This Biotech is on the Move

Most biotech investors know to target biotech companies that have some sort of relationship with large firms which help validate the underlying technology and marketing opportunities. The more relationships, the larger the partner, and the further along in development, usually means a higher valuation for the stock.  If you can find one that has these characteristics but a low valuation, it is probably worth a closer look.

A perfect example of this scenario is the biopharmaceutical company Athersys, Inc. (NASDAQ - ATHX – $1.62.) This stock has been a real mover of late, with an average daily volume of over 750,000 shares and over 1 million shares traded per day three times in the last ten days.  Quite good for a firm with only an $85 million market cap.

Why the strong volume yet low valuation?  I am glad you asked. First, a little overview.

Athersys is engaged in clinical development programs that are directed on the treatment of inflammatory and immune disorders, neurological conditions, cardiovascular disease and other ailments. MultiStem is an allogenic stem cell product that is at the forefront of regenerative medicine and other stem cell therapy applications.  In addition, the Company is involved in the development of pharmaceuticals to treat obesity and other related metabolic conditions like diabetes, and small molecule compounds.

For a small outfit, Athersys’s management has pulled off an impressive feat by aligning the Company with one of the pharmaceutical industry’s largest players, Pfizer (NYSE – PFE), in 2009. This co-development partnership is worth as much as $111 million to ATHX, depending upon certain milestones. At present, the two companies are conducting a Phase II trial together using the MultiStem platform to treat a specific form of Inflammatory Bowel Disease (Ulcerative Colitis and Chron’s) which afflicts over 2.5 million people.

ATHX also has secured an alliance with RTI Biologics, Inc. (NASDAQ– RTIX) for the development of biologic implants for orthopedic applications in the bone graft substitutes market. Plus, ATHX has a co-development relationship with Bristol-Meyers Squibb (NYSE –BMY) for the use of its RAGE technology for compound screening and development.

Clearly, the Company’s MultiStem has meaningful value as evidenced by the broad relationships outlined above. Key differentiators include:

• Scalability - The product can be produced efficiently and consistently in large quantities and stored (frozen) for subsequent use. The equivalent of millions of doses may be produced from a single healthy, consenting donor, and biological characteristics and yield are consistent across donors.
• "Off-the-shelf" administration - In contrast to conventional bone marrow or hematopoietic stem cell transplants and most other cell types, extensive preclinical studies have shown that MultiStem may be used without tissue matching, making it analogous to type “O” blood.
• Multiple approaches to delivery - MultiStem may be delivered systemically (e.g. intravenously) or via local administration (e.g. using a catheter based delivery system), depending on the disease indication and the specific needs of the patient

ATHX has estimated that it will report enrollment completion for its Phase 2 Inflammatory Bowel Disease trial in 1H13 and top-line results in 2H13. Phase 2 top-line results for the Ischemic Stroke trial could occur later this year or early in 2014.

With pending news, a low valuation, and strong volume with an upswing in the stock price are all very bullish indications. We foresee the stock potentially breaking through the 52-week high of $2.14 and well beyond, in short order. Our mid-year target is $3.00.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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