our Phase 2 study evaluating the safety and efficacy of MultiStem treatment in subjects who have a
non-ST elevated myocardial infarction. The study is double-blind, sham-controlled and is being conducted at leading cardiovascular
centers in the United States.
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 both preclinical and clinical 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.
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.
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.
13
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
initiated this study in 2016 in both the UK and the United States and it is currently enrolling patients.
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 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 the EMA for MultiStem treatment in the prevention of GvHD. In
February 2015, the MultiStem product was granted Fast Track designation by the FDA for prophylaxis therapy against GvHD
following hematopoietic cell transplantation. Subsequently, our registration study design received a positive opinion from the EMA
through the Protocol Assessment/Scientific Advice procedure. Furthermore, in December 2015, the proposed registration study
received Special Protocol Assessment designation from the FDA, meaning that the trial is adequately designed to support a BLA
submission for registration if it is successful.
In 2009, we entered into a collaboration agreement with Pfizer to develop and commercialize MultiStem therapy for the treatment of
IBD globally. 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, and the most common forms of the disease include UC and Crohn’s
disease. Pfizer conducted a double-blind, placebo-controlled Phase 2 clinical study evaluating MultiStem administration to patients
suffering from UC, and enrollment was completed in 2013. In 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, or that a different dosing strategy would need to be employed to achieve a meaningful and
durable benefit. Taking these results into account, following an internal portfolio review, Pfizer determined that it would not invest
further in this program, as would be required by the collaboration, and notified us of this decision to terminate the license agreement
effective in the third quarter of 2015. In connection with the termination, all rights that Pfizer had to the program reverted to us, and
intellectual property generated through the collaboration is owned by us.
14
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.
We have developed 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. Several groups have published research and clinical data that suggest that highly
selective compounds that stimulate the 5HT2c receptor, but that do not appreciably stimulate the 5HT2b receptor, which is linked to
cardiovascular problems, could be developed that maintain the desired appetite suppressive effects without the cardiovascular
toxicity. 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 Belviq (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 clinical candidates were developed as 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, and our
compounds have been tested in extensive preclinical studies. 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 our compounds 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. Further, 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.
Collaborations and Partnerships
Healios
On January 8, 2016, we entered into a license agreement with Healios to develop and commercialize MultiStem cell therapy for
ischemic stroke in Japan, and to provide Healios with access to Athersys’ proprietary MAPC technology for use in Healios’ “organ
bud” program, initially for transplantation to treat liver disease or dysfunction. Under the agreement, Healios also obtained a right to
expand the scope of the collaboration to include the exclusive rights to develop and commercialize MultiStem for the treatment of
two additional indications in Japan, which include ARDS and another indication in the orthopedic area, and to include all indications
for the “organ bud” program. Healios will develop and commercialize the MultiStem product in Japan, and we will provide the
manufactured product to Healios.
Under the terms of the agreement, we received an up-front cash payment of $15 million from Healios, and the collaboration can be
expanded at Healios’ election. If Healios expands the collaboration, we will be entitled to receive a cash payment of $10 million.
Healios may exercise its option to expand the collaboration by the date that is the later of (i) December 31, 2016 and (ii) the receipt of
the initial results from Athersys’ ongoing ARDS clinical trial.
For the ischemic stroke indication, we may also receive additional success-based development and regulatory approval milestones
aggregating up to $30 million, as well as potential sales milestones of up to $185 million. We will also receive tiered royalties on
product sales, starting in the low double digits and increasing incrementally into the high teens depending on net sales
levels. Following the expiration or termination of the Agreement, Healios shall pay reduced royalties for continued use of our
trademarks. Additionally, we will receive payments for product supplied to Healios under a manufacturing supply agreement.
15
If Healios exercises the option to expand to collaboration, we would be entitled to receive royalties from product sales and success-
based development, regulatory approval and sales milestones, as well as payments for product supply related to the additional
indications covered by the option.
For the “organ bud” product, we are entitled to receive a fractional royalty percentage on net sales of the “organ bud” products and
will receive payments for manufactured product supplied to Healios under a manufacturing supply agreement. Additionally, we have
a right of first negotiation for commercialization of an “organ bud” product in North America, with such right expiring on the later of
(i) the date five years from the effective date of the Agreement and (ii) 30 days after authorization to initiate clinical studies on an
“organ bud” product under the first investigational new drug application or equivalent in Japan, North America or the European
Union.
The agreement will expire automatically when there are no remaining intellectual property rights subject to the license. Additionally,
Healios may terminate the agreement under certain circumstances, including for material breach and without cause upon advance
written notice. We may terminate the agreement if there is an uncured material breach of the agreement by Healios.
Following termination of the agreement, the licenses granted to Healios to develop and commercialize MultiStem in Japan for
ischemic stroke, and if the option to expand is exercised, for ARDS and the other orthopedic indication, will terminate and ownership
of regulatory documents and clinical data will revert to us. Further, the nonexclusive license to intellectual property developed by
Healios during the collaboration shall be expanded to include Japan and shall survive termination.
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 was responsible for the development and
commercialization of MultiStem for ischemic stroke in Japan. Under the terms of the agreement, we received an up-front cash
payment of $10 million from Chugai and were entitled to receive a near-term payment of $7 million tied to the results of our ongoing
Phase 2 clinical trial in ischemic stroke, which was not paid by Chugai, thus triggering our right to terminate the agreement. We
agreed with Chugai to terminate the agreement in October 2015 when the parties were unable to reach an agreement on a potential
modification of the financial terms of the agreement and on development strategy in Japan, in light of the 90-day interim results from
our Phase 2 clinical study. In connection with the termination, all rights that Chugai had to the program reverted to us, and intellectual
property generated through the collaboration is owned by us.
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. MultiStem
cell therapy was evaluated by Pfizer in a Phase 2 clinical study exploring administration to patients with UC, a common form of
IBD. Overall, the study results were disappointing, even though a single administration of the cell therapy may have had some short-
term beneficial effects. Taking these results into account, following an internal portfolio review, Pfizer determined that it would not
invest further in this program, as would be required by the collaboration, and notified us of this decision to terminate the license
agreement effective in the third quarter of 2015. In connection with the termination, all rights that Pfizer had to the program reverted
to us, and intellectual property generated through the collaboration is owned by us.
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 convening years, we further developed this technology, including the manufacturing
of the cells for use in ongoing clinical trials and ultimately, commercialization. We refer to this lead product as the MultiStem cell
therapy 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, as well as sublicensing fees and fees related to manufactured product proceeds, as
defined. The low single-digit royalty and sublicense fee 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 2029. 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.
16
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, 2015. 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.
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 would 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 could 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, 2015, 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. While
Bristol-Myers Squibb still has a few active programs using our cell lines, we expect this collaboration and the associated revenues to
phase out over time.
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.
17
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, 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.
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 230 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
175 issued patents (of which seventeen are United States patents) and more than 185 global patent applications around our stem cell
technology and MultiStem product platform. This includes sixteen United States patents and more than 120 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 2032 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.
18
We also 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 eight international patents relating to
human proteins and candidate drug targets that we identified through the application of RAGE and to our other technologies that
currently provide patent coverage through as late as 2022. The RAGE technology was developed by Dr. John Harrington and other
Athersys scientists internally in the mid-1990s.
We believe that we have broad freedom to use and commercially develop our technologies and product candidates. However, 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 $21.3 million in 2015, $23.4 million in 2014 and $20.5 million in 2013.
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, 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 and equivalent foreign regulatory authorities (such as
the EMA or PMDA) regulate, among other things, the development, testing, manufacture, safety, efficacy, record keeping, labeling,
storage, approval, advertising, promotion, sale, and distribution of biologics and new drugs.
19
The standard process required by the FDA before a pharmaceutical agent may be marketed in the United States includes:
•
•
•
•
•
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 BLA with the FDA; and
FDA approval of the NDA or BLA before any commercial sale or shipment of the drug.
Preclinical studies can take several years to complete, and there is no guarantee that an IND based on those studies will become
effective to permit clinical trials to begin. The clinical development phase generally takes 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, 2015, we employed 60 full-time employees, including 17 with Ph.D. degrees. In addition to our employees, we
also use the service and support of outside consultants and advisors. None of our employees is represented by a union, and we believe
relationships with our employees are good.
20
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.
21
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 $16
million in 2015, $22 million in 2014 and $31 million in 2013. As of December 31, 2015, we had an accumulated deficit of $303
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 sales 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 $14 million in 2015, $26 million in 2014 and $23 million in 2013.
At December 31, 2015, we had $23 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to raise capital to fund our operations;
the progress, scope, costs, and results of our preclinical and clinical testing of any current or future product candidates;
the possibility of delays in, adverse events of, and excessive costs of the development process;
the cost of prosecuting, defending and enforcing patent claims and other intellectual property rights;
the time and cost involved in obtaining regulatory approvals;
the cost of manufacturing our product candidates;
expenses related to complying with good manufacturing practices, or 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;
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.
22
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 affect 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 $30 million currently available under the purchase agreement as of, 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:
•
•
•
•
•
•
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;
an inability to produce the product at an appropriate cost or to scale for commercialization;
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 regulatory authorities
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 currently in the development stage and we have no therapeutic products approved for sale. If we are
unable to develop, obtain regulatory approval or market any of our product candidates, our financial condition will be negatively
affected, and we may have to curtail or cease our operations.
Many factors, known and unknown, can adversely affect clinical trials and the ability to evaluate a product’s efficacy. During the
course of treatment, patients can die or suffer other adverse events for reasons that may or may not be related to the proposed product
being tested. Even if unrelated to our product, certain events can nevertheless adversely impact our clinical trials. As a result, our
ability to ultimately develop and market the products and obtain revenues would suffer.
Even promising results in preclinical studies and initial clinical trials do not ensure successful results in later clinical trials, which test
broader human use of our products. Many companies in our industry have suffered significant setbacks in advanced clinical trials,
despite promising results in earlier trials.
We are in the early stage of product development, and we are dependent on the application of our technologies to discover or develop
therapeutic product candidates. We currently do not sell any approved therapeutic products and do not expect to have any products
commercially available for several years, if at all. You must evaluate us in light of the uncertainties and complexities affecting an
early stage biotechnology company. Our product candidates require additional research and development, preclinical testing, clinical
testing and regulatory review and/or approvals or clearances before marketing. To date, no one to our knowledge has commercialized
any therapeutic products using our technologies and we might never commercialize any product using our technologies and strategy.
In addition, we may not succeed in developing new product candidates as an alternative to our existing portfolio of product
candidates. If our current product candidates are delayed or fail, or we fail to successfully develop and commercialize new product
candidates, our financial condition may be negatively affected, and we may have to curtail or cease our operations.
23
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 Healios to develop and commercialize
MultiStem cell therapy for the treatment of ischemic stroke in Japan and potentially other conditions, and RTI to develop and
commercialize MAPC technology-based biologic implants for certain orthopedic applications in the bone graft substitutes market,
and our license agreements with third parties pursuant to which we license certain aspects of our technologies. These arrangements
may not have specific termination dates; rather, each arrangement terminates upon the occurrence of certain events.
If our collaborators do not devote sufficient time and resources to successfully carry out their contracted duties or meet expected
deadlines, we may not be able to advance our product candidates in a timely manner or at all.
Our success depends on the performance by our collaborators of their responsibilities under our collaboration arrangements. Some
potential collaborators may not perform their obligations in a timely fashion or in a manner satisfactory to us. Typically, we cannot
control the amount of resources or time our collaborators may devote to our programs or potential products that may be developed in
collaboration with us. We are currently involved in multiple research and development collaborations with academic and research
institutions. These collaborators frequently depend on outside sources of funding to conduct or complete research and development,
such as grants or other awards. In addition, our academic collaborators may depend on graduate students, medical students, or
research assistants to conduct certain work, and such individuals may not be fully trained or experienced in certain areas, or they may
elect to discontinue their participation in a particular research program, creating an inability to complete ongoing research in a timely
and efficient manner. As a result of these uncertainties, we are unable to control the precise timing and execution of any experiments
that may be conducted.
Additionally, our current or future corporate collaborators will retain the ability to pursue other research, product development or
commercial opportunities that may be directly competitive with our programs. If these collaborators elect to prioritize or pursue other
programs in lieu of ours, we may not be able to advance product development programs in an efficient or effective manner, if at all. If
a collaborator is pursuing a competitive program and encounters unexpected financial or capability limitations, they may be
motivated to reduce the priority placed on our programs or delay certain activities related to our programs or be unwilling to properly
fund their share of the development expenses for our programs. Any of these developments could harm our product and technology
development efforts, which could seriously harm our business.
We may experience delays in clinical trials and regulatory approval relating to our products that could adversely affect our
financial results and our commercial prospects for our pharmaceutical or stem cell products.
In addition to the regulatory requirements for our pharmaceutical programs, we will also require regulatory approvals for each distinct
application of our stem cell product. In each case, we will be required to conduct clinical trials to demonstrate safety and efficacy of
MultiStem, or various products that incorporate or use MultiStem. For product candidates that advance to clinical testing, we cannot
be certain that we or a collaborator will successfully complete the clinical trials necessary to receive regulatory product approvals.
This process is lengthy and expensive.
We intend to seek approval for our product candidates through the FDA approval process in the United States, and through other
international agencies. 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 product 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 late
stage clinical trials.
24
All of our product candidates are in clinical development. As these programs progress through 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
study, 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 could hinder, and potentially prohibit, our ability to commercialize
our product candidates. We cannot assure you that clinical trials will demonstrate that our products are safe and 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, international regulatory agencies or we may suspend our clinical trials at any time if it is
believed that we are exposing the subjects participating in the trials to unacceptable health risks. The regulatory authorities 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.
Safety and efficacy seen in preclinical testing of our product candidates in animals may not be seen when our product candidates
undergo clinical testing in humans. Preclinical studies and Phase 1 clinical trials are not primarily designed to test the efficacy of a
product candidate in humans, but rather to:
•
•
•
•
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 late stage clinical trials, the regulatory authorities still may not approve our
product candidates.
Even if we obtain regulatory approval of any of our product candidates, the approved products may be subject to post-approval
studies and will remain subject to ongoing regulatory requirements. If we fail to comply, or if concerns are identified in
subsequent studies, our approval could be withdrawn and our product sales could be suspended.
If we are successful at obtaining regulatory approval for MultiStem or any of our other product candidates, regulatory agencies in the
United States and other countries where a product will be sold may require extensive additional clinical trials or post-approval clinical
studies that are expensive and time consuming to conduct. In particular, therapeutic products administered for the treatment of
persistent or chronic conditions, such as obesity, are likely to require extensive follow-up studies and close monitoring of patients
after regulatory approval has been granted, for any signs of adverse effects that occur over a long period of time. These studies may
be expensive and time consuming to conduct and may reveal side effects or other harmful effects in patients that use our therapeutic
products after they are on the market, which may result in the limitation or withdrawal of our drugs from the market. Alternatively,
we may not be able to conduct such additional trials, which might force us to abandon our efforts to develop or commercialize certain
product candidates. Even if post-approval studies are not requested or required, after our products are approved and on the market,
there might be safety issues that emerge over time that require a change in product labeling or that require withdrawal of the product
from the market, which would cause our revenue to decline.
25
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, manufacture MultiStem product in accordance with specifications, or comply with
applicable government regulations. Additionally, if the manufactured product fails to perform as specified, our business and
reputation could be severely impacted.
If and until we are able to manufacture our products ourselves, we expect to enter into additional manufacturing agreements for the
production of our products. 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 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 regulatory or other requirements. We must have sufficient and
acceptable quantities of our product materials to conduct our clinical trials and ultimately to market our products, if and when such
products have been approved for marketing. If we are unable to obtain sufficient and acceptable quantities of our product, 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, and
Laura Campbell, CPA, Senior Vice President of Finance, as well as other personnel.
These individuals are integral to the development and integration of our technologies and to our present and future scientific
collaborations, including managing the complex research processes and the product development and potential commercialization
processes. Given their leadership, extensive technical, scientific and financial expertise and management and operational experience,
these individuals would be difficult to replace. Consequently, the loss of services of one or more of these named individuals could
result in product development delays or the failure of our collaborations with current and future collaborators, which, in turn, may
hurt our ability to develop and commercialize products and generate revenues.
Our future success depends on our ability to attract, retain and motivate highly qualified management and scientific, development and
commercial personnel and advisors. If we are unable to attract and retain key personnel and advisors, it may negatively affect our
ability to successfully develop, test and commercialize our product candidates.
Our ability to compete may decline if we are not successful in adequately protecting our patented and other proprietary
technologies.
Our success depends in part on our ability to obtain and maintain intellectual property that protects our technologies and our products.
Patent positions may be highly uncertain and may involve complex legal and factual questions, including the ability to establish
patentability of compounds and methods for using them for which we seek patent protection. We cannot predict the breadth of claims
that will ultimately be allowed in our patent applications, if any, including those we have in-licensed or the extent to which we may
enforce these claims against our competitors. We have filed multiple patent applications that seek to protect the composition of matter
and method of use related to our programs. In addition, we are prosecuting numerous distinct patent families directed to composition,
methods of production, and methods of use of MultiStem and related technologies. If we are unsuccessful in obtaining and
maintaining these patents related to products and technologies, we may ultimately be unable to commercialize products that we are
developing or may elect to develop in the future.
26
The degree of future protection for our proprietary rights is therefore highly uncertain and we cannot assure you that:
•
•
•
•
•
•
•
•
•
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.
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.
27
We may be sued for product liability, which could adversely affect our business.
Because our business strategy involves the development and sale by either us or our collaborators of commercial products, we may be
sued for product liability. We may be held liable if any product we develop and commercialize, or any product our collaborators
commercialize that incorporates any of our technology, causes injury or is found otherwise unsuitable during product testing,
manufacturing, marketing, sale or consumer use. In addition, the safety studies we must perform and the regulatory approvals
required to commercialize our pharmaceutical products, will not protect us from any such liability.
We carry product liability insurance that includes coverage for human clinical trials. Currently, we carry a $5 million per event, $5
million annual aggregate coverage for both our products liability policy and our clinical trials protection. We also intend to seek
product liability insurance for any approved products that we may develop or acquire. However, in the event there are product
liability claims against us, our insurance may be insufficient to cover the expense of defending against such claims, or may be
insufficient to pay or settle such claims. Furthermore, we may be unable to obtain adequate product liability insurance coverage for
commercial sales of any of our approved products. If such insurance is insufficient to protect us, our results of operations will suffer.
If any product liability claim is made against us, our reputation and future sales will be damaged, even if we have adequate insurance
coverage.
Many potential competitors, including those who have greater resources and experience than we do, may develop products or
technologies that make ours obsolete or noncompetitive.
We face significant competition with respect to our product candidates. With regard to our efforts to develop MultiStem as a novel
stem cell therapy, currently, there are a number of companies that are actively developing stem cell products, which encompass a
range of different cell types, including embryonic stem cells, adult-derived stem cells, and processed bone marrow derived cells. Our
future success will depend on our ability to maintain a competitive position with respect to technological advances. Technological
developments by others may result in our MultiStem product platform and technologies, as well as our pharmaceutical formulations,
becoming obsolete.
We are subject to significant competition from pharmaceutical, biotechnology and diagnostic companies, academic and research
institutions, and government or other publicly funded agencies that are pursuing or may pursue the development of therapeutic
products and technologies that are substantially similar to our proposed therapeutic products and technologies, or that otherwise
address the indications we are pursuing. Our most significant competitors include major pharmaceutical companies such as Pfizer,
Roche, Johnson & Johnson, Sanofi and GlaxoSmithKline, as well as smaller biotechnology or biopharmaceutical companies such as
Celgene, Mesoblast, Aastrom, Stem Cells Inc., Cytori, Pluristem, Arena Pharmaceuticals and Vivus. Most of our current and potential
competitors have substantially greater research and development capabilities and financial, scientific, regulatory, manufacturing,
marketing, sales, human resources, and experience than we do. Many of our competitors have several therapeutic products that have
already been developed, approved and successfully commercialized, or are in the process of obtaining regulatory approval for their
therapeutic products in the United States and internationally.
Many of these companies have substantially greater capital resources, research and development resources and experience,
manufacturing capabilities, regulatory expertise, sales and marketing resources, established relationships with consumer products
companies and production facilities.
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. Medicare may change its 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.
28
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:
•
•
•
•
•
•
•
•
•
•
•
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.
29
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.
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. 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 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.
30
An adverse ruling arising out of any intellectual property dispute, including an adverse decision as to the priority of our inventions,
could undercut or invalidate our intellectual property position. An adverse ruling could also subject us to significant liability for
damages, including possible treble damages, prevent us from using technologies or developing products, or require us to negotiate
licenses to disputed rights from third parties. Although patent and intellectual property disputes in the technology area are often
settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include
license fees and ongoing royalties. Furthermore, necessary licenses may not be available to us on satisfactory terms, if at all. Failure
to obtain a license in such a case could have a significant adverse effect on our business, financial condition and results of operations.
To the extent we enter markets outside of the United States, our business will be subject to political, economic, legal and social
risks in those markets, which could adversely affect our business.
There are significant regulatory and legal barriers in markets outside the United States that we must overcome to the extent we enter
or attempt to enter markets in countries other than the United States. We will be subject to the burden of complying with a wide
variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We also may experience
difficulties adapting to new cultures, business customs and legal systems. Any sales and operations outside the United States would
be subject to political, economic and social uncertainties including, among others:
•
•
•
•
•
•
•
changes and limits in import and export controls;
increases in custom duties and tariffs;
changes in currency exchange rates;
economic and political instability;
changes in government regulations and laws;
absence in some jurisdictions of effective laws to protect our intellectual property rights; and
currency transfer and other restrictions and regulations that may limit our ability to sell certain products or repatriate
profits to the United States.
Any changes related to these and other factors could adversely affect our business to the extent we enter markets outside the United
States.
Foreign governments often impose strict price controls on approved products, which may adversely affect our future profitability
in those countries, and the re-importation of drugs to the United States from foreign countries that impose price controls may
adversely affect our future profitability.
Frequently foreign governments impose strict price controls on newly approved therapeutic products. If we obtain regulatory
approval to sell products in foreign countries, we may be unable to obtain a price that provides an adequate financial return on our
investment. Furthermore, legislation in the United States may permit re-importation of drugs from foreign countries into the United
States, including re-importation from foreign countries where the drugs are sold at lower prices than in the United States due to
foreign government-mandated price controls. Such a practice, especially if it is conducted on a widespread basis, may significantly
reduce our potential United States revenues from any drugs that we are able to develop.
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.
31
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:
•
•
•
•
•
•
•
•
we may have to issue convertible debt or equity securities to complete an acquisition, which would dilute our stockholders
and could adversely affect the market price of our common stock;
an acquisition may negatively impact our results of operations because it may require us to incur large one-time charges to
earnings, amortize or write down amounts related to goodwill and other intangible assets, or incur or assume substantial
debt or liabilities, or it may cause adverse tax consequences, substantial depreciation or deferred compensation charges;
we may encounter difficulties in assimilating and integrating the business, technologies, products, personnel or operations
of companies that we acquire;
certain acquisitions may disrupt our relationship with existing collaborators who are competitive to the acquired business;
acquisitions may require significant capital infusions and the acquired businesses, products or technologies may not
generate sufficient revenue to offset acquisition costs;
an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management;
acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience; and
key personnel of an acquired company may decide not to work for us.
Any of the foregoing risks could have a significant adverse effect on our business, financial condition and results of operations.
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.
32
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 2017, 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 2016, and we have an option to renew annually through July 2022. The annual rent in Belgium is
approximately $174,000 and is subject to adjustments based on an inflationary index. Our total rent expense for all properties was
$467,000 in 2015. We also have an option for additional space in Belgium that expires in June 2016.
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 3A. EXECUTIVE OFFICERS OF THE REGISTRANT
The information under this Item is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
There exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive
officer was elected. Each executive officer serves until his or her successor is elected and qualified.
The following sets forth the name, age, current position and principal occupation and employment during the past five years of our
executive officers.
Gil Van Bokkelen, Ph.D.
Age: 55
Dr. Van Bokkelen has served as our Chief Executive Officer and Chairman since August 2000. Dr. Van Bokkelen co-founded
Athersys in 1995 and has 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 biotechnology 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.
Age: 48
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.
33
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.
William (BJ) Lehmann, Jr., J.D.
Age: 50
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.
Laura K. Campbell, CPA.
Age: 52
Ms. Campbell joined Athersys in January 1998 and has served as our Senior Vice President of Finance since March
2016. Ms. Campbell served as our Controller from January 1998, followed by Director of Finance and Senior Director of Finance,
and then served as our Vice President of Finance from June 2006 until March 2016. Prior to joining Athersys, she was at Ernst &
Young LLP, a public accounting firm, for eleven 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 and is a
certified public accountant.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
34
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, 2015:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year ended December 31, 2014:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$1.19
$1.57
$3.23
$3.43
$1.74
$1.99
$3.50
$4.33
$0.94
$1.00
$0.90
$1.54
$1.13
$1.31
$1.08
$2.51
Holders
As of March 1, 2016, there were approximately 530 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.
35
ITEM 6.
SELECTED FINANCIAL DATA
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues:
2015
Year Ended December 31,
2013
2012
2014
2011
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 (expense) income, 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, excluding note payable
Total assets
Warrant liabilities and note payable
Total stockholders’ equity
36
$ 10,298 $
1,650
11,948
286 $
1,337
1,623
755 $ 7,380 $ 9,015
1,329
1,328
10,344
8,708
1,683
2,438
21,316
7,536
267
(17,171)
23,366
6,909
360
20,484 19,636
4,753
320
(29,012) (24,457) (16,001)
6,065
346
18,930
4,916
278
(13,780)
38
253
772
(61)
6,591
86
2,404
(1,138)
(6,324)
38
812
(778)
(16,460) (22,335) (30,743) (14,735) (13,746)
—
$(16,422) $(22,082) $(30,743) $(14,735) $(13,746)
(0.59)
$
23,239
82,144
(0.59)
$
23,239
82,851
— —
57,675 32,557
57,675 32,557
(0.53) $
(0.53) $
(0.45) $
(0.29) $
(0.31) $
(0.45) $
(0.20) $
(0.20) $
76,955
78,541
2015
2014
December 31,
2013
2012
2011
—
$ 23,027 $ 26,127 $ 31,948 $ 25,533 $ 8,785
3,999
7,014
15,701
983
7,298
— —
28,487 21,831
34,188 27,603
2,878
19,821 20,247
19,251
25,129
839
19,724
—
22,556
28,718
3,131
20,895
9,999
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
neurological conditions, cardiovascular disease, inflammatory and immune disorders, and other conditions. Our programs in the
clinical development stage include the following:
• Ischemic Stroke: We recently completed our Phase 2 study of MultiStem treatment of subjects suffering a moderate
to severe ischemic stroke. In April 2015, we announced the interim results from the clinical study, and in February 2016,
we announced the one-year follow-up data from the study. Our double blind, placebo-controlled trial was conducted at
leading stroke centers across the United States and UK. In the study, we treated patients one to two days after a stroke.
Published studies suggest that approximately 90% of ischemic stroke patients reach the hospital within 24 hours. By
contrast, the current standard of care, thrombolytic tPA, must be administered within 3 to 4.5 hours after a stroke, limiting
the proportion of patients receiving such treatment to less than 10% of ischemic stroke patients. Patients were assessed at
90 days and one-year in accordance with three well validated and commonly utilized clinical rating scales that are used to
assess recovery. These include the Modified Rankin Score, or mRS, (which is a scale from 0 to 6, with a score of 0
reflecting no patient disability and 6 indicating death) assessing overall disability; the NIH Stroke Scale, or NIHSS, which
assesses neurological and motor skill deficit (a scale from 0 to 42, with a score of 0 reflecting no disability, and 42
reflecting maximum disability in every category) assessing neurological and motor skill deficits; and the Barthel Index, or
BI, (a 100 point index, with a score of 100 representing the best possible score) evaluating the patient’s ability to engage in
activities of daily living.
The interim results following the 90-day patient evaluation demonstrate favorable tolerability and safety for
MultiStem, consistent with prior studies. With respect to the primary and component secondary endpoints for the intent-to-
treat population, the MultiStem treatment did not show a meaningful difference at 90 days compared to placebo. However,
MultiStem treatment was associated with lower rates of mortality and life threatening adverse events, infections and
pulmonary events, and also a reduction in hospitalization. Furthermore, a higher proportion of patients receiving
MultiStem achieved an “Excellent Outcome,” meaning complete or nearly full recovery, which is defined clinically as the
patient achieving excellent recovery in each of the three clinical rating scales, as evidenced by patients achieving a score of
mRS ≤1, NIHSS ≤1 and BI ≥95. Achievement of an Excellent Outcome is important because it means that a patient has
substantially improved in each of the three clinical rating scales used to assess patient improvement and has regained the
ability to live and function independently with a high quality of life. Among all subjects who received MultiStem
treatment, 15.4% of patients achieved an Excellent Outcome, compared to 6.6% of patients who received placebo
(p=0.10). Importantly, by one year, there was a significant difference between the groups with 23.1% of MultiStem
subjects having an Excellent Outcome compared to 8.2% of placebo subjects (p=0.02)
In addition, analyses show that patients who received MultiStem treatment earlier (24 to 36 hours post-stroke) in the
study’s treatment window had better recovery in comparison to placebo. For example, at 90 days post-stroke, patients who
were treated with MultiStem within 24 to 36 hours of the stroke (i.e. consistent with our original study design) had much
better outcomes compared to placebo patients as measured by recovery in each of the key secondary endpoints: mRS ≤ 2,
NIHSS Δ ≥75% and BI ≥95. Specifically, 41.9% of the MultiStem-treated patients achieved good or excellent recovery in
all three clinical scales, compared to only 24.6% of all patients receiving placebo, a difference of 17.3% (p =
0.08). Additionally, MultiStem subjects had a significantly lower rate of secondary infections than placebo subjects (16.1%
v. 47.5%, p<0.01) and of average initial hospital days (6.8 v. 9.8, p=0.02). At one year, such early-treated MultiStem
patients had a significantly higher rate of Excellent Outcome than all placebo subjects (29.0% v. 8.2%, p<0.01)
37
Furthermore, we evaluated the recovery at 90 days of patients who received treatment with MultiStem within 24 to 36
hours post stroke versus all patients receiving placebo, excluding in both groups patients who received both tPA and
mechanical reperfusion (and who were excluded in the original trial design). In this post-hoc analysis, patients in the
MultiStem group were more than two times as likely as the placebo group to achieve global recovery based on the Global
Test Statistic – the primary endpoint (p=0.06), demonstrated substantially better performance in the three component
secondary endpoints, and also exhibited accelerated improvement in comparison to patients receiving placebo. These
MultiStem-treated patients were also much more likely to achieve recovery in each of the key secondary endpoints, with
44.4% of these patients achieving such recovery on all three scales, compared to just 17.3% for the placebo group, a
difference of 27.1% (p < 0.01). Additionally, these MultiStem patients achieved significantly higher rates of Excellent
Outcome (p=0.03), and patients in the MultiStem group showed improvement on the Cochran-Mantel-Haenszel “shift”
analysis (p=0.03), which compares performance for the patient groups across the spectrum of mRS outcomes.
Hospitalization duration was significantly reduced for the MultiStem-treated patients (35% lower than the average for
placebo patients) and the average intensive care unit stay was also meaningfully reduced. One-year follow-up data
demonstrates that MultiStem-treated subjects, on average, continued to improve relative to placebo with significant
differences in Excellent Outcome, the “shift” analysis and Barthel Index.
Analysis of biomarker data obtained from samples of study subjects indicated that MultiStem treatment reduces post-
stroke inflammation compared to placebo, and it appears that this effect is more pronounced for subjects receiving
MultiStem earlier than 36 hours post-stroke. This effect is consistent with our hypothesis regarding mechanisms of action
and related preclinical data, and with the clinical data suggesting faster recovery for MultiStem-treated patients.
If the MultiStem therapy is proven effective in a registrational study, this would represent a substantial increase in the
time window for treatment for ischemic stroke victims, which currently is limited to several hours. Further analyses are
being undertaken, and we are preparing for the next stage of clinical development of this program.
• Acute Myocardial Infarction: We recently initiated a Phase 2 clinical study in the United States for the
administration of MultiStem cell therapy to patients that have suffered an AMI. We previously 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 in funding to support the advancement of this clinical program, and we are currently
enrolling patients in our Phase 2 clinical study, evaluating the safety and efficacy of MultiStem treatment in subjects who
have a non-ST elevated myocardial infarction. The study is double-blind, sham-controlled and is being conducted at
leading cardiovascular centers in the United States.
• Acute Respiratory Distress Syndrome: We have also initiated a clinical study for the treatment of ARDS in the UK
and in the United States. In 2015, we were awarded a grant from Innovate UK for up to approximately £2.0 million in
support of a Phase 2a clinical study evaluating the administration of MultiStem cell therapy to ARDS patients. 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 Phase 2a
clinical trial is being conducted with the assistance of Catapult and is currently enrolling patients.
• Hematopoietic Stem Cell Transplant / GvHD: We completed a Phase 1 clinical study of the administration of
MultiStem cell therapy 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 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 cell therapy in this
indication and suggested that the treatment 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 the EMA, which may provide market exclusivity and other substantial
incentives and benefits. We have interacted with both the FDA and the 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. Subsequently, our registration study design received a positive
opinion from the EMA through the Protocol Assessment/Scientific Advice procedure. Furthermore, in December 2015, the
proposed registration study received Special Protocol Assessment designation from the FDA, meaning that the trial is
adequately designed to support a BLA submission for registration if it is successful. Currently, we are staging this program
for future registration-directed development dependent on the achievement of certain business development and financial
objectives.
38
• Inflammatory Bowel Disease: MultiStem therapy has been evaluated in a Phase 2 clinical study involving
administration of MultiStem to patients suffering from UC, the most common form of IBD, which was conducted by a
collaborative partner, Pfizer. Overall, the study results released in 2014 were disappointing, in 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. Subsequent analyses suggest that MultiStem treatment has an impact on relevant biomarkers shortly after
treatment compared to placebo, suggesting the possibility of improved benefit from a different treatment regime. Taking
these results into account and following an internal portfolio review of its IBD programs, Pfizer determined that it would
not invest further in this program as required by the collaboration and notified us of its decision to terminate the license
agreement effective in the third quarter of 2015. In connection with the termination, all rights to the program reverted to us,
and we are free to use preclinical and clinical data for development in this area and in other areas, including immunology
and inflammatory conditions.
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.
In January 2016, we entered into a license agreement with Healios to develop and commercialize MultiStem cell therapy for ischemic
stroke in Japan, and to provide Healios with access to our proprietary MAPC, for use in Healios’ proprietary “organ bud” program,
initially for transplantation to treat liver disease or dysfunction. Under the agreement, Healios also obtained a right to expand the
scope of the collaboration to include the exclusive rights to develop and commercialize MultiStem for the treatment of two additional
indications in Japan, which include ARDS and another indication in the orthopedic area, as well as all indications for the organ bud
program. Healios will develop and commercialize the MultiStem product in Japan, and we will provide the manufactured product to
Healios.
We had entered into a similar arrangement with Chugai early in 2015 for the development and commercialization of MultiStem
therapy for stroke in Japan, but we terminated the license agreement in October 2015 when the parties were unable to reach an
agreement on a potential modification of the financial terms of the agreement and on the development strategy in Japan as proposed
by Chugai following the initial results from our Phase 2 clinical study.
We also have a collaboration with RTI for the development of products for certain orthopedic applications using our stem cell
technologies in the bone graft substitutes market, we have been earning royalty revenue from product sales since 2014 and may
receive other payments upon the successful achievement of certain commercial milestones.
Financial
In connection with our January 2016 license agreement with Healios, we received an up-front cash payment of $15 million from
Healios, and the collaboration can be expanded at Healios’ election. If Healios expands the collaboration, we will be entitled to
receive an additional cash payment of $10 million. Healios may exercise its option to expand the collaboration by the date that is the
later of (i) December 31, 2016 and (ii) the receipt of the initial results from Athersys’ ongoing ARDS clinical trial.
For the ischemic stroke indication, we may also receive additional success-based development and regulatory approval milestones
from Healios aggregating up to $30 million, as well as potential sales milestones of up to $185 million. We will also receive tiered
royalties on product sales, starting in the low double digits and increasing incrementally into the high teens depending on net sales
levels. Additionally, we will receive payments for product supplied to Healios under a manufacturing supply agreement.
39
If Healios exercises the option to expand to collaboration, we would be entitled to receive royalties from product sales and success-
based development, regulatory approval and sales milestones, and payments for product supply for the additional indications, as well
as a fractional royalty percentage on net sales of the organ bud products.
In October 2015, we and Chugai agreed to terminate our 2015 license agreement as a result of an inability to reach an agreement on
the modification of the financial terms of the agreement and on the development strategy of our MultiStem cell therapy for the
treatment of ischemic stroke in Japan. We retained the $10 million up-front cash payment from Chugai that we received in 2015,
which was recognized in full in October 2015 in connection with the termination of the collaboration. We regained all rights for
developing its stem cell technologies and products for ischemic stroke in Japan, and Chugai no longer has any license rights or
options with respect to our technologies and products. Neither we nor Chugai have any further obligations to each other.
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. Under our facility that was renewed in December 2015, we can elect to sell to Aspire Capital up to
an additional $30 million of shares of common stock under the agreement. During the quarter ended December 31, 2015, no shares
were sold under the Aspire equity purchase agreement, and during the year ended December 31, 2015, we sold 4,023,719 shares to
Aspire Capital at an average price of $2.58.
During the year ended December 31, 2015, we received proceeds of approximately $976,000 from the exercise of warrants, resulting
in the issuance of 966,184 shares of common stock in the aggregate.
In February 2015, we were awarded a grant from Innovate UK in support or 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.
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, 2015 Compared to Year Ended December 31, 2014
Revenues. Revenues increased to $11.9 million for the year ended December 31, 2015 from $1.6 million in 2014, reflecting the $10.0
million payment received from the Chugai collaboration that was terminated in October 2015. We expect our future contract revenues
to be comprised primarily of revenues associated with our Healios collaboration, royalty payments and potential commercial
milestone payments from RTI and potential proceeds from any new collaborations. Grant revenue increased $0.3 million for the year
ended December 31, 2015 compared to the year ended December 31, 2014, 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 decreased to $21.3 million for the year ended
December 31, 2015 from $23.4 million for the year ended December 31, 2014. The decrease of $2.1 million related primarily to a
decrease in clinical and preclinical development costs of $1.5 million, a decrease in sponsored research costs of $0.5 million, a
decrease in legal and professional fees of $0.2 million, and a decrease in travel costs of $0.2 million, with such decreases partially
offset by an increase of $0.2 million in license fees and a $0.1 million increase in personnel costs for the year ended December 31,
2015 from 2014. 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
and regulatory consulting costs. The decrease in our preclinical and clinical development costs is primarily due to decreased
manufacturing costs, clinical study costs and regulatory costs. Sponsored research costs decreased primarily due to the timing of costs
incurred by certain academic research institutions under our grant-funded programs. The decrease in legal fees was a result of
decreased 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 2016 annual research and
development expenses to be similar to 2015, and such costs will vary over time based on clinical manufacturing campaigns, the
timing and stage of clinical trials underway, and manufacturing process development activities. 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.
40
General and Administrative Expenses. General and administrative expenses increased to $7.5 million in 2015 from $6.9 million in
2014. The $0.6 million increase in 2015 compared to 2014 was due primarily to an increase of $0.2 million in stock-based
compensation, an increase in professional fees of $0.2 million and an increase of $0.2 million in consulting costs. Stock-based
compensation increased in 2015 compared to 2014 from the ratable expense of vesting awards issued in connection with our annual
equity incentive program that began to include officers in 2013. The increase in professional and consulting fees costs related to our
business development activities. We expect our general and administrative expenses to continue at similar levels in 2016.
Depreciation. Depreciation expense decreased to $0.3 million in 2015 from $0.4 million in 2014 due to fewer equipment purchases.
Income (Expense) from Change in Fair Value of Warrants. Income of $0.8 million and $6.6 million was recognized during the years
ended December 31, 2015 and 2014, 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.
Other Income (Expense), net. Other income (expense), net, for the years ended December 31, 2015 and 2014 remained relatively
consistent and was comprised of interest income and expense, and foreign currency gains and losses.
Income Tax Benefit. The income tax benefit in 2015 and 2014 represents refundable foreign tax credits.
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. 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.
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
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. 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.
Depreciation. Depreciation expense increased to $0.4 million in 2014 from $0.3 million in 2013 due to depreciation on new capital
purchases.
41
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.
Other (Expense) Income, net. Other (expense) income, 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.
Income Tax Benefit. The income tax benefit in 2014 represents refundable foreign tax credits.
Liquidity and Capital Resources
Our sources of liquidity include our cash balances and any available-for-sale securities. At December 31, 2015, we had $23.0 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 $303 million at December 31, 2015. 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 31,
2014 and 2013, 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 and $18.4 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. The warrants expired unexercised in May 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 equity facility, which was due to expire. In October 2013, we terminated the expiring 2011 equity purchase
agreement 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 were 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, 2015 and 2014, we sold 4,023,719 and 250,000 shares, respectively, to Aspire Capital at
average prices of $2.58 and $3.78 per share, respectively. In December 2015, we entered into a new 2015 equity purchase agreement
with Aspire Capital to purchase up to an aggregate of $30.0 million of shares of our common stock over a new three-year period. The
terms of the 2015 equity facility are similar to the previous arrangements, and we issued 250,000 shares of our common stock to
Aspire Capital as a commitment fee in December 2015 and filed a registration statement for the resale of 16,600,000 shares of
common stock in connection with the new equity facility. As of December 31, 2015, we received proceeds of approximately $24.8
million in aggregate under the Aspire equity purchase agreements since its inception in 2011.
42
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 4.9 million shares remain outstanding at December 31, 2015 with a weighted average exercise price of
$2.77 per share. The exercise of warrants could provide us with cash proceeds. During the year ended December 31, 2015, we
received proceeds of approximately $1.0 million from the exercise of warrants, resulting in the issuance of 966,184 shares of common
stock in the aggregate. 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.
In connection with our January 2016 license agreement with Healios, we received an up-front cash payment of $15 million from
Healios, and the collaboration can be expanded at Healios’ election. If Healios expands the collaboration, we will be entitled to
receive an additional cash payment of $10 million. Healios may exercise its option to expand the collaboration by the date that is the
later of (i) December 31, 2016 and (ii) the receipt of the initial results from Athersys’ ongoing ARDS clinical trial. For the ischemic
stroke indication, we may also receive additional success-based development and regulatory approval milestones from Healios
aggregating up to $30 million, as well as potential sales milestones of up to $185 million. We will also receive tiered royalties on
product sales, starting in the low double digits and increasing incrementally into the high teens depending on net sales levels.
Additionally, we will receive payments for product supplied to Healios under a manufacturing supply agreement.
If Healios exercises the option to expand to collaboration, we would be entitled to receive royalties from product sales and success-
based development, regulatory approval and sales milestones, and payments for product supply for the additional indications, as well
as a fractional royalty percentage on net sales of the organ bud products.
In connection with our license agreement with Chugai that was terminated in October 2015, we received an up-front cash payment of
$10 million in 2015 and were 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 terminated the license agreement when the parties were unable to reach an agreement on the
potential modification of the financial terms of the agreement and on the development strategy in Japan. We retained the $10 million
up-front cash payment from Chugai and regained all rights for developing our stem cell technologies and products for ischemic stroke
in Japan, and Chugai no longer has any license rights or options with respect to our technologies and products. Neither we nor Chugai
have any further obligations to each other.
Following an internal portfolio review of its IBD programs, Pfizer determined that it would not invest further in our IBD program as
required by the collaboration, and, therefore, the license agreement was terminated in July 2015. In connection with the termination,
all rights to the program reverted to us, and we are free to use preclinical and clinical data for development in this area and in other
areas, including immunology and inflammatory conditions.
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, 2015. 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. While Bristol-Myers Squibb still has a few
active programs using our cell lines, we expect this collaboration and the associated revenues to phase out over time.
We are obligated to pay the University of Minnesota a sublicense fee or 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. As of December
31, 2015, we have paid no royalties to the University of Minnesota and have paid sublicense fees from time-to-time in connection
with our collaborations.
In 2012, we entered into an arrangement with the Global Cardiovascular Innovation Center and the Cleveland Clinic Foundation in
which we were entitled to proceeds of up to $500,000 in the form of a forgivable loan to fund certain preclinical work. Interest on the
loan accrued at a fixed rate of 4.25% per annum and was added to the outstanding principal, and the loan carried an expiration date of
March 31, 2016. In February 2016, the loan and accrued interest, which amounted to approximately $190,000 at December 31, 2015,
was forgiven according to its terms based on the achievement of certain milestones.
43
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 ARDS patients. The grant is expected to provide up to approximately £2.0 million (approximately $2.8
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 UK in conjunction with Catapult, a not-for-profit center focused on the development of the UK cell therapy industry.
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, 2015,
we had available cash and cash equivalents of $23.0 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, achievement of milestones under our collaborations, and grant-funding
opportunities. Additionally, we may raise capital from time to time through our 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.
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 $13.8 million, $25.8 million and $22.8 million in 2015, 2014 and 2013, 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 similar in 2016 compared to 2015 in connection, and may fluctuate significantly on a quarter-
to-quarter basis, as it has over the past several 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 investing activities was $0.1 million, $0.3 million and $0.4 million in 2015, 2014 and 2013, respectively, related to
the purchase of equipment. We expect that our capital equipment expenditures will increase in 2016 compared to 2015 as a result of
equipment required for our manufacturing process development activities.
Financing activities provided cash of $10.8 million in 2015 related to the exercise of common stock warrants and equity sales to
Aspire Capital, net of treasury stock purchases. 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, net of treasury stock purchases.
Our contractual payment obligations as of December 31, 2015 are as follows:
Contractual Obligations
Operating leases for facilities and equipment
leases
Reserved manufacturing space
Payment due by Period
Total
Less than 1 Year
1 – 3 Years
3 – 5 Years More than 5 Years
$ 448,000
1,560,000
$2,008,000
$
$
44
373,000
1,560,000
1,933,000
$ 75,000
—
$ 75,000
$ —
—
—
$
$
$
—
—
—
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 2017, 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 2016 and includes options to renew annually through July 2022, and the annual rent of approximately
$174,000 is subject to adjustments based on an inflationary index. We also have an option for additional space in Belgium that
expires in June 2016. Our total rent expense for all properties was $467,000 in 2015.
We have reserved space and personnel at a contract manufacturer to manufacture our cell therapy product for clinical development. If
we terminate the agreement early, which we do not anticipate, we would have an obligation of up to $1,560,000 if the contract
manufacturer is unable to utilize the vacated capacity during the six months following our termination notice. The amount may be
reduced if the contract manufacturer is able to redeploy the capacity, for which it is required to use commercially reasonable efforts to
do, and we believe would be likely based on the current demand for such facilities and manufacturing capacity.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Management Estimates
The SEC defines critical accounting policies as those that are, in management’s view, important to the portrayal of our financial
condition and results of operation and demanding of management’s judgment. Our discussion and analysis of financial condition and
results of operations are based on our consolidated financial statements, which have been prepared in accordance with United States
generally accepted accounting principles. The preparation of these financial statements requires us to make estimates on experience
and on various assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from those estimates.
A discussion of the material implications of uncertainties associated with the methods, assumptions and estimates underlying our
critical accounting polices is as follows:
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.
As of December 31, 2015, we have recognized the full amount of license fees under our collaboration agreements as contract revenue
under ASC 605-25, since the performance periods for our multiple element arrangements have concluded. This excludes the Healios
collaboration that was entered into in 2016.
For agreements entered into prior to January 1, 2011 and not materially modified thereafter (such as Pfizer and Bristol-Myers Squibb
contract revenue), 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. The performance period for such
agreements has concluded.
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 Healios, Chugai, Pfizer and RTI that contain(ed) 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 2016, we will review our license agreement with Healios, which we believe has multiple elements and
deliverables under ASC 605-25.
45
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.
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, we have no collaborations that are accounted for
on a net basis. In 2016, we will review our license agreement with Healios 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, and that
manufacture clinical product. We obtain initial estimates of total costs based on enrollment of subjects, project management
estimates, manufacturing 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.
46
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.
47
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 treatment of stroke, AMI and ARDS, and the prevention of GvHD 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 and earn royalties under our collaboration agreements;
our collaborators’ ability to continue to fulfill their obligations under the terms of our collaboration agreements;
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.
48
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,
2015, we had no investments.
We may enter into loan arrangements with financial institutions from time to time. At December 31, 2015, 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. The principal and accrued interest on the note payable of $190,000 was forgiven in February 2016 upon achievement of
certain milestones.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
49
Athersys, Inc.
Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
Contents
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations and Comprehensive Loss for each of the years ended December 31, 2015, 2014 and
2013
Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for each of the years ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
50
51
53
54
55
56
57
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, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2015, 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, 2015, 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 10, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 10, 2016
51
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, 2015, 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, 2015, 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, 2015 and 2014, 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, 2015 of
Athersys, Inc. and our report dated March 10, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 10, 2016
52
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
Note payable
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, 2015 and December 31, 2014
Common stock, $0.001 par value; 150,000,000 shares authorized, 83,720,154 and 77,706,816
shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
53
December 31,
2015
2014
$ 23,027
361
429
23,817
1,135
177
$ 25,129
$ 26,127
694
427
27,248
1,270
200
$ 28,718
$
$
2,702
1,024
82
513
190
245
4,756
—
649
2,767
1,060
126
664
—
75
4,692
183
2,948
—
—
84
322,582
(302,942)
19,724
$ 25,129
78
307,337
(286,520)
20,895
$ 28,718
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 $1,277,
2015
Year Ended December 31,
2014
2013
$
10,298
1,650
11,948
$
$
286
1,337
1,623
755
1,683
2,438
$1,158 and $639 in 2015, 2014 and 2013, respectively)
21,316
23,366
20,484
General and administrative (including stock compensation expense of $1,652,
$1,447 and $884 in 2015, 2014 and 2013, respectively)
Depreciation
Total costs and expenses
Loss from operations
Income (expense) from change in fair value of warrants, net
Other (expense) income, net
Loss before income taxes
Income tax benefit
Net loss and comprehensive loss
Net loss per common share, basic
Weighted average shares outstanding, basic
Net loss per common share, diluted
Weighted average shares outstanding, diluted
See accompanying notes.
54
7,536
267
29,119
(17,171)
772
(61)
(16,460)
38
(16,422)
(0.20)
82,143,610
$
$
6,909
360
30,635
(29,012)
6,591
86
(22,335)
253
$
(22,082)
(0.29)
$
76,954,503
6,065
346
26,895
(24,457)
(6,324)
38
(30,743)
—
$
(30,743)
(0.53)
$
57,674,833
$
(0.20)
82,851,091
$
(0.31)
78,541,447
$
(0.53)
57,674,833
Athersys, Inc.
Consolidated Statements of Stockholders’ Equity
(In Thousands, Except Share Amounts)
Preferred Stock
Common Stock
Number
of Shares
Stated
Value
Number
of Shares
Additional
Paid-in
Capital
Par
Value
Stock
53,058,632 $ 53 $ 253,889 $ —
Treasury
—
—
1,523
— $ —
— —
— —
397,826 —
797
— — 16,899,999
17
28,113
— —
— —
— —
— —
327,023
—
—
1
70,683,480
71
—
—
— —
928,924
— —
5,250,000
— —
— —
— —
— —
844,412
—
—
77,706,816
78
—
—
— —
966,184
— —
4,273,719
1
5
1
1
4
1
1
—
284,323
2,605
868
19,698
(157)
—
307,337
2,929
975
11,831
(490)
—
— —
— —
— $ —
773,435
—
—
83,720,154 $ 84 $ 322,582 $ — $
Total
Stockholders’
Equity
Accumulated
Deficit
(233,695)
—
—
—
—
(30,743)
(264,438)
—
—
—
137
(272)
(135)
—
69
358
—
—
—
—
(292)
—
— $
—
—
(22,082)
(286,520) $
—
—
—
—
(16,422)
(302,942) $
20,247
1,523
797
28,267
(270)
(30,743)
19,821
2,605
938
20,061
(448)
(22,082)
20,895
2,929
976
11,835
(489)
(16,422)
19,724
55
Balance at January 1, 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 and comprehensive 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 and comprehensive loss
Balance at December 31, 2014
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 and comprehensive loss
Balance at December 31, 2015
See accompanying notes.
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
Stock-based compensation
Deferred tax benefit
Change in fair value of warrant liabilities
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other
Accounts payable and accrued expenses
Deferred revenue
Net cash used in operating activities
Investing activities
Purchases of equipment
Net cash used in investing activities
Financing activities
Proceeds from issuance of common stock and warrants, net
Proceeds from exercise of warrants
Purchase of treasury stock
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.
56
Year Ended December 31,
2014
2013
2015
$(16,422) $(22,082) $(30,743)
267
2,929
23
(772)
360
2,605
(200)
(6,591)
346
1,523
—
6,324
333
4
(296)
170
(174)
(33)
335
(11)
(13,764) (25,791)
(30)
(94)
(196)
86
(22,784)
(132)
(132)
(297)
(297)
(385)
(385)
976
(490)
29,454
10,310 19,621
402
938
(272)
(292)
29,584
10,796 20,267
6,415
(5,821)
25,533
26,127 31,948
$ 23,027 $ 26,127 $ 31,948
(3,100)
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.
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.
As of December 31, 2015, we have recognized the full amount of license fees under our collaboration agreements as contract revenue
under ASC 605-25, since the performance periods for our multiple element arrangements have concluded. This excludes the Healios
collaboration that was entered into in 2016.
For agreements entered into prior to January 1, 2011 and not materially modified thereafter (such as Pfizer and Bristol-Myers Squibb
contract revenue), 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. The performance period for such
agreements has concluded.
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.
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.
57
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, and that
manufacture clinical product. We obtain initial estimates of total costs based on enrollment of subjects, project management
estimates, manufacturing 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, 2015.
Long-Lived Assets
Equipment is stated at acquired cost less accumulated depreciation. Laboratory and office equipment are depreciated on the straight-
line basis over the estimated useful lives (three to ten years). Leasehold improvements are amortized over the shorter of the lease term
or estimated useful life.
Long-lived assets are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the
asset or related group of assets may not be recoverable. If the expected future undiscounted cash flows are less than the carrying
amount of the asset, an impairment loss is recognized at that time. Measurement of impairment may be based upon appraisal, market
value of similar assets or discounted cash flows.
Patent Costs and Rights
Costs of prosecuting and maintaining patents and patent rights are expensed as incurred. We have filed for broad intellectual property
protection on our proprietary technologies. We currently have numerous United States and international patents and patent
applications related to our technologies.
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 or expense from change in fair value of warrants.
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, 2015, the majority of our accounts
receivable are due from granting authorities. We do not require collateral from these customers.
58
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.
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
2015
83.9%
2.1%
6.14 years
0.0%
December 31,
2014
104.0%
2.1%
6.09 years
0.0%
2013
109.2%
1.5%
6.14 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, 2015 and 2014. 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 years ended December 31, 2015 and 2014, we had such a dilutive effect 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, 2015, 2014 and 2013, in thousands.
Numerator:
Net loss and comprehensive loss
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
59
Year ended December 31,
2014
2015
2013
$(16,422)
(332)
$(22,082)
(2,141)
$(30,743)
—
$(16,754)
$(24,223)
$(30,743)
82,144
76,955
57,675
707
82,851
(0.20)
(0.20)
$
$
1,586
78,541
(0.29)
(0.31)
$
$
—
57,675
(0.53)
$
(0.53)
$
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
7,052,642
1,069,100
2,810,000
10,931,742
6,383,457
1,889,267
6,310,000
14,582,724
Reclassifications
Certain prior year amounts have been reclassfied to conform with current year presentations.
Year ended December 31,
2014
2015
2013
5,129,579
2,449,346
8,909,027
16,487,952
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with
Customers (Topic 606). 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. In August 2015, the FASB issued ASU 2015-14, which delays the effective date by one year, making the new
standard effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting
period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. 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.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to put most leases on their balance
sheets, but recognize expenses on their income statements in a manner similar to current accounting practice. Under the guidance,
lessees initially recognize a lease liability for the obligation to make lease payments and a right-of-use (ROU) asset for the right to
use the underlying asset for the lease term. The lease liability is measured at the present value of the lease payments over the lease
term. The ROU asset is measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the
lessee’s initial direct costs. The guidance is effective for the annual periods beginning after December 15, 2018 and interim periods
thereafter, with early adoption permitted. We are in the process of evaluating the impact the new guidance will have on our financial
statements.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which amends the existing
guidance to require that deferred income tax liabilities and assets be classified as noncurrent in a classified balance sheet and
eliminates the prior guidance, which required an entity to separate deferred tax liabilities and assets into a current amount and a
noncurrent amount in a classified balance sheet. The amendments in this ASU are effective for financial statements for annual periods
and interim periods within those annual periods beginning after December 15, 2016, with early adoption permitted. In addition, the
new guidance can be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.
The Company is currently evaluating its plans for adopting this ASU either prospectively or retrospectively and the impact of the
adoption of the ASU on our financial statements.
60
C. Equipment
Equipment consists of (in thousands):
Laboratory equipment
Office equipment and leasehold improvements
Accumulated depreciation
December 31,
2015
$ 6,232
2,691
8,923
(7,788)
$ 1,135
2014
$ 6,162
2,849
9,011
(7,741)
$ 1,270
In 2015 and 2014, we disposed of approximately $0.2 million and $0.8 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
Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or
similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the
asset or liability.
Level 3
Unobservable inputs for the asset or liability.
The following table provides a summary of the financial assets and liabilities measured at fair value on a recurring basis as follows:
(in thousands):
Description
Warrant liabilities
Description
Warrant liabilities
Fair Value Measurements at December 31, 2015 Using
Balance as of
December 31,
2015
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
$
649
$
—
$
—
Significant
Unobservable
Inputs (Level 3)
$
649
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
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, 2015:
Warrants with one year or less remaining
term
Warrants with greater than one year
remaining term
Expected Volatility
Risk-Free Interest Rate
Expected Life
52.31% - 72.20%
0.14% – 0.49%
0.09 – 0.54 year
69.60%
0.65%
1.20 years
61
A roll-forward of fair value measurements using significant unobservable inputs (Level 3) for the warrants is as follows (in
thousands):
Balance January 1, 2015
Settlements from exercise
Income for the period
Balance December 31, 2015
Year ended
December 31, 2015
2,948
$
(1,527)
(772)
649
$
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 2017, 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 2016 and includes options to renew annually through July 2022, with annual rent of approximately
$174,000, subject to adjustments based on an inflationary index. We also have an option for additional space in Belgium that expires
in June 2016.
Aggregate rent expense was approximately $467,000, $517,000 and $491,000 in 2015, 2014 and 2013, respectively. The future
annual minimum lease commitments at December 31, 2015 are approximately $373,000 for 2016 and $75,000 for 2017.
In 2012, we entered into an arrangement with the Global Cardiovascular Innovation Center (“GCIC”), and the Cleveland Clinic
Foundation in which we were entitled to proceeds of up to $500,000 in the form of a forgivable loan to fund certain preclinical work.
Interest on the loan accrued at a fixed rate of 4.25% per annum and was added to the outstanding principal, and the loan carried an
expiration date of March 31, 2016. In February 2016, the loan was forgiven according to its terms based on the achievement of
certain milestones. As of December 31, 2015, the loan of $166,000 ($190,000 including accrued interest) was recorded as a current
liability, and the income from forgiveness will be recognized in February 2016. The fair value of our note payable at December 31,
2015 is not determinable due to lack of marketability of the note payable.
We paid no interest during the three years ended December 31, 2015.
E. Collaborations and Revenue Recognition
Chugai
In October 2015, we and Chugai Pharmaceutical Co. Ltd. (“Chugai”) agreed to terminate the License Agreement (the “Agreement”),
dated February 28, 2015, between the parties, as a result of an inability to reach an agreement on the modification of the financial
terms of the Agreement and on the development strategy, as proposed by Chugai, of our MultiStem® cell therapy for the treatment of
ischemic stroke in Japan. Pursuant to the terms of the Agreement, upon termination, we regained all rights for developing our stem
cell technologies and products for ischemic stroke in Japan, and Chugai no longer has any license rights or options with respect to our
technologies and products. Neither we nor Chugai have any further obligations to each other.
Under the Agreement, we received a non-refundable, up-front cash payment of $10 million from Chugai, of which approximately
$2.0 million was temporarily withheld by Japan taxing authorities and was refunded in September 2015. The $10 million upfront
payment from Chugai was recorded as deferred revenue since we had concluded that the license grant did not have standalone value
(as defined in ASC 605-25) at the inception of the arrangement. In connection with the termination and the parties having no further
obligations under the Agreement, we recognized the $10 million upfront payment from Chugai as revenue in October 2015.
62
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 for the worldwide market on an exclusive basis. In addition, Pfizer conducted a Phase 2 clinical
study exploring the potential of MultiStem cell therapy to treat advanced and severe ulcerative colitis, and would be responsible for
any subsequent development. Overall, the study results were disappointing, even though a single administration of the cell therapy
may have had some short-term beneficial effects. Taking these results into account, following an internal portfolio review, Pfizer
determined that it would not invest further in this program, as would be required by the collaboration, and notified us of this decision
to terminate the license agreement effective in the third quarter of 2015. In connection with the termination, all rights that Pfizer had
to the program reverted to us, and intellectual property generated through the collaboration is owned by 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, and
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 began receiving in 2014 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.
Grant Award
In 2015, we and Cell Therapy Catapult, a not-for-profit center focused on the development of the United Kingdom regenerative
medicine industry, were each 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 aggregate grant funding is expected to provide up to
£2.0 million ($2.9 million based on the December 31, 2015 exchange rate) in support over the course of the study. Of the £2.0 million
total award, our grant of £750,000 ($1.1 million based on the December 31, 2015 exchange rate) will be used primarily to fund the
clinical product and related costs. Cell Therapy Catapult will use their grant proceeds of £1.25 million primarily to fund the clinical
site costs and their service costs as study coordinators. We recognized approximately $130,000 of grant revenue in 2015 in
connection with this grant.
F. Capitalization and Warrant Liability
Capitalization
At both December 31, 2015 and 2014, 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, 2015.
The following shares of common stock were reserved for future issuance:
Stock-based compensation plans
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
2015
8,838,165
1,310,000
2,054,893
—
1,500,000
13,703,058
2014
9,903,583
1,310,000
3,021,077
3,500,000
1,500,000
19,234,660
As of December 31, 2015, the terms of our outstanding warrants to purchase shares of common stock with a weighted average price
of $2.77 per share were as follows:
Number of
Underlying Shares
1,310,000
2.054,893
1,500,000
4,864,893
Exercise Price
$3.55
$1.01
$4.50
63
Expiration
February 2, 2016
March 14, 2017
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. 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. All 3,500,000 warrants
expired unexercised in May 2015.
Warrants associated with a March 2012 private placement financing with an exercise price of $1.01 per share have been exercised
from time to time, and as of December 31, 2015, warrants to purchase an aggregate of 2,292,934 shares of common stock have been
exercised to date, resulting in aggregate proceeds of approximately $2.3 million.
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. 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 equity facility, which was due to expire. In October 2013, we terminated the expiring
2011 equity purchase agreement 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 were
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, 2015 and 2014, we sold 4,023,719 and 250,000 shares, respectively, to Aspire Capital at
average prices of $2.58 and $3.78 per share, respectively. As of the 2013 equity facility’s expiration in November 2015, we received
proceeds of approximately $24.8 million in aggregate under the Aspire equity purchase agreements since its inception in 2011. In
December 2015, we entered into a new 2015 equity purchase agreement with Aspire Capital to purchase up to an aggregate of $30.0
million of shares of our common stock over a new three-year period. The terms of the 2015 equity facility are similar to the previous
arrangements, and we issued 250,000 shares of our common stock to Aspire Capital as a commitment fee in December 2015, which
are accounted for as a cost of the offering, and filed a registration statement for the resale of 16,600,000 shares of common stock in
connection with the new equity facility.
Warrant Liabilities
The warrants we issued in the January 2014 and December 2013 registered direct offerings contain(ed) 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(ed) 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.
64
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. 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, 2015, a total of 2,661,835 shares of common stock have been issued under
our equity incentive plans.
As of December 31, 2015, a total of 716,423 shares were available for issuance under our equity compensation plans and stock-based
awards to purchase 8,121,742 shares of common stock were outstanding. We recognized $2,929,000, $2,605,000 and $1,523,000 of
stock-based compensation expense in 2015, 2014 and 2013, respectively.
Stock Options
The weighted average fair value of options granted in 2015, 2014 and 2013 was $0.94, $1.29 and $1.42 per share, respectively. The
total fair value of options vested during 2015, 2014 and 2013 was $1,225,000, $940,000 and $585,000, respectively. At December 31,
2015, total unrecognized estimated compensation cost related to unvested stock options was approximately $2,245,000, which is
expected to be recognized by mid-2019 using the straight-line method. The weighted average contractual life of unvested options at
December 31, 2015 was 8.73 years.
A summary of our stock option activity and related information is as follows:
Outstanding January 1, 2013
Granted
Exercised
Forfeited / Terminated / Expired
Outstanding December 31, 2013
Granted
Exercised
Forfeited / Expired
Outstanding December 31, 2014
Granted
Exercised
Forfeited / Expired
Outstanding December 31, 2015
Vested during 2015
Vested and exercisable at December 31, 2015
Number
of Options
4,058,184
1,336,928
(1,312)
(264,221)
5,129,579
1,420,800
(103,481)
(63,441)
6,383,457
1,215,296
(32,439)
(513,672)
7,052,642
945,297
5,065,143
Weighted
Average
Exercise
Price
$
$
$
$
4.36
1.71
1.26
3.36
3.72
1.68
1.75
1.98
3.31
1.31
1.60
2.34
3.05
1.62
3.65
Exercise Price
$1.16 – 1.86
$2.09 – 3.84
$4.00 – 5.28
Options Outstanding
Options Vested and Exercisable
December 31, 2015
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Number
of
Options
8.22 $
5.14 $
1.49 $
1.55 1,841,560
234,583
2.73
4.98 2,989,000
7.66 $
4.99 $
1.48 $
1.61
2.73
4.98
5,065,143
Number
of
Options
3,815,059
244,583
2,993,000
7,052,642
65
Restricted Stock Units
A summary of our restricted stock unit activity and related information is as follows:
Outstanding January 1, 2013
Granted
Vested-common stock issued
Forfeited/expired
Outstanding December 31, 2013
Granted
Vested-common stock issued
Forfeited/expired
Outstanding December 31, 2014
Granted
Vested-common stock issued
Forfeited/expired
Outstanding December 31, 2015
Vested/Issued cumulative at December 31, 2015
Number
of
Restricted
Stock Units
70,814
2,851,964
(486,359)
(5,073)
2,449,346
460,112
(1,013,446)
(6,745)
1,889,267
455,776
(1,032,979)
(242,964)
1,069,100
2,524,603
Weighted
Average
Fair Value
1.86
$
1.71
1.72
1.77
1.71
1.65
1.71
1.68
1.70
1.28
1.69
1.62
1.55
1.71
$
$
The total fair value of restricted stock units vested during 2015, 2014 and 2013 was $1,773,000, $1,734,000 and $805,000,
respectively. At December 31, 2015, total unrecognized estimated compensation cost related to unvested restricted stock units was
approximately $1,533,000, which is expected to be recognized by mid-2019 using the straight-line method.
H. Income Taxes
At December 31, 2015, we had U.S. federal net operating loss and research and development tax credit carryforwards of
approximately $102,261,000 and $4,277,000, 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 2020 and 2036. We also had foreign net operating losses and
foreign tax credit carryforwards of approximately $12,724,000 and $177,000, respectively. Such foreign operating losses do not
expire and foreign tax credits will expire between 2016 and 2020. We also had state and city net operating loss carryforwards
aggregating approximately $53,657,000. Such operating losses may be used to reduce future taxable income and tax liabilities and
will expire at various dates between 2016 and 2036.
The utilization of net operating loss and tax credit carryforwards generated prior to October 2012 (the “Section 382 Limited
Attributes”) is substantially limited under Section 382 of the Internal Revenue Code of 1986, as amended, as a result of our equity
offering that occurred in October 2012. U.S. federal net operating loss carryforwards of $65,633,000, research and development tax
credits of $4,277,000, and state and local net operating loss carryforwards of $48,484,000 generated since 2012, as well as foreign net
operating loss carryforwards of $12,724,000 and foreign tax credits of $177,000, 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 2016
and 2031.
66
A reconciliation of the Federal statutory income tax rate to our effective tax rate is as follows:
Statutory Federal income tax rate
State income taxes - net of Federal tax benefit
Other permanent differences
Valuation allowance
Research and development - U.S.
Research and development - Foreign
Effective tax rate for the year
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
Percent of Income/(Loss)
before Income Taxes
2015
34.0%
1.5%
(3.5%)
(40.2%)
8.2%
0.2%
0.2%
2014
34.0%
1.0%
6.6%
(48.1%)
6.5%
0.9%
0.9%
December 31,
2015
$ 40,215
4,454
3,300
1,129
49,098
(48,921)
177
$
2014
$ 34,657
3,134
3,177
1,084
42,052
(41,852)
200
$
Because of our cumulative losses, substantially all of the deferred tax assets have been fully offset by a valuation allowance. We have
not paid income taxes for the three-year period ended December 31, 2015. In 2015 and 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 $314,000 in 2015, $284,000 in 2014, and $97,000 in
2013.
J. Subsequent Events
Healios
On January 8, 2016, we entered into a license agreement with Healios K.K. (“Healios”) to develop and commercialize MultiStem cell
therapy for ischemic stroke in Japan, and to provide Healios with access to Athersys’ proprietary MAPC technology for use in
Healios’ “organ bud” program, initially for transplantation to treat liver disease or dysfunction. Under the agreement, Healios also
obtained a right to expand the scope of the collaboration to include the exclusive rights to develop and commercialize MultiStem for
the treatment of two additional indications in Japan, which include acute respiratory distress syndrome (“ARDS”) and another
indication in the orthopedic area, and to include all indications for the organ bud program. Healios will develop and commercialize
the MultiStem product in Japan, and we will provide the manufactured product to Healios.
Under the terms of the agreement, we received an up-front cash payment of $15 million from Healios, and the collaboration can be
expanded at Healios’ election. If Healios expands the collaboration, we will be entitled to receive a cash payment of $10 million.
Healios may exercise its option to expand the collaboration by the date that is the later of (i) December 31, 2016 and (ii) the receipt of
the initial results from Athersys’ ongoing ARDS clinical trial.
For the ischemic stroke indication, we may also receive additional success-based development and regulatory approval milestones
aggregating up to $30 million, as well as potential sales milestones of up to $185 million. We will also receive tiered royalties on
product sales, starting in the low double digits and increasing incrementally on net sales levels. Additionally, we will receive
payments for product supplied to Healios under a manufacturing supply agreement.
67
If Healios exercises the option to expand to collaboration, we would be entitled to receive royalties from product sales and success-
based development, regulatory approval and sales milestones, as well as payments for product supply for the two additional
indications.
For the organ bud product, we are entitled to receive a fractional royalty percentage on net sales of the organ bud products and will
receive payments for manufactured product supplied to Healios under a manufacturing supply agreement. Additionally, we have a
right of first negotiation for commercialization of an organ bud product in North America, with such right expiring on the later of (i)
the date five years from the effective date of the agreement and (ii) 30 days after authorization to initiate clinical studies on an organ
bud product under the first investigational new drug application or equivalent in Japan, North America or the European Union.
To determine the appropriate accounting for the license agreement, we will evaluate the agreement and related facts and
circumstances, focusing in particular on the rights and obligations of the arrangement. We have determined that our obligations under
the agreement represent multiple deliverables. For deliverables with standalone value, our policy is to account for these as separate
units of accounting We allocate the overall consideration of the arrangement that is fixed and determinable, excluding consideration
that is contingent upon future deliverables, to the separate units of accounting based on estimated selling prices (as defined in ASC
605-25) of each deliverable.
K. Quarterly Financial Data (unaudited)
The following table presents quarterly data for the years ended December 31, 2015 and 2014, in thousands, except per share data:
First
Quarter
Second
Quarter
2015
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 income (loss)
Basic net income (loss) per common share
Diluted net loss per common share
731 $
216 $
$
396 $10,605 $ 11,948
$(12,482) $(1,035) $(6,497) $ 3,592 $(16,422)
(0.20)
$
(0.20)
$
(0.16) $ (0.01) $ (0.08) $
(0.16) $ (0.05) $ (0.08) $
0.04 $
0.04 $
First
Quarter
Second
Quarter
2014
Third
Quarter
Fourth
Quarter Full Year
$
707 $
$(11,484) $
$
$
388 $
235 $ 1,623
675 $(4,719) $ (6,554) $(22,082)
(0.29)
(0.31)
(0.15) $ 0.01 $ (0.06) $ (0.08) $
(0.15) $ (0.04) $ (0.08) $ (0.08) $
293 $
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.
68
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, 2015, 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, 2015. The effectiveness of our internal control over financial reporting as of
December 31, 2015 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 2015, 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 7, 2016 and March 7, 2016, 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, 2016 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, 2016 through December 31, 2016. 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
Senior Vice President of Finance
Target
Bonus
60%
45%
45%
35%
Weighting on
Corporate Goals
100%
80%
80%
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.
69
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to the Proxy Statement with respect to the 2016 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the Proxy Statement with respect to the 2016 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
The information required by this item is incorporated by reference to the Proxy Statement with respect to the 2016 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to the Proxy Statement with respect to the 2016 Annual Meeting of
Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to the Proxy Statement with respect to the 2016 Annual Meeting of
Stockholders.
70
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, 2015 and 2014
Consolidated Statements of Operations and Comprehensive Loss for each of the years ended December 31, 2015, 2014 and
2013
Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flow for each of the years ended December 31, 2015, 2014 and 2013
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, 2015
Deducted from asset accounts:
Allowance for doubtful accounts- note receivable
Tax valuation allowances
Total 2015
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
Balance at
Beginning of
Year
Additions
Deductions
Balance at
End of Year
$
$
$
$
$
$
$
$
$
352
41,852
42,204
$
11
$ 7,069
$ 7,080
$ —
$ —
$ —
363(A)
$
$ 48,921
$ 49,284
341
26,042
26,383
$
11
$15,810
$15,812
$ —
$ —
$ —
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
(A) – Reserve on note receivable; fully-reserved.
(B) – Substantially all of our deferred tax assets are offset by valuation allowances.
71
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
4.5
10.1*
10.2*
10.3
10.4*
10.5
10.6
10.7
10.8
10.9
Certificate of Incorporation of Athersys, Inc., as amended as of June 28, 2013 (incorporated herein by reference to
Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-Q (Commission No. 000-52108) filed with the
Commission on August 13, 2013)
Bylaws of Athersys, Inc., as amended as of October 30, 2007 (incorporated herein by reference to Exhibit 3.1 to
the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on
October 31, 2007)
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
(Commission No. 001-33876) filed with the Commission on 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 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)
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)
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)
Amendment dated as of March 31, 2009 to the Extended Collaboration and License Agreement, by and between
Athersys, Inc. and Bristol-Myers Squibb Company effective January 1, 2006 (incorporated herein by reference to
Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Commission No. 001-33876) filed with the
Commission on April 9, 2009)
Amendment No. 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)
Amended and Restated Registration Rights Agreement, dated as of April 28, 2000, by and among Athersys, Inc.
and the stockholders of Athersys, Inc. parties thereto (incorporated herein by reference to Exhibit 10.6 to the
registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14,
2007)
Amendment No. 1 to Athersys, Inc. Amended and Restated Registration Rights Agreement, dated as of January 29,
2002, by and among Athersys, Inc., the New Stockholders, the Investors, Biotech and the Stockholders (each as
defined in the Amended and Restated Registration Rights Agreement, dated as April 28, 2000, by and among
Athersys, Inc. and the stockholders of Athersys, Inc. parties thereto) (incorporated herein by reference to Exhibit
10.7 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on
June 14, 2007)
Amendment No. 2 to Athersys, Inc. Amended and Restated Registration Rights Agreement, dated as of
November 19, 2002, by and among Athersys, Inc., the New Stockholders, the Investors, Biotech and the
Stockholders (each as defined in the Amended and Restated Registration Rights Agreement, dated as April 28,
2000, as amended, by and among Athersys, Inc. and the stockholders of Athersys, Inc. parties thereto)
(incorporated herein by reference to Exhibit 10.8 to the registrant’s Current Report on Form 8-K (Commission No.
000-52108) filed with the Commission on June 14, 2007)
72
10.10
10.11
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
110.23†
10.24†
10.25†
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)
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)
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 January 1, 2004, by and between Advanced Biotherapeutics, Inc. and William
Lehmann (incorporated herein by reference to Exhibit 10.28 to the registrant’s Current Report on Form 8-K (Commission
No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Employment Agreement, dated as of May 31, 2007, by and between Advanced Biotherapeutics, Inc.
and William Lehmann (incorporated herein by reference to Exhibit 10.29 to the registrant’s Current Report on Form 8-K
(Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 2 to Employment Agreement, dated as of January 24, 2014, by and between Advanced Biotherapeutics,
Inc. and William Lehmann (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)
Consulting Agreement, dated as of September 1, 2015, by and between Advanced Biotherapeutics, Inc. and Robert Deans
(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 5, 2015)
73
10.26†
10.27†
10.28†
10.29*
10.30
10.31*
10.32†
10.33†
10.34†
10.35†
10.36†
10.37†
10.38
10.39†
10.40
10.41
Form 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)
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)
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)
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)
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)
Summary of Athersys, Inc. 2015 Cash Bonus Incentive Plan (incorporated herein by reference to Exhibit 10.50 to the
registrant’s Annual Report on Form 10-K for the year ended December 31, 2014 (Commission No. 001-33876) filed with
the Commission on March 12, 2015)
Common Stock Purchase Agreement, dated as of December 17, 2015, 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 December 17, 2015)
Registration Rights Agreement, dated as of December 17, 2015, 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 December 17, 2015)
10.42† Summary of Athersys, Inc. 2016 Cash Bonus Incentive Plan
21.1
List of Subsidiaries
74
23.1
24.1
31.1
31.2
32.1
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, Senior 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, Senior 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
75
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 10, 2016.
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
Date
Chief Executive Officer and Chairman of the
Board of Directors (Principal Executive Officer)
March 10 , 2016
Senior Vice President of Finance (Principal
Financial Officer and Principal Accounting
Officer)
Executive Vice President, Chief Scientific
Officer and Director
March 10 , 2016
March 10 , 2016
Director
Director
Director
Director
Director
March 10 , 2016
March 10 , 2016
March 10 , 2016
March 10 , 2016
March 10 , 2016
*
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
76
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
4.5
10.1*
10.2*
10.3
10.4*
10.5
10.6
10.7
10.8
10.9
10.10
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 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 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)
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)
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)
Amendment dated as of March 31, 2009 to the Extended Collaboration and License Agreement, by and between
Athersys, Inc. and Bristol-Myers Squibb Company effective January 1, 2006 (incorporated herein by reference to
Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Commission No. 001-33876) filed with the
Commission on April 9, 2009)
Amendment No. 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)
Amended and Restated Registration Rights Agreement, dated as of April 28, 2000, by and among Athersys, Inc. and
the stockholders of Athersys, Inc. parties thereto (incorporated herein by reference to Exhibit 10.6 to the registrant’s
Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Athersys, Inc. Amended and Restated Registration Rights Agreement, dated as of January 29,
2002, by and among Athersys, Inc., the New Stockholders, the Investors, Biotech and the Stockholders (each as
defined in the Amended and Restated Registration Rights Agreement, dated as April 28, 2000, by and among
Athersys, Inc. and the stockholders of Athersys, Inc. parties thereto) (incorporated herein by reference to Exhibit
10.7 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on
June 14, 2007)
Amendment No. 2 to Athersys, Inc. Amended and Restated Registration Rights Agreement, dated as of
November 19, 2002, by and among Athersys, Inc., the New Stockholders, the Investors, Biotech and the
Stockholders (each as defined in the Amended and Restated Registration Rights Agreement, dated as April 28,
2000, as amended, by and among Athersys, Inc. and the stockholders of Athersys, Inc. parties thereto) (incorporated
herein by reference to Exhibit 10.8 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108)
filed with the Commission on June 14, 2007)
Amendment No. 3 to Amended and Restated Registration Rights Agreement, dated as of May 15, 2007, by and
among Athersys, Inc. and the Existing Stockholders (as defined therein) (incorporated herein by reference to Exhibit
10.9 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on
June 14, 2007)
77
10.11
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
10.23†
10.24†
10.25†
10.26†
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)
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 January 1, 2004, by and between Advanced Biotherapeutics, Inc. and William
Lehmann (incorporated herein by reference to Exhibit 10.28 to the registrant’s Current Report on Form 8-K
(Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 1 to Employment Agreement, dated as of May 31, 2007, by and between Advanced Biotherapeutics,
Inc. and William Lehmann (incorporated herein by reference to Exhibit 10.29 to the registrant’s Current Report on Form
8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Amendment No. 2 to Employment Agreement, dated as of January 24, 2014, by and between Advanced
Biotherapeutics, Inc. and William Lehmann (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)
Consulting Agreement, dated as of September 1, 2015, by and between Advanced Biotherapeutics, Inc. and Robert
Deans (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 5, 2015)
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)
78
10.27†
10.28†
10.29*
10.30
10.31*
10.32†
10.33†
10.34†
10.35†
10.36†
10.37†
10.38
10.39†
10.40
10.41
Form Amendment No. 1 to Incentive Agreement by and between Advanced Biotherapeutics, Inc. and named executive
officers, and acknowledged by Athersys, Inc. and ReGenesys, LLC (incorporated herein by reference to Exhibit 10.32 to
the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 14, 2007)
Form Amendment No. 2 to Incentive Agreement by and between Advanced Biotherapeutics, Inc. and named executive
officers, and acknowledged by Athersys, Inc. and ReGenesys, LLC (incorporated herein by reference to Exhibit 10.2 to
the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the Commission on June 20, 2013)
Exclusive License Agreement, dated as of May 17, 2002, by and between Regents of the University of Minnesota and
MCL LLC, assumed by ReGenesys, LLC through operation of merger on November 4, 2003 (incorporated herein by
reference to Exhibit 10.34 to the registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the
Commission on June 14, 2007)
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)
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)
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)
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)
Summary of Athersys, Inc. 2015 Cash Bonus Incentive Plan (incorporated herein by reference to Exhibit 10.50 to the
registrant’s Annual Report on Form 10-K for the year ended December 31, 2014 (Commission No. 001-33876) filed
with the Commission on March 12, 2015)
Common Stock Purchase Agreement, dated as of December 17, 2015, 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 December 17, 2015)
Registration Rights Agreement, dated as of December 17, 2015, 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 December 17, 2015)
10.42†
Summary of Athersys, Inc. 2016 Cash Bonus Incentive Plan
21.1
23.1
List of Subsidiaries
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
79
24.1
31.1
31.2
32.1
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, Senior 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, Senior 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
80
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 10, 2016
/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 10, 2016
/s/ Laura K. Campbell
Laura K. Campbell
Senior 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, 2015, 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 10, 2016
/s/ Gil Van Bokkelen
Name: Gil Van Bokkelen
Title: Chairman and Chief Executive Officer
/s/ Laura K. Campbell
Name: Laura K. Campbell
Title: Senior 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.
Stock Performance Graph
Notwithstanding any statement to the contrary in any of our previous of 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, 2011 through December 31, 2015 of
cumulative total return for the NASDAQ Composite Index (NCI), our common stock (ATHX) and the
NASDAQ Biotechnology Index (NBI). 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.
These returns are based on historical results, assuming $100 was invested on December 31, 2011 in the
NCI, NBI or our common stock and are not intended to suggest future performance.
BOARD OF DIRECTORS
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 Exchanges 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”.
Gil Van Bokkelen, Ph.D.
Chairman and Chief Executive Officer of Athersys, Inc. and
Chairman of the Board of Governors of the National Center for
Regenerative Medicine
Lee. E. Babiss, Ph.D.
Lead Director
Chief Executive Officer of X-Rx, a subsidiary of PPD, Inc.
John J. Harrington, Ph.D.
Executive Vice President and Chief Scientific Officer of
Athersys, Inc.
Ismail Kola, Ph.D.
Executive Vice President of UCB S.A. and President and Chief
Scientific Officer 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
Managing Partner of Raging Capital Management LLC
Jack L. Wyszomierski
Retired; former Executive Vice President and Chief Financial
Officer of VWR International, LLC
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
Laura K. Campbell, C.P.A.
Senior Vice President of Finance
2015 Annual Report 5
ATHERSYS.COM
3201 Carnegie Avenue
Cleveland, Ohio 44115-2634