Weak Trading In Athersys Following Share Dilution Print E-mail
By Brian Wilson, Lead Contributor   
Friday, 04 January 2013 09:19
The stem cell stock Athersys (NASDAQ: ATHX) suffered substantial losses throughout 2012 due to a combination of slow progress for the clinical development of their stem cell line MultiStem, as well as share dilution.

It also seems that some of their recent press releases have been unable to impress investors, which is really not a great sign for a stem cell stock.

For an example, consider this press release from October 15th, which discussed a preclinical trial in which Multistem was used to treat spinal cord injuries in rodents. After spinal cord injuries (SCI), Athersys showed that its stem cell line was able to actually improve bladder function in the animals, and the implication is that the cells not only reduced inflammation following SCI but induced neuron regeneration. There are clear implications between this study and the millions of people around the world that suffer from the after-effects of spinal cord injury, but there is good reason that the stock barely reacted.

Preclinical studies are not always designed well, and it's very unwise to expect preclinical occurrences to be repeated in human trials with certainty. While animal models can hint that certain compounds or therapies can be extremely effective later on, stem cells have been especially notorious for producing outstanding results in preclinical trials which never got translated into strong results during clinical development.

With regards to Athersys in particular, it's not too surprising that the stock actually went down following the aforementioned press release. Not only has the market caught onto the idea that preclinical results for stem cells are overrated, but it's also worth noting that other stem cell companies have already established more competitive profiles in neuron regeneration. Consider Neuralstem (NASDAQ: CUR), with their NSI-566 line. This company has already demonstrated some tangible results in the treatment of amyotrophic lateral sclerosis (ALS), which is more commonly known as Lou Gherig's disease, in a phase I trial.

Still, Athersys does have one indication that should be quite interesting going forward. In partnership with Pfizer (NYSE: PFE), Multistem is now being enrolled into phase II trials for the treatment of moderate to severe ulcerative colitis. Much of the focus is still being placed on the safety of Multistem in patients with gastrointestinal issues, but the study (which is expected to finish in March 2014) will contain enough data to either make or break investor perception of Multistem.

At this point there is virtually no basis to determine a fair market capitalization for the company, so anyone that is playing either the long or short side of ATHX should probably be trading indicators from the stock's chart. The other idea is that investors can speculate on upcoming catalysts (events) for the company, although this can be extremely risky since the market can have paradoxical reactions to certain things.

For a good example, note that Athersys dropped from about $1.50/share in September to roughly $1.00/share before the most recent public offering of its common stock. This was strange, considering that the company did announce a few positive developments in that timeframe.

A good number of investors are simply buying and holding stem cell names like Athersys for the long haul in the hopes that the market capitalization will grow quickly enough to cancel out the share dilutions that these companies require to continue clinical development. Historically this has led to wealth destruction, although it's worth noting that stem cell technology has been refined significantly in recent years and warrants new consideration (but not necessarily investment). Stem cell companies are easy to mistrust these days due to the ease at which they can become pyramid schemes, although there is no denying that they will become immensely important to medicine someday. It's simply a matter of determining which company will become the first truly successful pioneer in the industry, and when it will happen.

The company is trading at a value of $60 million, has about $29 million in cash and cash equivalents, and has an approximate burn rate of $3.5 million per quarter. This puts the company's current “share dilution life span” at 2 years.

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