BTHC VI, Inc. 8-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): June 8, 2007
BTHC VI, Inc.
(Exact Name of Registrant as Specified in Charter)
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| Delaware
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0-52108
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20-4494098 |
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| (State or Other
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(Commission File
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(I.R.S. Employer |
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Identification No.) |
| of Incorporation) |
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| 3201 Carnegie Avenue, Cleveland, Ohio
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44115-2634 |
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(Zip Code) |
Registrant’s telephone number, including area code: (216) 431-9900
12890 Hilltop Road, Argyle, Texas 76226
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
CURRENT REPORT ON FORM 8-K
BTHC VI, INC.
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K contains forward-looking statements 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,” “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 Current Report.
In addition, a number of known and unknown risks, uncertainties, and other factors could affect the
accuracy of these statements, including the risks outlined under “Risk Factors” and elsewhere in
this Current Report. 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. These risks 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.
Other important factors to consider in evaluating our forward-looking statements include:
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the possibility of delays in, adverse results of, and excessive costs of the development process; |
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changes in external market factors; |
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changes in our industry’s overall performance; |
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changes in our business strategy; |
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our ability to protect our intellectual property portfolio; |
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our possible inability to realize commercially valuable discoveries in our
collaborations with pharmaceutical and other biotechnology companies; |
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our possible inability to execute our strategy due to changes in our industry or the
economy generally; |
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changes in productivity and reliability of suppliers; and |
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the success of our competitors and the emergence of new competitors. |
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 do not
expect to update any of the forward-looking statements after the date of this Current Report or to
conform these statements to actual results, except as may be required by law. You should not place
undue reliance on forward-looking statements contained in this report.
INDUSTRY AND MARKET DATA
Information about market and industry statistics contained in this report is included based on
information available to Athersys that it believes is accurate in all material respects. It is
generally based on academic and other publications that are not produced for purposes of securities
offerings or economic analysis. We have not reviewed or included data from all sources, and we
cannot assure potential investors of the accuracy or completeness of the data included in this
report. Forecasts and other forward-looking information obtained from these sources, including
estimates of future market size, revenue and market acceptance of products and services, are
subject to the same qualifications and the additional uncertainties accompanying any
forward-looking statements.
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EXPLANATORY NOTE
Unless otherwise indicated or the context otherwise requires, all references below in this Current
Report to “we,” “us” or the “Company” are to BTHC VI, Inc., a Delaware corporation, together with
its wholly owned subsidiary, Athersys, Inc., a Delaware corporation. Specific discussions or
comments relating only to BTHC VI, Inc. prior to the Merger (described below) reference “BTHC VI”
or “PubCo,” while those relating only to Athersys, Inc. prior to the Merger reference “Athersys.”
Item 1.01. Entry into a Material Definitive Agreement.
SUMMARY OF MERGER
On May 24, 2007, BTHC VI, Inc., a Delaware corporation (“BTHC VI” or “PubCo”), and its wholly owned
subsidiary, B-VI Acquisition Corp., a Delaware corporation (“Merger Sub”), entered into an
Agreement and Plan of Merger (the “Merger Agreement”), with Athersys, Inc., a Delaware corporation
(“Athersys”). Pursuant to the terms of the Merger Agreement, Merger Sub, which BTHC VI recently
had incorporated in the state of Delaware for the purpose of completing the transaction described
in this Current Report, merged with and into Athersys (the “Merger”) on June 8, 2007 (the “Closing”
or the “Closing Date”), with Athersys continuing as the surviving entity in the Merger. As a
result of the Merger, Athersys became our wholly owned subsidiary, and the business of Athersys
became our sole operations. After receiving the requisite approval of the stockholders of Athersys
pursuant to a written consent of stockholders, a Certificate of Merger was filed with the Secretary
of State of the State of Delaware on June 8, 2007, at which time the Merger was deemed effective
(the “Effective Time”). At the Effective Time, each share of common stock of Athersys was
converted into 0.0358493 shares of Company common stock, par value $0.001 per share (the “Common
Stock”).
Prior to the Merger, BTHC VI effected a 1-for-1.67 reverse stock split (the “Reverse Stock Split”)
of the shares of its Common Stock. Following the Reverse Stock Split, 299,622 shares of our Common
Stock were issued and outstanding. BTHC VI amended its certificate of incorporation to effect the
Reverse Stock Split and to increase the number of authorized shares of Common Stock to 100,000,000.
As of the Closing Date, we acquired ownership of all of the outstanding capital stock of Athersys.
In return, we issued 3,210,697 shares of Common Stock, resulting in a change in control of the
Company. As further described below, Athersys is a biopharmaceutical company engaged in the
discovery and development of therapeutic product candidates designed to extend and enhance the
quality of human life. Following the Merger, the business of Athersys constitutes our only
operations. We experienced, as of the Closing Date, a change in control of our ownership,
management and Board of Directors (the “Board of Directors” or “Board”). The sole officer and
director of BTHC VI resigned immediately prior to the closing of the Merger and, immediately
following the Merger, Athersys’ existing officers were elected as our officers, and certain members
of Athersys’ board of directors and other individuals selected by Athersys were appointed to the
Board of Directors.
We believe that the issuances of our Common Stock in connection with the Merger were exempt from
registration under Section 4(2) of the Securities Act. A copy of the Merger Agreement was filed as
Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on May 24, 2007.
SUMMARY OF OFFERING
On June 8, 2007, we entered into a Securities Purchase Agreement by and among BTHC VI, Athersys and
the investors party thereto pursuant to which we completed an offering of 13,000,000 shares of our
Common Stock (the “Offering”). Investors in the Offering also received five-year warrants to
purchase an aggregate of 3,250,000 shares of Common Stock with an exercise price of $6.00 per
share. The lead investor in the Offering, Radius Venture Partners II, L.P., Radius Venture
Partners III, L.P. and certain of their respective affiliates (together, “Radius”), invested
$10,000,000 in the Offering and received additional five-year warrants to purchase an aggregate of
500,000 shares of Common Stock with a cash or cashless exercise price of $6.00 per share. We
received gross proceeds of $65 million from the Offering. Cowen & Co., LLC and National Securities
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Corporation acted as placement agents for the Offering and Punk Ziegel & Company, L.P. and Halter
Financial Group, LP provided financial advice. The placement agents received five-year warrants to
purchase an aggregate of 1,093,525 shares of Common Stock with a cash or cashless exercise price of
$6.00 per share.
We believe that the issuances of our Common Stock and warrants to purchase Common Stock in
connection with the Offering were exempt from registration under Section 4(2) of the Securities
Act.
Item 2.01. Completion of Acquisition or Disposition of Assets.
As disclosed in this Current Report, on June 8, 2007, a new, wholly owned subsidiary of BTHC VI,
Merger Sub, merged with and into Athersys, with Athersys continuing as the surviving entity in the
Merger. As a result of the Merger, Athersys became our wholly owned subsidiary. Item 2.01(f) of
Form 8-K provides that if a registrant is a shell company immediately before a transaction
disclosed under Item 2.01, then the registrant must disclose the information that would be required
if the registrant were filing a general form for registration of securities on Form 10.
BTHC VI was a shell company immediately before the Merger. Accordingly, we are providing
below the information that would be included in a Form 10 if we were to file a Form 10. Please
note that the information provided below relates to the Company after the Merger, except that
information relating to periods prior to the date of the Merger only relate to the party
specifically indicated.
DESCRIPTION OF BUSINESS
Company Overview
We are a biopharmaceutical company engaged in the discovery and development of therapeutic product
candidates designed to extend and enhance the quality of human life. Through the application of
our proprietary technologies, we have established a pipeline of therapeutic product development
programs in multiple disease areas that we intend to advance into clinical trials in 2007 and 2008.
Our lead product candidate is ATHX-105, which is a novel treatment for obesity that acts by
stimulating the 5HT2c receptor, a key neurotransmitter receptor in the brain, which regulates
appetite. ATHX-105 has been shown in preclinical testing in animal models to reduce food intake
and body weight by suppressing appetite without appearing to cause the adverse side effects that
have been observed with other weight loss drugs.
ATHX-105 has been approved to enter a Phase I clinical trial in the United Kingdom, which we intend
to initiate as soon as possible using a portion of the net proceeds that we received in the
Offering. The primary objective of the Phase I clinical trial is to assess the short-term safety
of ATHX-105 and to establish an appropriate dose range for subsequent clinical studies that will be
conducted in order to assess safety and effectiveness. Following successful completion of the Phase
I clinical trial and concurrent non-clinical studies that must be completed, we intend to initiate
a Phase II clinical trial in the United States that will examine safety and effectiveness in
clinically overweight or obese patients. In addition to ATHX-105, we have a portfolio of other
compounds that we are developing as potential treatments for obesity.
We are also developing novel orally active pharmaceutical products for the treatment of central
nervous system disorders, including sleep disorders such as narcolepsy or excessive daytime
sleepiness, and other potential indications such as attention deficit hyperactivity disorder and
other cognitive disorders. These compounds are designed to act by elevating levels of
neurotransmitters in the sleep and cognitive centers of the brain and stimulating neurological
tone, resulting in an enhanced state of wakefulness and cognition, without causing hyperactivity or
addiction.
In addition to our pharmaceutical development programs, we are developing MultiStem®, a
proprietary nonembryonic stem cell product for the treatment of multiple disease indications. In
May 2006, we entered into a product co-development collaboration with Angiotech Pharmaceuticals,
Inc. (“Angiotech”) to jointly develop and ultimately market MultiStem for the treatment of damage
caused by myocardial infarction and peripheral vascular disease. We are also independently
developing MultiStem for bone marrow transplant/oncology support, ischemic stroke and potentially
other disease indications. We retain the commercial rights to these programs and other potential
applications of MultiStem.
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In addition to our current product development programs, we have developed our Random Activation of
Gene Expression (“RAGE”) technology, a patented technology that provides us with the ability to
produce human cell
lines that express specific, biologically well validated drug targets without relying upon cloned
and isolated gene sequences. This technology provides us with broad freedom to work with targets
that may be inaccessible to most other companies as a result of intellectual property restrictions
on the use of specific cloned and isolated genes. Over the past several years, we have produced
cell lines that express drug targets in a range of disease areas such as metabolic disease,
infectious disease, oncology, cardiovascular disease, inflammation, and central nervous system
disorders. Many of these were produced for drug development programs at major pharmaceutical
companies that we have collaborated with, such as our ongoing collaboration with Bristol-Myers
Squibb, and some have been produced for our internal drug development programs.
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.
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Apply our proprietary technologies toward the rapid identification, validation, and
development of therapeutic product candidates. We will continue to use our proprietary
technologies to identify and validate therapeutic product candidates. We believe our
technologies, including RAGE and MultiStem, provide us a competitive advantage in drug
discovery and product development by allowing us to move products quickly from the
discovery phase into clinical trials using a “fast follower” approach, thereby
mitigating risk and reducing costs. |
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Enter into licensing or co-development arrangements for certain product candidates.
We intend to license certain of our product candidates to, or co-develop them with,
qualified collaborators to broaden and accelerate our product development efforts. In
order to enhance the value of our product candidates in these potential licensing or
collaboration arrangements, we plan to internally develop our product candidates
through at least Phase II clinical trials whenever possible. We anticipate that this
strategy will help us to enhance our return on product candidates for which we enter
into collaborations through the receipt of strategic equity investments, license fees,
milestone payments, and profit sharing or royalties. |
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Internally develop, manufacture, and market other therapeutic products. We will
apply the capital we obtain from financing and collaborating activities toward the
development of our other therapeutic product candidates. Our intention is to
ultimately manufacture, market, and distribute these product candidates on our own
after they have received FDA approval. We will select candidates for internal
development based on several factors, including the required regulatory approval
pathway and the potential market into which the product can be sold, and our ability to
feasibly fund development activities through commercialization and marketing of the
approved product. |
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Continue to expand our intellectual property portfolio. Our intellectual property
is important to our business and we take significant steps to protect its value. We
have an ongoing research and development effort, both through internal activities and
through collaborative research activities with others, which aims 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. |
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Out-license non-core applications of our technologies. Certain elements of our
technologies, such as their application toward the development of novel diagnostics or
their use for the analysis and characterization of therapeutic product candidates, may
not be relevant to the key elements of our corporate strategy. We believe these
applications may have significant potential value, however, and can provide capital to
us that can be applied to our other development efforts. Where appropriate, we may
seek to license non-core applications of our technologies to others to realize this
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Our Current Programs
By applying our core technologies and capabilities, we have established preclinical drug
development programs in the areas of obesity and central nervous system disorders. In addition,
applying our proprietary cell therapy platform, MultiStem, we have established therapeutic product
development programs in the areas of
cardiovascular disease, oncology support and stroke. We currently intend to advance multiple
programs into clinical development in 2007 and 2008.
Pharmaceutical Programs
ATHX-105 for Obesity
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. The
percentage of individuals who are defined as clinically obese has risen dramatically over the past
several decades. According to the United States Centers for Disease Control and Prevention
(“CDC”), the incidence of obesity in the United States has increased at an epidemic rate during the
past 20 years. CDC now estimates that 66% of all Americans are overweight and more than 30% are
obese. This increase is not limited to adults. The percentage of young people who are overweight
has more than tripled since 1980. Among children and teens aged six to 19 years, 16% (over nine
million young people) are considered overweight. There has been a similar dramatic rise in the
rate of obesity in Europe and Asia. Furthermore, the cost of this epidemic is significant. The
FDA estimates that the total economic cost of obesity is currently about $117 billion per year in
the United States, including more than $50 billion in avoidable medical costs. Despite the
magnitude of this problem, current approaches to clinical obesity are largely ineffective, and we
are aware of relatively few new therapeutic approaches in clinical development.
We are developing novel pharmaceutical treatments for obesity. Our most advanced drug development
candidate is ATHX-105, a compound we discovered internally and have extensively analyzed and
validated in preclinical studies. We believe that ATHX-105 represents a potential “best-in-class”
obesity drug, based on its well validated mechanism of action, as well as the potency and overall
safety profile we have observed in preclinical studies. We are developing ATHX-105 as a
once-per-day orally administered pill to regulate appetite and reduce food intake in clinically
obese individuals, defined as those individuals with a body mass index greater than 30. In
addition to ATHX-105, we are developing a diverse portfolio of back-up compounds that act by the
same mechanism as ATHX-105, as well as complementary obesity programs that act according to
different biological mechanisms of action.
ATHX-105 is designed to act by stimulating a key receptor in the brain that regulates appetite and
food intake – the 5HT2c receptor. The role of this receptor in regulating food intake is well
understood in both animal models and humans. In 1996, Wyeth Pharmaceuticals launched the
anti-obesity drug Redux® (dexfenfluramine), a non-specific serotonin receptor agonist that was used
with the stimulant phentermine in a combination commonly known as “fen-phen.” This diet drug
combination gained rapid and widespread acceptance in the clinical marketplace, and was shown to be
highly effective at regulating appetite, reducing food intake, and causing weight loss.
Unfortunately, in addition to stimulating the 5HT2c receptor, fen-phen also stimulated the 5HT2b
receptor that is found in the heart. The activation of 5HT2b by fen-phen is believed to have
caused significant cardiovascular problems in a number of patients and, as a result, Redux® was
withdrawn from the market in 1997. In 1996, doctors wrote 18 million monthly prescriptions for
drugs constituting the fen/phen combination. In that same year, these drugs generated sales of
greater than $400 million, serving as a benchmark for the substantial market opportunity for an
effective drug to treat clinical obesity.
Since the withdrawal of Redux from the market, several groups have published research that
implicates stimulation of the 5HT2b receptor as the underlying cause of the cardiovascular
problems. These findings suggest that highly selective compounds that stimulate the 5HT2c
receptor, but that do not appreciably stimulate the 5HT2b receptor, could be developed that
maintain the desired appetite suppressive effects without the cardiovascular toxicity. Recently,
Arena Pharmaceuticals developed a selective 5HT2c agonist, Lorcaserin, which exhibits significant
selectivity for the 5HT2c receptor relative to the 5HT2b receptor. In a Phase II clinical trial
recently conducted by Arena Pharmaceuticals, Lorcaserin was demonstrated to reduce appetite and
cause
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statistically significant weight loss in patients that were administered the drug for a
period of three months, without causing any apparent cardiovascular effects. However, at higher
doses the drug has been shown to cause dizziness, nausea and headaches, which is believed to be a
consequence of its apparently more limited selectivity for the 5HT2c receptor relative to another
serotonin receptor expressed in the brain, the 5HT2a receptor. Currently, Lorcaserin is undergoing
a large scale, two-year Phase III clinical study that is designed to evaluate safety, including
cardiovascular safety, and effectiveness at causing weight loss in patients that are administered
Lorcaserin for a period of one year. Lorcaserin is being administered twice per day at a dosage
level that is half the level previously observed to cause unacceptable levels of dizziness, nausea
and headaches in prior clinical studies.
We initiated a drug development program focused on creating potent and selective compounds that
stimulate the 5HT2c receptor, but that avoid the 5HT2b receptor and other receptors, such as 5HT2a.
Our specific goal is to develop a once-per-day orally administered pill that reduces appetite by
stimulating the 5HT2c receptor, but that does not stimulate the 5HT2b receptor, the 5HT2a receptor,
or other receptors that could cause adverse side effects. Based on extensive preclinical studies
that we have conducted with ATHX-105, it has been shown to be a highly potent and selective
compound that fulfills all of our criteria. We believe that the superior selectivity displayed by
ATHX-105 for the 5HT2c receptor relative to both the 5HT2b receptor and the 5HT2a receptor will
result in a cleaner safety profile in clinical studies, and may allow us to achieve better
efficacy, as well as a more convenient dosing schedule than other 5HT2C agonist programs.
In preclinical testing in rodents, obese animals that received once-daily doses of ATHX-105
exhibited a 57% reduction in daily food intake as compared to animals receiving placebo alone. In
addition, after receiving once-daily doses of ATHX-105 for two weeks, these animals weighed 10%
less than the animals that were treated with placebo alone. The effect was dose proportional, and
animals that received increasing doses of ATHX-105 showed progressively greater weight loss.
In dogs, oral administration of a low dose (0.1mg/kg) of ATHX-105 resulted in a short-term
reduction of food intake of approximately 50%, while animals receiving a 10-fold higher dose (1.0
mg/kg) of ATHX-105 exhibited a complete cessation of short-term food intake that resolved over time
as the drug cleared. Based upon these results, and the results of other studies that we have
conducted, we calculate the effective dose range in dogs to be approximately 0.1 to 0.2 mg/kg.
In extensive preclinical testing in both dogs and monkeys, ATHX-105 appeared to be safe and well
tolerated, even when administered at doses substantially higher than those that caused a
significant reduction in food intake. In dogs, the MTD was established at 36 mg/kg, a dose level
approximately 180 to 360 times higher than the effective dose range observed in short-term food
intake studies. We also studied the safety profile of ATHX-105 in cynomolgous monkeys,
administering doses for two weeks that are 40 to 50 times greater than the expected effective dose
levels in humans, which were well tolerated with no signs of adverse effects.
We submitted a CTA and intend to conduct a Phase I clinical trial in the United Kingdom for
ATHX-105. This application was approved in the third quarter of 2006. We intend to initiate the
Phase I clinical trial as soon as possible. The Phase I clinical trial will have a standard design
evaluating single dose administration, dose escalation, and maximum tolerated dose, followed by a
one-week study examining the effect of administration of multiple doses of ATHX-105 to healthy
overweight or obese individuals, with a body mass index of 25 to 35 at several different dose
levels. Safety monitoring will include the assessment of various cardiovascular parameters. We
believe that the Phase I clinical trial can be completed within approximately six months from the
time we begin enrollment. Concurrent with the Phase I clinical trial, we will also conduct certain
non-clinical studies that must be completed prior to the commencement of subsequent clinical
studies.
In addition, we are developing other compounds that are designed to stimulate the 5HT2c receptor
with greater potency and/or specificity than ATHX-105. Some of these compounds have demonstrated
significant reductions in food intake in rodent models. We plan to subject these compounds to
further safety and efficacy testing in animals while we continue to develop ATHX-105. Furthermore,
we have created cell lines that express obesity targets that are distinct from 5HT2c by utilizing
our other technologies and have screened for compounds using our compound library that are designed
to significantly reduce food intake by acting against these targets. Although these compounds are
at earlier stages of preclinical development, we believe they represent promising opportunities for
future development.
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H3 Antagonists for the Treatment of Sleep Disorders and Certain Other Cognitive
Disorders
In addition to our obesity program, we are developing a novel class of pharmaceuticals that are
designed to enhance wakefulness and promote cognitive abilities. Individuals that suffer from
narcolepsy or other conditions that result in excessive daytime sleepiness (“EDS”) may experience
persistent tiredness and lack of energy. As a result, such individuals may experience significant
difficulty in performing certain tasks, and may suffer an
impaired quality of life. More than 100,000 individuals in the U.S. suffer from narcolepsy or EDS.
Historically, narcoleptics were treated with amphetamines and related stimulants that had
substantial side-effects, but more recently have been prescribed Provigil (modafinil). This
compound works by an unknown mechanism, but appears to be relatively free of the stimulant
side-effects of amphetamines. In addition to its use for narcolepsy, Provigil is also approved for
the treatment of shift work sleep disorder (“SWSD”) and sleep apnea. Sales of Provigil in 2006
were reported to be over $700 million. Although Provigil appears to be an improvement over
previous narcolepsy drugs, certain safety concerns were raised by the FDA when Cephalon, Inc.
attempted to gain approval of modafinil for attention deficit hyperactivity disorder (“ADHD”), and
the company subsequently abandoned efforts in this market.
Similarly, individuals with attention or cognitive disorders may suffer from an inability to focus,
solve problems, process information, communicate, and may have memory impairment. Attention and
cognitive disorders include ADHD, Alzheimer’s disease and other forms of dementia. Datamonitor
estimates that 23 million children in the seven major pharmaceutical markets (United States,
France, Germany, Italy, Spain, United Kingdom and Japan) that suffer from ADHD. Research also
shows that 60% of children with ADHD maintain the disorder into adulthood. Despite the low rate of
diagnosis, ADHD drug revenues reached $2.5 billion in 2004, 97% of which was generated within the
United States. Currently available treatments cause side effects and do not adequately address the
clinical need. Ritalin® (methylphenidate) is the most widely prescribed ADHD therapy. As a
stimulant with abuse potential, it has been classified as a controlled substance by the FDA and the
U.S. Drug Enforcement Agency. We believe there exists a tremendous market opportunity as diagnosis
and awareness of ADHD is improved.
We are developing multiple classes of highly selective and potent compounds designed to block the
H3 receptor and have established a program to develop non-stimulant, non-addictive,
orally administered drugs for the treatment of narcolepsy or other conditions related to excessive
daytime sleepiness.
Our histamine H3 receptor antagonists represent a new class of drugs that could have an
improved efficacy and safety profile relative to existing drugs used for the treatment of
narcolepsy and related sleep disorders. The H3 receptor regulates levels of histamine
and other neurotransmitters in certain areas of the brain that play a direct role in regulating
sleep and cognitive function. In animal models, H3 receptor antagonists have been shown
to increase histamine release in the brain and improve wakefulness, attention and learning. In a
preclinical study recently conducted at an independent lab, we have tested one of our more advanced
compounds in a well validated rodent sleep model. During the study, this compound significantly
enhanced wakefulness without causing apparent adverse events. In comparison to modafinil or
caffeine, this compound was far more potent, achieving a comparable or better effect on wakefulness
at substantially lower doses. In addition, this compound did not appear to cause the excessive
rebound sleepiness that is a characteristic of other agents used to promote wakefulness, such as
amphetamines.
We intend to continue the study of this compound for potential applications in treating narcolepsy,
excessive daytime sleepiness, and certain attention or cognitive disorders. In addition, we intend
to conduct additional pharmacology and safety testing. If these studies are successful, and
depending on the availability of capital resources, we would consider filing an IND for the
initiation of clinical trials. Recently, pharmaceutical companies such as Glaxo-SmithKline and
Johnson & Johnson have advanced H3 antagonists into clinical trials for the treatment of
conditions such as narcolepsy and dementia, respectively.
Regenerative Medicine Programs
MultiStem — A Novel Approach to Stem Cell Therapy
In addition to our pharmaceutical programs, we are developing a novel, proprietary nonembryonic
stem cell product candidate, MultiStem, that we believe has potential utility for treating a broad
range of diseases and could
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have widespread application in the field of clinical regenerative
medicine such as in the treatment of damage from heart attack, bone marrow transplant support and
graft versus host disease (“GVHD”), stroke, and potentially other areas. We believe that MultiStem
represents a significant advancement in the field of stem cell therapy.
The therapeutic benefit of bone marrow transplantation has been recognized for decades, and its
clinical use has grown since Congress passed the National Organ Transplant Act in 1984, and the
National Marrow Donor Registry was established in 1990. However, for several reasons, widespread
bone marrow or stem cell
transplantation has yet to become a reality. Some of the limitations that have prevented broader
clinical application of bone marrow or stem cell transplantation include the requirement for tissue
matching between donor and recipient, the inability to efficiently produce significant quantities
of stem cells, and a range of potential safety issues. While the field of stem cell therapy is very
promising, it is also highly controversial and fraught with challenges.
A stem cell therapy that has the potential to address the challenges mentioned above could
represent a breakthrough in the field of regenerative medicine, since it could greatly expand the
clinical areas that utilize stem cell therapy or other forms of regenerative medicine. In 2002,
Dr. Catherine Verfaillie and her team published research first describing a rare and novel stem
cell, the MAPC, which may be isolated from adult bone marrow as well as other nonembryonic tissues.
In their potential product form, we refer to these cells as MultiStem. These cells exhibit
several important biological properties, including:
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Broad plasticity and multiple potential mechanisms of action. MultiStem cells have
a demonstrated ability in animal models to form multiple cell types and appear to be
able to deliver therapeutic benefit through multiple mechanisms, such as producing
factors that protect tissues against damage and inflammation, as well as enhancing or
playing a direct role in revascularization or tissue regeneration. |
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Large scale production. Unlike conventional stem cells, such as blood-forming or
hematopoietic stem cells, 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
even millions of individual doses. |
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“Off-the-shelf” utility. Unlike traditional bone marrow or hematopoietic stem cell
transplants, which require extensive genetic matching between donor and recipient,
MultiStem cells do not appear, based on preclinical testing in animals, to require
extensive tissue matching prior to administration. MultiStem treatment may be
allogeneic, meaning that these cells do not need to be 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. |
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Safety. Other stem cell types, such as embryonic stem cells, can pose serious
safety risks, such as the formation of tumors or ectopic tissue. In contrast,
MultiStem cells have an outstanding safety profile that has been compiled over several
years of preclinical study in a range of animal models by a variety of investigators. |
At each step of the MultiStem production process, cells are analyzed and qualified according to
pre-established criteria to ensure that a consistent, well characterized product candidate is
produced. Cells are harvested from a pre-qualified donor and then expanded to form a Master Cell
Bank. In March 2007, we and our manufacturing partner, Lonza, announced the successful
establishment of a Master Cell Bank produced under Good Manufacturing Practices (“GMP”) and the
production of clinical grade material for our initial clinical trials.
MultiStem allows us to pursue multiple high value commercial opportunities from a single product
platform, since we believe it has potential application in a range of disease states and
therapeutic areas. For example, based on numerous preclinical discussions with the FDA, we believe
that we will be able to use data and information from preclinical safety studies for the
development of MultiStem for treating multiple distinct diseases in parallel. This will be
achieved by establishing a central file with the FDA, also known as a Master File, that contains
data from multiple safety studies as well as information related to product manufacturing and
characterization. As a result, we expect to be able to efficiently add additional clinical
indications as we further expand the scope of
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potential applications for MultiStem, enabling us to
reduce costs and shorten development timelines in comparison to traditional single-use drug
development programs.
MultiStem for Heart Disease, Stroke & Bone Marrow Transplant Support/GVHD
Working with independent investigators at a number of leading institutions, such as the University
of Minnesota, the Cleveland Clinic, the National Institutes of Health, the Medical College of
Georgia, and the University of Oregon Health Sciences Center, we have studied MultiStem in a range
of animal models that reflect various types of human disease or injury, such as myocardial
infarction, stroke, brain damage due to restricted blood flow in
newborns, vascular disease, and bone marrow transplant support/GVHD. In addition, we are
exploring, or intend to explore, the potential application of MultiStem in the treatment of a range
of other conditions such as certain blood or immune deficiencies and various autoimmune diseases.
As stated above, we have consistently observed that MultiStem is safe and effective in animal
models. As a result, we initially plan, subject to the availability of adequate resources, to
advance MultiStem into clinical development in three areas: damage caused by myocardial infarction;
support in the oncology setting to reduce certain complications associated with bone marrow
transplantation; and for stroke caused by a blockage of blood flow in the brain. For these areas,
we intend to use one MultiStem cell product, produced and validated with a single manufacturing
platform.
Heart Disease
Myocardial infarction is one of the leading causes of death and disability in the United States.
Myocardial infarction 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.
According to the American Heart Association 2007 Statistical Update, there were approximately
865,000 cases of myocardial infarction that occurred in the United States in 2004 and approximately
7.9 million individuals living in the United States that had previously suffered a heart attack.
In addition, there were more than 452,000 deaths that occurred from various forms of ischemic heart
disease, and 156,000 deaths due directly to myocardial infarction in 2004. 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 has been studied in validated animal models of acute myocardial infarction at both the
Cleveland Clinic and the University of Minnesota. Investigators demonstrated that the
administration of allogeneic MultiStem 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. Further, the
administration of the immunosuppressive drug was not required and provided no additional benefit in
this study, and supports the concept of potentially using MultiStem as an allogeneic product.
Working with a qualified contract research organization, we have initiated additional preclinical
studies in established pig models of acute myocardial infarction, examining various factors such as
the route and method of MultiStem administration, dose ranging, and timing of treatment. Pending
the results of these and other studies, we intend to file an IND for the use of MultiStem for the
treatment of acute myocardial infarction.
Oncology Support
A second focus of our regenerative medicine program is the use of MultiStem for bone marrow
transplant and oncology support. 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 of the bone marrow, blood, and
immune system. However, 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, significant
reduction in digestive capacity, and other problems, which may result in significant disability or
death.
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One strategy for treating the depletion of bone marrow is to perform 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 death or serious disability.
Working with leading experts in the stem cell and bone marrow transplantation field, we have
studied MultiStem in animal models of radiation therapy and GVHD. In multiple animal models,
MultiStem has 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 the administration of MultiStem in conjunction with standard bone marrow
transplantation may have the potential to reduce the incidence or severity of complications and may
enhance other important functions.
Several of our collaborators are leading experts in the field of bone marrow transplantation,
including Dr. Richard Maziarz from Oregon Health Sciences University, Dr. John Wagner from the
University of Minnesota and Dr. Hillard Lazarus from University Hospitals of Cleveland. We plan to
initiate a company-sponsored Phase I/II clinical trial with these clinical investigators to
evaluate MultiStem administration in support of bone marrow transplantation for the treatment of
certain cancers of the blood and immune system. We are currently completing the preclinical
requirements that we believe will enable us to file an IND for this indication.
Stroke
A third focus of our regenerative medicine program is the use of MultiStem for the treatment of
neurological injury as a result of ischemic stroke, which accounts for 80% of all strokes. Recent
progress toward the development of safer and more effective treatments for ischemic stroke has been
disappointing. Despite the fact that stroke is one of the leading causes of death and disability
in the United States, affecting more than 700,000 new patients annually according to the CDC, there
has been little progress toward the development of treatments that improve the prognosis for stroke
victims. The only FDA-approved drug currently available for ischemic stroke is the anti-clotting
factor, tPA, which must be administered to the patient within three to six hours of the onset of
the stroke. Administration of tPA after this time frame is not recommended, since it can cause
bleeding or even death. Given this limited therapeutic window, it is estimated that less than 5%
of ischemic stroke victims currently receive treatment with tPA.
In preclinical studies conducted by investigators at both the University of Minnesota and the
Medical College of Georgia, significant functional improvements have been observed in rodents that
have undergone an experimentally induced stroke, or that have incurred significant neurological
damage as a result of neonatal hypoxic ischemia, and then received treatment with MultiStem.
Through research conducted by collaborators at the Medical College of Georgia and presented at the
annual American Academy of Neurology meeting in April 2006, we observed that administration of
MultiStem 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. These results have been confirmed in subsequent studies that demonstrate
MultiStem treatment is well tolerated, does not require immunosuppression, and results in a robust
and durable therapeutic benefit even when administered one week after the initial stroke event.
Upon completion of remaining preclinical safety studies, we intend to submit an IND for this
application. The initiation of the initial clinical study will depend on the availability of
capital resources.
We believe that MultiStem could have broad potential to treat a range of conditions. In addition
to the above programs, we are actively collaborating or intend to collaborate with other highly
qualified investigators to evaluate the potential benefits of MultiStem in other disease
indications, such as various blood and immune deficiencies, certain autoimmune diseases, and other
potential indications.
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Other Key Technologies
In addition to our product development programs, we have developed RAGE, a patented technology that
provides us with the ability to produce human cell lines that express specific, biologically well
validated drug targets without relying upon cloned and isolated gene sequences. This technology
platform provides us with broad freedom to work with drug targets that may be inaccessible to most
other companies as a result of intellectual property restrictions on the use of specific cloned and
isolated genes. Over the past several years, we have produced cell lines that express drug targets
in a range of disease areas such as metabolic disease, infectious disease, oncology, cardiovascular
disease, inflammation, and central nervous system disorders. Many of these were produced for drug
development programs at major pharmaceutical companies that we have collaborated with, and some
have been produced for our internal drug development programs.
Competition
We face significant competition with respect to the various dimensions of our business. With
regards to our efforts to develop ATHX-105 or other compounds for the treatment of obesity, there
are already approved therapeutic products on the market, such as Xenical, which is marketed by
Roche, and Meridia, which is marketed by Abbott Pharmaceuticals. However, both of these drugs can
have side effects that we believe have limited their adoption by patients and clinicians. For
example, potential side effects associated with taking Xenical include cramping, intestinal
discomfort, flatulence, diarrhea, and leakage of oily stool. Potential side effects associated
with taking Meridia include increased blood pressure and heart rate, headache, dry mouth,
constipation, and insomnia. Individuals with high blood pressure, heart disease, irregular heart
beat, or a history of stroke are cautioned not to take Meridia.
In addition to these products, other companies are actively developing novel therapeutic products
for the treatment of obesity, including Sanofi-Aventis, which is developing the drug Rimonabant,
which acts by suppressing appetite by blocking the CB1 receptor, also known as the marijuana
receptor for its recognized role as the site of action of the cannabinoids found in marijuana that
can stimulate appetite. In February 2006, an FDA advisory panel issued a recommendation for
approval of Rimonabant for use in treating obesity. In Phase III clinical trials, patients taking
Rimonabant exhibited statistically significant weight loss. Notable adverse events among some
patients taking the drug included respiratory infection, dizziness, nausea, anxiety, and
depression, which were observed at higher frequency among patients taking the drug relative to
those taking placebo in the control group.
Other companies are also attempting to develop novel 5HT2c agonists. One company, Arena
Pharmaceuticals, recently completed a Phase II clinical trial with its novel product candidate
APD356, also referred to as Lorcaserin. Clinically obese patients taking 10 mg of the drug twice
per day exhibited statistically significant weight loss over the three-month study period,
exhibiting an average loss of 7.9 lbs, compared to those taking the placebo, who lost an average of
0.7 lbs. All patients on the study underwent cardiovascular safety monitoring both during and
after the study, and there were no reported adverse events with respect to cardiovascular safety
according to the company. Potential side effects observed among patients taking the drug at 10 mg
dose twice per day included headache (26.7% vs. 17.8% in the placebo group), dizziness (7.8% vs. 0%
in the placebo group), nausea (11.2% vs. 3.4% in the placebo group), and vomiting (5.2% vs. 0.8% in
the placebo group).
In February 2007, Arena Pharmaceuticals announced that it had completed enrollment of 3,182
patients in a double blind, randomized and placebo controlled Phase III study of Lorcaserin
designed to evaluate safety and efficacy of twice daily 10 mg doses of Lorcaserin administered for
one year. The primary efficacy endpoint is the percentage of patients exhibiting greater than 5%
weight loss over baseline at 52 weeks. An independent Data Safety Monitoring Board will evaluate
cardiovascular safety in all patients at 6, 12, 18 and 24 months after initiation of the trial.
The results of the initial six-month review are expected in the third quarter of 2007.
There are many other companies 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 Pfizer Inc, Bristol-Myers Squibb, Merck & Co., Inc., Roche, Sanofi-Aventis,
GlaxoSmithKline, and others. There are also a variety of biotechnology companies developing
treatments for obesity, including Amgen, Inc., Regeneron, Nastech Pharmaceutical Company, Alizyme,
Amylin Pharmaceuticals, Neurocrine Biosciences, Shionogi & Co., Ltd., Metabolic Pharmaceuticals,
Kyorin Pharmaceutical Co., Ltd., VIVUS, Inc., and others. It
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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 ATHX-105 or another compound as a
safe and effective treatment for obesity, it is likely that other companies will attempt to develop
safer and more effective 5HT2c agonists, or will attempt to combine therapies in an effort to
establish a safer and more effective therapeutic product.
We also face significant competition with respect 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.
These include both public companies, such as Osiris, Genzyme, Geron, Genentech Inc., Aastrom
Biosciences, Inc., Stem Cells Inc., Cell Genesys, Inc., Viacell, Celgene Corporation, Advanced Cell
Technology, CRYO-CELL International, Mesoblast Limited, and Cytori Therapeutics, and private
companies, such as Cognate Therapeutics, Neuronyx, Inc., Gamida Cell, Arteriocyte, Plureon
Corporation, and
others. Given the magnitude of the potential opportunity for stem cell therapy, we expect
competition in this area to intensify in the coming years.
Finally, we face competition with respect to our ability to produce drug targets for our drug
development programs. There are many companies with established intellectual property that seek to
restrict or protect the use of specific drug targets, including Incyte Corporation, Millennium
Pharmaceuticals, Human Genome Sciences, Lexicon Genetics, CuraGen Corporation, Exelixis, Myriad
Genetics, Sangamo BioSciences, and others.
We believe our most significant competitors are fully integrated pharmaceutical companies and more
established 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 who 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 have established a broad intellectual property portfolio related to our key functional genomics
technologies and product candidates. We have a broad patent estate with claims directed to
compositions, methods of making, and methods of using our small molecule drug candidates. In our
5HT2c program, we have filed four patent applications with broad claims directed to ATHX-105,
related compounds in the same chemical series from which ATHX-105 was derived, and back-up and
second generation compounds from distinct chemical series. In our Histamine H3 program,
we have filed four patent applications with broad claims directed to compounds from two distinct
chemical series. All compounds described in these patent applications were discovered at Athersys.
In addition, we currently have twelve issued U.S. patents and various issued international patents
relating to compositions and methods for the RAGE technology. These patents will expire in 2017.
In addition, we have five U.S. and various pending international patents relating to the RAGE
technology. There are also several patent applications relating to human proteins and candidate
drug targets that we have identified through the application of RAGE and our other technologies.
We have a broad patent estate with claims directed to compositions, methods of production, and
methods of use of MultiStem and related technologies. We acquired the stem cell technology for our
MultiStem product candidate, MAPCs, as a result of our 2003 acquisition of a holding company for
the intellectual property related to stem cells originally discovered at the University of
Minnesota. We have one issued U.S. patent related to this
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technology, and three U.S. patent
applications, as well as many corresponding international patent applications. We also have an
exclusive license to additional MAPC-related inventions made by the University of Minnesota
including 16 pending patent applications related to these inventions. The exclusive license
expires in May 2009, and the University of Minnesota is entitled to a royalty on net sales of
products developed from the MAPC technology. In addition, there are five pending applications
related to research conducted by Athersys and its collaborators.
We believe that we have broad freedom to use and commercially develop our technologies and product
candidates. However, if successful, a patent infringement suit brought against us may force us or
any of our collaborators or licensees to stop or delay developing, manufacturing, or selling
potential products that are claimed to infringe a third party’s intellectual property, unless that
party grants us rights to use its intellectual property. In such cases, we may be required to
obtain licenses to patents or proprietary rights of others to continue to commercialize our
products. However, we may not be able to obtain any licenses required under any patents or
proprietary rights of third parties on acceptable terms, or at all. Even if we were able to obtain
rights to
the third party’s intellectual property, these rights may be non-exclusive, thereby giving our
competitors access to the same intellectual property. Ultimately, we may be unable to
commercialize some of our potential products or may have to cease some of our business operations
as a result of patent infringement claims, which could severely harm our business.
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 (“EU”) has vested centralized authority
in the European Medicines Evaluation Agency and Committee on Proprietary Medicinal Products to
standardize review and approval across EU member nations.
These regulatory agencies enforce comprehensive statutes, regulations, and guidelines governing the
drug development process. This process involves several steps. Initially, the company must
generate preclinical data to show safety before human testing may be initiated. In the United
States, the 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 CTA is the European equivalent of the U.S. IND. CTA requirements are issued by the Medicines and
Healthcare Products Regulatory Agency, the United Kingdom’s health authority and were enacted
through the U.K. Medicines for Human Use (Clinical Trials) Regulations 2004, which implemented the
EU Clinical Trials Directive in the United Kingdom.
Any of our product candidates will require regulatory approval and compliance with regulations made
by U.S. and foreign government agencies prior to commercialization in such countries. The process
of obtaining FDA or foreign regulatory agency approval has historically been extremely costly and
time consuming. The FDA regulates, among other things, the development, testing, manufacture,
safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale, and
distribution of biologics and new drugs.
The standard process required by the FDA before a pharmaceutical agent may be marketed in the
United States includes:
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preclinical tests in animals that demonstrate a reasonable likelihood of safety and
effectiveness in human patients; |
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submission to the FDA of an IND, which must become effective before clinical trials
in humans can commence. If Phase I clinical trials are to be conducted initially
outside the United States, a different regulatory filing is required, depending on the
location of the study; |
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adequate and well controlled human clinical trials to establish the safety and
efficacy of the drug or biologic in the intended disease indication; |
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for drugs, submission of a New Drug Application (“NDA”) or a Biologic License
Application (“BLA”), with the FDA; and |
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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. Once clinical trials
are initiated, they generally take five to seven years, or longer, to complete. After completion
of clinical trials of a new drug or biologic product, FDA approval of the NDA or BLA must be
obtained. This process requires substantial time and effort and there is no assurance that the FDA
will accept the NDA or BLA for filing and, even if filed, that the FDA will grant approval. In the
past, the FDA’s approval of an NDA or BLA has taken, on average, one to two years, but in some
instances may take substantially longer. If questions regarding safety or efficacy arise,
additional studies may be required, followed by a resubmission of the NDA or BLA. Review and
approval of an NDA or BLA can take up to several years.
In addition to obtaining FDA approval for each product, each drug manufacturing facility must be
inspected and approved by the FDA. All manufacturing establishments are subject to inspections by
the FDA and by other
federal, state, and local agencies, and must comply with GMP requirements. We do not currently
have any GMP manufacturing capabilities, and will rely on contract manufacturers to produce
ATHX-105 or MultiStem for any clinical studies 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, 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 science, 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 and executives with significant experience in the biotechnology and pharmaceutical
industries.
As of
March 31, 2007, we employed 30 individuals, of whom 12 hold Ph.D. degrees and four hold other
advanced degrees. In addition to our employees, we also use the service and support of several
outside consultants and advisors. None of our employees is represented by a union, and we believe
relationships with our employees are good.
Collaborations and Partnerships
Angiotech
In May 2006, we established a collaboration with Angiotech that is focused on co-developing
MultiStem for the treatment of damage caused by myocardial infarction or peripheral vascular
disease. In support of the collaboration, Angiotech purchased $10,000,000 in aggregate principal
amount of subordinated convertible
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promissory notes, the principal amount of which was
automatically converted along with accrued interest into our Common Stock upon the closing of the
Offering. We may also receive additional equity investments and cash payments based upon the
successful achievement of specified clinical development and commercialization milestones. Under
the terms of the collaboration, the parties will jointly fund clinical development activity with
Angiotech paying for the majority of any Phase III trial costs. We will have lead responsibility
for preclinical and early clinical development and manufacturing of the MultiStem product.
Angiotech will take the lead on pivotal and later clinical trials and commercialization. The
parties will share net profits from the sale of any approved products. In addition, we will retain
the commercial rights to MultiStem for all other therapeutic applications, including treatment of
stroke, bone marrow transplantation and oncology support, blood and immune system disorders,
autoimmune disease, and other indications that we may elect to pursue.
Bristol-Myers Squibb
In December 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. Bristol-Myers
Squibb uses the cell lines in its
internal drug development programs and, in exchange, we receive license fee and milestone payments
and will be entitled to receive royalties on the sale of any approved products.
RISK FACTORS
Risks Related To Our Business and Our Industry
We have incurred losses since inception and expect to incur significant net losses in the
foreseeable future and may never become profitable.
Since Athersys’ inception in 1995, it has incurred significant losses and negative cash flows from
operations. Athersys has incurred net losses of $15.2 million in 2004, $14.6 million in 2005 and
$10.6 million in 2006. As of December 31, 2006, Athersys had an accumulated deficit of $141.6
million, and anticipates 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 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 tested yet in humans. We cannot assure you that we will ever earn revenue or
that we will ever become profitable. If we sustain losses over an extended period of time, we may
be unable to continue our business.
We will need substantial additional funding to develop our products and for our future
operations. If we are unable to obtain the funds necessary to do so, we may be required to delay,
scale back or eliminate our product development 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
Athersys’ operations was $11.7 million in 2004, $12.1 million in 2005 and $8.4 million in 2006. We
anticipate the amount of operating funds that we use will continue to increase along with our
operating expenses over at least the next several years as we plan to begin costly clinical trials
of ATHX-105 and MultiStem, as well as continue to advance our various research and product
development activities. We believe that our planned capital needs will be met for approximately
three years. Our future capital requirements will depend on many factors, including:
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the progress and costs of our research and development programs, including
our ability to develop our current portfolio of therapeutic products, or
discover and develop new ones; |
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our ability, or our partners ability and willingness, to advance partnered
products or programs; |
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the cost of prosecuting, defending and enforcing patent claims and other
intellectual property rights; |
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the progress, scope, costs, and results of our preclinical and clinical
testing of any current or future pharmaceutical or MultiStem related products; |
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the time and cost involved in obtaining regulatory approvals; |
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the cost of manufacturing our product candidates; |
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expenses related to complying with GMP manufacturing of therapeutic product
candidates; |
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costs of financing the purchases of additional capital equipment and
development technologies; |
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competing technological and market developments; |
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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. |
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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; |
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costs associated with the integration of any new operation, including costs
relating to future mergers and acquisitions with companies that have
complementary capabilities; |
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expenses related to the establishment of sales and marketing capabilities for
products awaiting approval or products that have been approved; |
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the level of our sales and marketing expenses; and |
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our ability to introduce and sell new products. |
We cannot assure you that we will not need additional capital sooner than currently anticipated.
We will need to raise substantial additional capital to fund our future operations. We cannot be
certain that additional financing 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, 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 our two key
product candidates, ATHX-105 and MultiStem, and if we encounter delays or difficulties in the
development of either or both candidates, our business would be harmed.
We are developing multiple therapeutic product candidates, but we are heavily dependent upon the
successful development of two particular product candidates: ATHX-105 for the treatment of obesity
and MultiStem initially for the treatment of damage caused by certain cardiovascular disorders and
for the treatment of bone marrow transplant support and GVHD. Our business would be materially
harmed if we encounter difficulties in the development of either of these product candidates, such
as: delays in the ability to make either product in quantities or in a form that is suitable for
any required preclinical studies or clinical trials; delays in the design, enrollment,
implementation or completion of required preclinical studies and clinical trials; an inability to
follow our current development strategy for obtaining regulatory approval from the FDA because of
changes in the regulatory approval process; less than desired or complete lack of efficacy or
safety in preclinical studies or
18
clinical trials; and intellectual property constraints that
prevent us from making, using, or commercializing either product candidate.
The results seen in animal testing of our product candidates may not be replicated in humans.
This Current Report discusses the safety and efficacy seen in preclinical testing of our lead
product candidates, including ATHX-105 and MultiStem, in animals, but we may not see positive
results when ATHX-105, MultiStem or any of our other product candidates undergo clinical testing in
humans in the future. Preclinical studies and Phase I clinical trials are not primarily designed
to test the efficacy of a product candidate in humans, but rather to test safety, to study
pharmacokinetics and pharmacodynamics, and to 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 preclinical studies and large-scale
clinical trials, will be successful nor does it necessarily predict future results. The rate of
failure is quite high, and many companies in the biotechnology and pharmaceutical industries have
suffered significant setbacks in advanced clinical trials, even after promising results in earlier
trials. Product candidates may fail to show desired safety and efficacy in larger and more diverse
patient populations in later stage clinical trials, despite having progressed through early stage
trials. Negative or inconclusive results from any of our ongoing preclinical studies or clinical
trials could result in delays, modifications, or abandonment of ongoing or future clinical trials
and the termination
of our development of a product candidate. Additionally, even if we are able to successfully
complete pivotal Phase III clinical trials, the FDA still may not approve our product candidates.
Our products are in an early stage of development and we currently have no therapeutic
products approved for sale. Our product candidates require additional research, development,
testing, expert reviews and/or regulatory approvals before marketing. We may be unable to develop,
obtain regulatory approval or market any of our product candidates. If our product candidates are
delayed or fail, our financial condition will be negatively affected, and we may have to curtail or
cease our operations.
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
clearances before marketing. Our strategy of using our technologies for the development of
therapeutic products involves new approaches, some of which are unproven. To date, no one to our
knowledge has developed or commercialized any therapeutic products using our technologies and we
might never commercialize any product using our technologies and strategy. There are many reasons
that our product candidates may fail or not advance to commercialization, including the possibility
that our product candidates may be ineffective, unsafe or associated with unacceptable side
effects; our product candidates may fail to receive the necessary regulatory approvals or otherwise
fail to meet applicable regulatory standards; our product candidates may be too expensive to
develop, manufacture or market; other parties may hold or acquire proprietary rights that could
prevent us or our potential collaborators from developing or marketing our product candidates;
physicians, patients, third-party payers or the medical community in general may not accept or use
our contemplated pharmaceutical products; our potential collaborators may withdraw support for or
otherwise impair the development and commercialization of our product candidates; or others may
develop equivalent or superior products.
In addition, we may not succeed in developing new product candidates as an alternative to our
existing portfolio of product candidates. If our current product candidates are delayed or fail,
or we fail to successfully develop and commercialize new product candidates, our financial
condition may be negatively affected, and we may have to curtail or cease our operations.
We may not successfully maintain our existing collaborative and licensing arrangements, or
establish new ones, which could adversely affect our ability to develop and commercialize our
product candidates.
A key element of our business strategy is to commercialize some of our product candidates through
collaborations with other companies. Our pharmaceutical strategy includes establishing
collaborations and licensing agreements
19
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, or do so
on terms that are acceptable to us. 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.
We expect to rely at least in part on third party collaborators to perform a number of activities
relating to the development and commercialization of our product candidates, including the
manufacturing of product materials, the design and conduct of clinical trials for our
pharmaceutical formulations, and potentially the obtaining of regulatory approvals and marketing
and distribution of any successfully developed products. Our collaborative partners may also have
or acquire rights to control aspects of our product development and clinical programs. As a result,
we may not be able to conduct these programs in the manner or on the time schedule we currently
contemplate. In addition, if any of these collaborative partners withdraw support for our programs
or product candidates or otherwise impair their development, our business could be negatively
affected. To the extent we undertake any of these activities internally, our expenses may increase.
In addition, our success depends on the performance of our collaborators of their responsibilities
under these arrangements. Some potential collaborators may not perform their obligations in a
timely fashion or in a manner satisfactory to us. Because such agreements may be exclusive, we may
not be able to enter into a collaboration agreement with any other company covering the same
product field during the applicable collaborative period. In addition, our collaborators’
competitors may not wish to do business with us at all due to our relationship with our
collaborators. If we are unable to enter into additional product discovery and development
collaborations, our ability to sustain or expand our business will be significantly diminished.
Additionally, 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. Conflicts of interest may develop between us and our collaborators
concerning competing programs or product development efforts, which may prompt them to terminate
certain development activities that relate to our products or programs, and potentially resulting
in unexpected funding limitations. These kinds of disagreements could also 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, adversely affecting our reputation and revenues.
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.
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. In addition, if a corporate collaborator is involved in a business combination,
such as a merger or acquisition, or if a collaborator changes its business focus, its performance
under its agreement with us may suffer.
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
20
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.
If our current or future collaborators delay, abandon, or do not devote sufficient resources to
their efforts to develop our product candidates, we may not be able to adequately support the
further development of those product candidates or programs, and we may not be able to establish
new collaborations that provide support for those programs. Furthermore, any action by our
collaborators to delay or abandon development activities may cause a delay in the receipt of or
loss of anticipated equity investments, milestones, or other forms of consideration, including
royalties or potential revenue from product sales under the terms of some of our collaborative
agreements.
Under the terms of our collaboration agreement with Angiotech, either party may choose, following
the completion of Phase I studies, to opt-out of its obligation to fund further product development
on a product-by-product basis, provided no clinical studies concerning such product candidate are
currently ongoing. If Angiotech should decide to opt-out of funding the development of any of the
product candidates for the covered indications,
for any reason, we may be unable to fund the development on our own and could be forced to halt one
or more MultiStem development programs.
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. In
addition we could be unable to maintain our existing collaborations or attract new product
discovery and development collaborators. 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.
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 pharmaceutical formulations through the FDA approval process.
To obtain regulatory approvals, we must, among other requirements, complete clinical trials showing
that our products are safe and effective for a particular indication. Under the approval process,
we must submit clinical and non-clinical data to demonstrate the medication is safe and effective.
For example, we must be able to provide data
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and information, including extended pharmacology,
toxicology, reproductive toxicology, bioavailability and genotoxicity studies to establish
suitability for Phase II or large scale Phase III clinical trials.
All of our product candidates, including ATHX-105 and MultiStem, are at an early stage of
development, and none have yet been tested in humans. An indication of a lack of safety or lack of
efficacy may result in the early termination of an ongoing trial, or may cause us or any of our
collaborators to forego further development of a particular product candidate or program. The FDA
or other regulatory agencies may require further clinical trials prior to granting approval, which
could be costly and time consuming to conduct. Any of these developments would hinder, and
potentially prohibit, our ability to commercialize our product candidates.
Other than the Phase I study for ATHX-105, which we intend to commence shortly, we do not know
precisely when clinical trials for our products will commence or whether we will initiate or
complete any of our clinical trials on schedule or at all. We cannot assure you that clinical
trials will in fact demonstrate that our products are safe or effective.
Additionally, we may not be able to find acceptable patients or may experience delays in enrolling
patients for our clinical trials. The FDA or we may suspend our clinical trials at any time if
either believes that we are exposing the subjects participating in the trials to unacceptable
health risks. The FDA or institutional review boards and/or institutional biosafety committees at
the medical institutions and healthcare facilities where we seek to sponsor clinical trials may not
permit a trial to proceed or may suspend any trial indefinitely if they find deficiencies in the
conduct of the trials.
Product development costs to us and our potential collaborators will increase if we have delays in
testing or approvals or if we need to perform more or larger clinical trials than planned. We
expect to continue to rely on third party clinical investigators at medical institutions and
healthcare facilities to conduct our clinical trials, and, as a result, we may face additional
delaying factors outside our control. Significant delays may adversely affect our financial
results and the commercial prospects for our product candidates and delay our ability to become
profitable.
If our pharmaceutical product candidates do not successfully complete the clinical trial
process, we will not be able to partner or market them. Even successful clinical trials may not
result in a partnering transaction or a marketable product and may not be entirely indicative of a
product’s safety or efficacy.
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. Even successful clinical trials may not result in a marketable product
or be indicative of the efficacy or safety of a product. Many factors or variables could affect the
results of clinical trials and cause them to appear more promising than they may otherwise be.
Product candidates that successfully complete clinical trials could ultimately be found to be
unsafe or ineffective.
In addition, our ability to complete clinical trials depends on many factors, including obtaining
adequate clinical supplies and having a sufficient rate of patient recruitment. For example,
patient recruitment is a function of many factors, including the size of the patient population;
the proximity of patients to clinical sites; the eligibility criteria for the trial; the
perceptions of investigators and patients regarding safety; and the availability of other treatment
options.
Even if patients are successfully recruited, we cannot be sure that they will complete the
treatment process. Delays in patient enrollment or treatment in clinical trials may result in
increased costs, program delays or both.
With respect to markets in other countries, we or a partner will also be subject to regulatory
requirements governing clinical trials in those countries. Even if we complete clinical trials, we
may not be able to submit a
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marketing application. If we submit an application, the regulatory
authorities may not review or approve it in a timely manner, if at all.
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 ATHX-105, 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 ATHX-105 for obesity, are likely to
require extensive follow-up studies and close monitoring of patients after regulatory approval has
been granted, for any signs of adverse effects that occur over a long period of time. These
studies may be expensive and time consuming to conduct and may reveal side effects or other harmful
effects in patients that use our therapeutic products after they are on the market, which may
result in the limitation or withdrawal of our drugs from the market. Alternatively, we may not be
able to conduct such additional trials, which might force us to abandon our efforts to develop or
commercialize certain product candidates. Even if post-approval studies are not requested or
required, after our products are approved and on the market, there might be safety issues that
emerge over time that require a change in product labeling or that require withdrawal of the
product from the market, which would cause our revenue to decline.
Additionally, any products that we may successfully develop will be subject to ongoing regulatory
requirements after they are approved. These requirements will govern the manufacturing, packaging,
marketing, distribution, and use of our products. If we fail to comply with such regulatory
requirements, approval for our products may be withdrawn, and product sales may be suspended. We
may not be able to regain compliance, or we may only be able to regain compliance after a lengthy
delay, significant expense, lost revenues and damage to our reputation.
We will rely on third parties to manufacture our pharmaceutical product candidates and our
MultiStem product candidate. There can be no guarantee that we can obtain sufficient and acceptable
quantities of our pharmaceutical product candidates of our MultiStem product candidate on
acceptable terms, which may delay or impair our ability to develop, test and market such products.
Our business strategy relies on third parties to manufacture and produce our pharmaceutical product
candidates and MultiStem product candidate in accordance with good manufacturing practices
established by the FDA, or similar regulations in other countries. Our pharmaceutical product
candidates or MultiStem product may be in competition with other products or companies for access
to these facilities and may be subject to delays in manufacture if third parties give other
products greater priority than our product candidates. These third parties may not deliver
sufficient quantities of our pharmaceutical or MultiStem product candidates, manufacture our
pharmaceutical and MultiStem product candidates in accordance with specifications, or comply with
applicable government regulations. Additionally, if the manufactured products fail to perform as
specified, our business and reputation could be severely impacted.
We expect to enter into additional manufacturing agreements for the production of product
materials. If any manufacturing agreement is terminated or any third party collaborator
experiences a significant problem that could result in a delay or interruption in the supply of
product materials to us, there are very few contract manufacturers who currently have the
capability to produce our pharmaceutical product candidates or 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 pharmaceutical product candidates or MultiStem
product on acceptable terms, or on a timely or cost-effective basis. We cannot assure you that
manufacturers will be able to manufacture our products in accordance with our product
specifications or will meet FDA or other requirements. We must have sufficient and acceptable
quantities of our product materials to conduct our clinical trials and to market our product
candidates, if and when such products have been approved by the FDA for marketing. If we are unable
to obtain sufficient and acceptable quantities of our product material, we may be required to delay
the clinical testing and marketing of our products.
23
If our contract manufacturers are not satisfying our needs and we decide not to establish our own
manufacturing capabilities, it could be difficult and very expensive to change suppliers. Any
change in the location of manufacturing would require FDA inspection and approval, which could
interrupt the supply of products and may be time-consuming and expensive to obtain. If we are
unable to identify alternative contract manufacturers that are qualified to produce our products,
we may have to temporarily suspend the production of products, and would be unable to generate
revenue from the sale of 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 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.
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 Gil Van Bokkelen, Ph.D., our Chief Executive Officer, as well as other
executive and scientific officers, including William Lehmann, J.D., M.B.A., President and Chief
Operating Officer, John Harrington, Ph.D., Chief Scientific Officer and Executive Vice President,
Robert Deans, Ph.D., Senior Vice President, Regenerative Medicine, and Laura Campbell, C.P.A., Vice
President of Finance.
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 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. Additionally, Kurt R. Brunden, Ph.D.,
Senior Vice President of Biopharmaceuticals, has indicated to us that he may return to a faculty
position. If Dr. Brunden leaves us and does not continue his involvement with us as a consultant,
we may have to hire another individual to replace him or contract for services.
24
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.
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.
Our ability to compete in the biopharmaceutical market may decline if we do not adequately
protect our proprietary technologies.
Our success depends in part on our ability to obtain and maintain intellectual property that
protects our technologies and our pharmaceutical products. Patent positions may be highly
uncertain and may involve complex legal and factual questions, including the ability to establish
patentability of sequences relating to chemical synthesis techniques, 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. 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 have decided not to pursue patent protection outside
the United States, both because we do not believe it is cost effective and because of
confidentiality concerns. Accordingly, our international competitors could develop and receive
foreign patent protection for gene sequences and functions for which we are seeking U.S. patent
protection, enabling them to sell products that we have developed.
Technologies licensed to us by others, or in-licensed technologies, are important to our business.
The scope of our rights under our licenses may be subject to dispute by our licensors or third
parties. Our rights to use these technologies and to practice the inventions claimed in the
licensed patents are subject to our licensors abiding by the terms of those licenses and not
terminating them.
25
In particular, we depend on certain technologies relating to our MultiStem technology licensed from
the University of Minnesota. As a result of this license, we have agreed to use commercially
reasonable efforts to develop and commercialize this technology. If we fail to comply with those
obligations, we may lose 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.
Many of the patent applications we and our licensors have filed have not yet been
substantively examined and may not result in patents being issued or enforced.
Many of the patent applications filed by us and our licensors were filed recently with the United
States Patent and Trademark Office (“U.S. PTO”), and most have not been substantively examined and
may not result in patents being issued. It is difficult to predict whether any of our or our
licensors’ applications will ultimately be found to be patentable or, if so, to predict the scope
of any allowed claims. In addition, the disclosure in our or our licensors’ patent applications,
particularly in respect of the utility of our claimed inventions, may not be sufficient to meet the
statutory requirements for patentability in all cases. As a result, it is difficult to predict
whether any of our or our licensors’ applications will be allowed, or, if so, to predict the scope
of any allowed claims or the enforceability of the patents. Even if enforceable, others may be
able to design around any patents or develop similar technologies that are not within the scope of
such patents. Others may discover uses for compounds, cells, genes, or proteins other than those
uses covered in our patents, and these other uses may be separately patentable. Even if we have a
patent claim on a particular compound, cell, or gene sequence, the holder of a patent covering the
use of that compound, cell, or gene sequence could exclude us from selling a product that is based
on the same use of the patented material. Our and our licensors’ patent applications may not issue
as patents that will provide us with any protection or competitive advantage.
In some cases, we have been issued patents that relate to technologies and product candidates that
we believe provide us with certain proprietary rights. However, the fact that we have filed a
patent application or that a patent has issued does not ensure that we will have meaningful
protection from competition with regard to the underlying technology or product. Patents, if
issued, may be challenged, invalidated, declared unenforceable, or circumvented. If such an event
were to occur, out ability to compete could be severely diminished.
If patent applications for our owned, licensed, or future developed therapeutic products or
technologies do not result in issued patents containing sufficiently broad claims, we may be
limited in our ability to prevent competition and earn revenues using our products or technologies.
We cannot predict which of our patent applications or our licensor’s applications will result in
the granting of patents, the scope of claims in any patent that is granted, or the timing of the
granting of patents. During examination, the U.S. PTO might conclude that the claimed technology
in our patent applications does not meet statutory requirements for patentability. Even if our
claims are found to be patentable, if the same or similar claims are also granted to a third party,
we may not be established as first to invent, in which case we would not be granted a patent. In
this event, a prevailing party may require us or our collaborators to stop pursuing a potential
product or to negotiate a costly license arrangement to pursue the potential product. We may not
be able to obtain a license from the prevailing party on acceptable terms, or at all.
Our patent applications include multiple full-length human genes and partial gene sequences
discovered with our RAGE technology. No clear policy has emerged from the U.S. PTO regarding the
patentability of partial or full-length gene sequences. The U.S. PTO has taken an increasingly
restrictive view as to whether a gene sequence
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has sufficient utility to be patentable. Other
companies or institutions have filed and are likely to file patent applications that attempt to
patent full-length genes or partial gene sequences that may be the same as or similar to some of
those in our patent applications. In addition, the Human Genome Project and many companies and
institutions have identified genes and deposited partial gene sequences in public databases and are
continuing to do so. These public disclosures might limit the scope of our claims or make
unpatentable subsequent patent applications on full-length genes.
If we are unsuccessful in obtaining further issued patents on our RAGE, MultiStem, or other
technologies, genes and gene sequences discovered with RAGE, and additional patents on other
inventions, then products and inventions resulting from these technologies could potentially be
exploited by others without any compensation to us and we may not be able to realize revenues from
these products or technologies. We have filed patent applications that seek to protect the
composition of matter and method of use related to ATHX-105, as well as other compounds that we
have identified. If we are unsuccessful in obtaining these patents, we may ultimately be unable to
commercialize ATHX-105, or other compounds that we are developing or may elect to develop in the
future.
Disputes concerning the infringement or misappropriation of our proprietary rights or the
proprietary rights of others could be time consuming and extremely costly and could delay our
research and development efforts.
Our commercial success, if any, will be significantly harmed if we infringe the patent rights of
third parties or if we breach any license or other agreements that we have entered into with regard
to our technology or business.
We are aware of other companies and academic institutions that have been performing research in the
areas of adult derived stem cells. In particular, other companies and academic institutions have
announced that they have identified nonembryonic stem cells isolated from bone marrow or other
tissues that have the ability to form a range of cell types, or display the property of
pluripotency. To the extent any of these companies or academic institutions currently have, or
obtain in the future, broad patent claims, such patents could block our ability to use various
aspects of our discovery and development process and might prevent us from developing or
commercializing newly discovered applications of our MultiStem technology, or otherwise conducting
our business. In addition, it is possible that some of the pharmaceutical product candidates we
are developing may not be patentable or may be covered by intellectual property of third parties.
We are not currently a party to any litigation, interference, opposition, protest, reexamination or
any other potentially adverse governmental, ex parte or inter-party proceeding 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. If we become 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
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and
efforts. Even unsuccessful claims could result in significant legal fees and other expenses,
diversion of management’s time and disruption in our business. Uncertainties resulting from
initiation and continuation of any patent proceeding or related litigation could harm our ability
to compete and could have a significant adverse effect on our business, financial condition and
results of operations.
An adverse ruling arising out of any intellectual property dispute, including an adverse decision
as to the priority of our inventions, could undercut or invalidate our intellectual property
position. An adverse ruling could also subject us to significant liability for damages, including
possible treble damages, prevent us from using technologies or developing products, or require us
to negotiate licenses to disputed rights from third parties. Although patent and intellectual
property disputes in the technology area are often settled through licensing or similar
arrangements, costs associated with these arrangements may be substantial and could include license
fees and ongoing royalties. Furthermore, necessary licenses may not be available to us on
satisfactory terms, if at all. Failure to obtain a license in such a case could have a significant
adverse effect on our business, financial condition and results of operations.
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.
Many companies are engaged in the pursuit of safe and effective obesity drugs. 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, such as ATHX-105, 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 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. 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.
We expect that our results of operations will fluctuate from period to period, and this
fluctuation could cause our stock price to decline, causing investor losses.
Our operating results have fluctuated in the past and are likely to vary significantly in the
future based upon a number of factors, many of which we have little or no control over. Therefore,
period-to-period comparisons of our operating results are not necessarily a good indication of our
future performance. Some of the factors that could cause our operating results to fluctuate
include our ability to discover and develop new products; our ability
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or the ability of our product
discovery and development collaborators to incorporate our technology into pharmaceutical products;
our receipt of milestone payments in any particular period; the ability and willingness of
collaborators to commercialize products incorporating our products on expected timelines, or at
all; our ability to enter into product discovery and development collaborations and technology
collaborations, or to extend the terms of any existing collaboration agreements, and our payment
obligations, expected revenue and other terms of any other agreements of this type; our ability, or
our collaborators’ ability, to successfully satisfy all pertinent regulatory requirements; the
demand for our future products and our collaborators’ products containing our technology; and
general and industry specific economic conditions, which may affect our collaborators’ research and
development expenditures.
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.
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:
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we may have to issue convertible debt or equity securities to complete an
acquisition, which would dilute our stockholders and could adversely affect the
market price of the Common Stock; |
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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; |
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we may encounter difficulties in assimilating and integrating the business,
technologies, products, personnel or operations of companies that we acquire; |
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certain acquisitions may disrupt our relationship with existing collaborators
who are competitive to the acquired business; |
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acquisitions may require significant capital infusions and the acquired
businesses, products or technologies may not generate sufficient revenue to
offset acquisition costs; |
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an acquisition may disrupt our ongoing business, divert resources, increase
our expenses and distract our management; |
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acquisitions may involve the entry into a geographic or business market in
which we have little or no prior experience; and |
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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.
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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 U.S. 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 U.S. or other markets. In such cases, a foreign government or patent
office may terminate any intellectual property rights we may obtain with respect to that product.
Such a termination could enable competitors to produce and sell our product in that market.
Furthermore, such products may be exported into the United States through legislation that
authorizes the importation of drugs from outside the United States. In such an event, we may have
to reduce our prices, or we may be unable to compete with low-cost providers of our drugs, and we
could be financially harmed as a result.
We may encounter difficulties managing our growth, which could adversely affect our business.
At various times we have experienced periods of rapid growth in our employee numbers as a result of
a dramatic increase in activity in technology programs, genomics programs, collaborative research
programs, discovery programs, and scope of operations. At other times, we have had to reduce staff
in order to bring our expenses in line with our financial resources. Our success will also depend
on the ability of our officers and key employees to continue to improve our operational
capabilities and our management information and financial control systems, and to expand, train and
manage our work force. In connection with the 2006 audit, Athersys received a letter regarding a
material weakness in internal control over financial reporting as a result of a restatement related
to a past partnership. Such restatement resulted in a favorable adjustment to net assets. If we
are unable to successfully implement improvements to our management information and financial
control systems in an efficient and timely manner, or if we encounter deficiencies in existing
systems and controls, our management may not have adequate information to manage our day-to-day
operations and our inability to manage our growth effectively could increase our losses.
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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, as well as liability insurance for conducting clinical
trials. 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.
The availability, manner, and amount of reimbursement for our product candidates from
government and private payers are uncertain, and our inability to obtain adequate reimbursement for
any products could severely limit our product sales.
We expect that many of the patients who seek treatment with any of our products that are approved
for marketing will be eligible for Medicare benefits. Other patients may be covered by private
health plans. If we are unable to obtain or retain adequate levels of reimbursement from Medicare
or from private health plans, our ability to sell our products will be severely limited. The
application of existing Medicare regulations and interpretive coverage and payment determinations
to newly approved products is uncertain and those regulations and interpretive determinations are
subject to change. The Medicare Prescription Drug Improvement and Modernization Act, enacted in
December 2003, provides for a change in reimbursement methodology that reduces the Medicare
reimbursement rates for many drugs, which may adversely affect reimbursement for any products we
may develop. Medicare regulations and interpretive determinations also may determine who may be
reimbursed for certain services, and may limit the pool of patients our product candidates are
being developed to serve.
Federal, state and foreign governments continue to propose legislation designed to contain or
reduce health care costs. Legislation and regulations affecting the pricing of products like our
potential products may change further or be adopted before any of our potential products are
approved for marketing. Cost control initiatives by governments or third-party payers could
decrease the price that we receive for any one or all of our potential products or increase patient
coinsurance to a level that make our products under development become unaffordable. In addition,
government and private health plans persistently challenge the price and cost-effectiveness of
therapeutic products. Accordingly, these third parties may ultimately not consider any or all of
our products under development to be cost effective, which could result in products not being
covered under their health plans or covered only at a lower price. Any of these initiatives or
developments could prevent us from successfully marketing and selling any of our products that are
approved for commercialization.
Public perception of ethical and social issues surrounding the use of adult-derived stem cell
technology may limit or discourage the use of our technologies, which may reduce the demand for our
therapeutic products and technologies and reduce our revenues.
Our success will depend in part upon our ability to develop therapeutic products incorporating or
discovered through our adult-derived stem cell technology. For social, ethical, or other reasons,
governmental authorities in the United States and other countries may call for limits on, or
regulation of the use of, adult-derived stem cell technologies. Although we do not use the more
controversial stem cells derived from embryos or fetuses, claims that adult-derived stem cell
technologies are ineffective, unethical or pose a danger to the environment may influence public
attitudes. The subject of stem cell technologies in general has received negative publicity and
aroused public debate in the United States and some other countries. Ethical and other concerns
about our adult-derived stem cell technology could materially hurt the market acceptance of our
therapeutic products and
31
technologies, resulting in diminished sales and use of any products we are
able to develop using adult-derived stem cells.
Risks Related to Our Common Stock; Liquidity Risks
The price of our Common Stock is expected to be volatile and an investment in our Common Stock
could decline in value.
The market price of our Common Stock, and the market prices for securities of biotechnology
companies in general, are expected to be highly volatile. The following factors, in addition to
other risk factors described in this Current Report, and the potentially low volume of trades in
our Common Stock, may have a significant impact on the market price of our Common Stock, some of
which are beyond our control: announcements of technological innovations and discoveries by us or
our competitors; developments concerning any research and development, clinical trials,
manufacturing, and marketing collaborations; new products or services that we or our competitors
offer; actual or anticipated variations in operating results; the initiation, conduct and/or
outcome of intellectual property and/or litigation matters; changes in financial estimates by
securities analysts; conditions or trends in bio-pharmaceutical or other healthcare industries;
regulatory developments in the United States and other countries; changes in the economic
performance and/or market valuations of other biotechnology and flavor
companies; our announcement of significant acquisitions, strategic partnerships, joint ventures or
capital commitments; additions or departures of key personnel; global unrest, terrorist activities,
and economic and other external factors; and sales or other transactions involving our Common
Stock.
The stock market in general has recently experienced relatively large price and volume
fluctuations. In particular, market prices of securities of biotechnology companies have
experienced fluctuations that often have been unrelated or disproportionate to the operating
results of these companies. Continued market fluctuations could result in extreme volatility in
the price of the Common Stock, which could cause a decline in the value of the Common Stock.
Prospective investors should also be aware that price volatility may be worse if the trading volume
of the Common Stock is low.
Because Athersys has become a public company as a result of the Merger and not a public
offering, the Company may not attract the attention of major brokerage firms.
Security analysts of major brokerage firms may not provide coverage of the Company. No assurance
can be given that brokerage firms will want to conduct any primary offerings on behalf of the
Company in the future.
A significant number of the shares of Common Stock will be eligible for sale, and their sale
could depress the market price of the Company’s stock.
The sale of a significant number of shares of the Common Stock in the public market could harm the
market price of the Common Stock. As additional shares of the Common Stock become gradually
available for resale in the public market pursuant to the registration of those shares and releases
of lock-up agreements, the supply of the Common Stock will increase, which could decrease its
market price. The Company issued 13,000,000 shares of Common Stock in the Offering and 5,628,368
additional shares as a result of the completion of the Merger and the Offering. Some or all of the
shares of Common Stock may be offered from time to time in the open market pursuant to Rule 144 (or
pursuant to a registration statement, if one is effective), and these sales may have a depressive
effect on the market for the shares of Common Stock. In general, a person who has held restricted
shares for a period of one year may, upon filing of a notification on Form 144 with the SEC, sell
into the market Common Stock in an amount up to the greater of 1% of the outstanding shares or the
average weekly number of shares sold in the last four weeks before such sale. Such sales may be
repeated once each three months, and any of the restricted shares may be sold by a non-affiliate
after they have been held two years. Our officers and directors and substantially all of our
employees and the former Athersys stockholders that own greater than 1% of the issued and
outstanding Common Stock after consummation of the Merger and the Offering are subject to lock-up
provisions relating to shares of Common Stock that they will own that will prevent the sale or
transfer of their shares of Common Stock until 180 days after the effective date of the resale
registration statement.
32
It is not anticipated that there will be an active public market for the Common Stock in the
near term and you may have to hold your Common Stock for an indefinite period of time.
Although our Common Stock is eligible for trading on the OTC Bulletin Board, there currently is not
an active public or other trading market for the Common Stock, and we cannot assure you that any
market will develop or be sustained. Because our Common Stock is expected to be thinly traded, you
cannot expect to be able to liquidate your investment in case of an emergency or if you otherwise
desire to do so. It may be difficult to for you to resell a large number of your shares of Common
Stock in a short period of time or at or above their purchase price. Further, the sale of shares
of Common Stock may have adverse federal income tax consequences.
If we do not comply with registration rights granted to certain holders of our restricted
securities, we may be required to pay damages to such holders.
We intend to file a “resale” registration statement with the SEC covering all shares of Common
Stock issued in the Offering, including shares of Common Stock into which any warrants are
exercisable, no later than 45 days after the Closing Date. We will use best efforts to have such
“resale” registration statement declared effective by the SEC as soon as possible and, in any
event, within 90 days after the filing (or within five days after receipt of a no review letter
from the SEC), and to maintain its effectiveness until such time as all securities registered under
the registration statement have been sold or are otherwise able to be sold under Rule 144 of the
Securities Act without regard to volume limitations, whichever is earlier. We cannot assure you
that we will be able to follow
the required procedures or obtain or maintain such effective registration statement. Subject to
certain exceptions, if the “resale” registration statement is not timely filed or declared
effective by the SEC or ceases to remain effective, a 1% cash penalty will be assessed for each
30-day period until the registration statement is either filed, declared effective or becomes
effective again, as applicable, capped at 10%. In addition, there are other issues affecting the
liquidity of the securities required to be included in the “resale” registration statement.
Our Common Stock may be considered a “penny stock” and may be difficult to sell.
The SEC has adopted regulations which generally define “penny stock” to be an equity security that
has a market or exercise price of less than $5.00 per share, subject to specific exemptions. The
market price of our Common Stock may drop below $5.00 per share and therefore may be designated as
a “penny stock” according to SEC rules. This designation requires any broker or dealer selling
these securities to disclose certain information concerning the transaction, obtain a written
agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. These rules may restrict the ability of brokers or dealers to sell our Common Stock
and may affect the ability of our stockholders to sell their shares. In addition, since our Common
Stock is eligible for trading on the OTC Bulletin Board, our stockholders may find it difficult to
obtain accurate quotations of our Common Stock and may experience a lack of buyers to purchase such
stock or a lack of market makers to support the stock price.
Our stockholders may experience future dilution.
Our charter permits our Board of Directors, without your approval, to authorize shares of preferred
stock, which may also be issued by the Board of Directors without your approval. The Board of
Directors may classify or reclassify any preferred stock to set the preferences, rights and other
terms of the classified or reclassified shares, including the issuance of shares of preferred stock
that have preference rights over the Common Stock with respect to dividends, liquidation, voting
and other matters or shares of Common Stock having special voting rights.
The issuance of additional shares of our capital stock could be substantially dilutive to your
shares and may negatively affect the market price of the Common Stock.
Substantial future issuances of the Common Stock could depress our stock price.
The market price for the Common Stock could decline, perhaps significantly, as a result of
issuances of a large number of shares of our Common Stock in the public market or even the
perception that such issuances could occur. Under an existing registration rights agreement,
certain holders of shares of Common Stock and other securities will have demand, piggy-back and
Form S-3 registration rights. Sales of a substantial number of these
33
shares of our Common Stock,
or the perception that holders of a large number of shares intend to sell their shares, could
depress the market price of our Common Stock. The existence of such registration rights could also
make it more difficult for us to raise funds through future offerings of our equity securities.
Our stockholders may experience additional dilution upon the exercise of warrants and options.
As of the closing of the Offering, we issued warrants to investors to acquire 3,750,000 shares of
Common Stock, warrants to the placement agents to acquire 1,093,525 shares of Common Stock,
warrants to the former holders of Athersys’ 10% secured convertible promissory notes to acquire
132,945 shares of Common Stock, and warrants to our senior secured lenders to acquire 149,026
shares of Common Stock, which is an aggregate of 5,125,496 shares of Common Stock underlying such
warrants that, if exercised or converted, could decrease the net tangible book value of your Common
Stock. In addition, there are 4,500,000 shares of Common Stock that may be granted pursuant to our
equity compensation plans. If the holders of equity awards exercise those awards, you may
experience dilution in the net tangible book value of your Common Stock.
If we do not meet the listing standards established by the NASDAQ Capital Market or other
similar markets, the Common Stock may not become listed for trading on one of those markets.
As soon as reasonably practicable, we intend to apply to list our Common Stock for trading on the
NASDAQ Capital Market. The NASDAQ Capital Market has established certain quantitative criteria and
qualitative standards that companies must meet in order to become and remain listed for trading on
these markets. We
cannot guarantee that Company will be able to meet all necessary requirements for listing;
therefore, we cannot guarantee that our Common Stock will be listed for trading on the NASDAQ
Capital Market or other similar markets.
The Company’s internal control over financial reporting may be insufficient to allow it to
accurately report its financial results or prevent fraud, which could cause its financial
statements to become materially misleading and adversely affect the trading price of the Common
Stock.
Effective internal controls will be necessary for the Company to provide reliable financial reports
and effectively prevent fraud and to operate successfully as a public company. Athersys’
independent public accountants have issued a letter to Athersys in which they identified certain
matters as a result of a restatement related to a past partnership that they consider to constitute
a material weakness in its internal control over financial reporting. If these measures, together
with other remedial measures that management is in the process of implementing, are insufficient to
address the issues raised, or if material weaknesses or additional significant deficiencies in the
Company’s internal control over financial reporting are discovered in the future, the Company may
fail to meet its financial reporting obligations. If the Company fails to meet these obligations,
its financial statements could become materially misleading, which could adversely affect the
trading price of the Common Stock.
FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The tables below set forth selected financial data for Athersys for the years ended December 31,
2002, 2003, 2004, 2005 and 2006 and for the three months ended March 31, 2006 and 2007. Athersys
derived the selected financial data as of December 31, 2004, 2005, and 2006 and for the years then
ended from its consolidated audited financial statements, which have been audited by Ernst & Young
LLP, independent registered public accounting firm, and are included elsewhere in this Current
Report. Athersys has derived the selected financial data as of December 31, 2002 and 2003 and for
the years then ended from its consolidated audited financial statements, which have been audited by
Ernst & Young LLP, independent registered public accounting firm. Athersys derived the selected
financial data as of March 31, 2006 and 2007 and for the three-month periods then ended from its
unaudited condensed consolidated financial statements, which are included elsewhere in this Current
Report. Athersys has prepared its unaudited financial statements on the same basis as its audited
financial statements. In the opinion of management, the unaudited condensed consolidated financial
statements include all
34
adjustments, consisting of normal recurring adjustments, that it considers
necessary for a fair presentation of the financial position and operating results for these
periods. Historical results are not necessarily indicative of results to be expected for any
future period, and results for interim periods are not necessarily indicative of a full year’s
operations.
You should read the following selected financial data in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and Athersys’ financial statements
and related notes, each included elsewhere in this Current Report.
35
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
| |
|
Year Ended December 31, |
|
|
March 31, |
|
| |
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
2007 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
Consolidated Statement of
Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees |
|
$ |
1,285 |
|
|
$ |
1,393 |
|
|
$ |
820 |
|
|
$ |
763 |
|
|
$ |
1,908 |
|
|
$ |
220 |
|
|
$ |
310 |
|
Grants |
|
|
51 |
|
|
|
759 |
|
|
|
2,318 |
|
|
|
2,833 |
|
|
|
1,817 |
|
|
|
409 |
|
|
|
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,336 |
|
|
|
2,152 |
|
|
|
3,138 |
|
|
|
3,596 |
|
|
|
3,725 |
|
|
|
629 |
|
|
|
879 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
13,760 |
|
|
|
13,675 |
|
|
|
12,415 |
|
|
|
12,578 |
|
|
|
9,741 |
|
|
|
2,584 |
|
|
|
2,365 |
|
Purchased in-process R&D |
|
|
— |
|
|
|
9,500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
General and
administrative |
|
|
6,280 |
|
|
|
10,882 |
|
|
|
4,717 |
|
|
|
3,755 |
|
|
|
3,347 |
|
|
|
688 |
|
|
|
608 |
|
Depreciation |
|
|
1,996 |
|
|
|
1,803 |
|
|
|
1,297 |
|
|
|
982 |
|
|
|
528 |
|
|
|
155 |
|
|
|
80 |
|
Restructuring costs |
|
|
— |
|
|
|
1,076 |
|
|
|
107 |
|
|
|
251 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(20,700 |
) |
|
|
(34,784 |
) |
|
|
(15,398 |
) |
|
|
(13,970 |
) |
|
|
(9,891 |
) |
|
|
(2,798 |
) |
|
|
(2,174 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
594 |
|
|
|
1,000 |
|
|
|
— |
|
|
|
18 |
|
|
|
91 |
|
|
|
94 |
|
|
|
— |
|
Equity in earnings of
unconsolidated
affiliate |
|
|
(105 |
) |
|
|
114 |
|
|
|
— |
|
|
|
— |
|
|
|
117 |
|
|
|
117 |
|
|
|
— |
|
Interest income |
|
|
1,213 |
|
|
|
644 |
|
|
|
317 |
|
|
|
317 |
|
|
|
119 |
|
|
|
29 |
|
|
|
47 |
|
Interest expense |
|
|
(185 |
) |
|
|
(135 |
) |
|
|
(73 |
) |
|
|
(964 |
) |
|
|
(1047 |
) |
|
|
(235 |
) |
|
|
(333 |
) |
Accretion of premium on
convertible debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(260 |
) |
|
|
— |
|
|
|
(260 |
) |
| |
|
|
Loss before cumulative
effect of change in
accounting principle |
|
|
(19,183 |
) |
|
|
(33,161 |
) |
|
|
(15,154 |
) |
|
|
(14,599 |
) |
|
|
(10,871 |
) |
|
|
(2,793 |
) |
|
|
(2,720 |
) |
Cumulative effect of
change in accounting
principle |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
306 |
|
|
|
306 |
|
|
|
— |
|
| |
|
|
Net loss |
|
$ |
(19,183 |
) |
|
$ |
(33,161 |
) |
|
$ |
(15,154 |
) |
|
$ |
(14,599 |
) |
|
$ |
(10,565 |
) |
|
$ |
(2,487 |
) |
|
$ |
(2,720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net
loss per common share |
|
$ |
(2.67 |
) |
|
$ |
(4.40 |
) |
|
$ |
(1.86 |
) |
|
$ |
(1.79 |
) |
|
$ |
(1.29 |
) |
|
$ |
(0.30 |
) |
|
$ |
(0.33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
used in computing basic
and diluted net loss per
common share |
|
|
7,193 |
|
|
|
7,530 |
|
|
|
8,152 |
|
|
|
8,137 |
|
|
|
8,179 |
|
|
|
8,127 |
|
|
|
8,197 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
March 31, |
| |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
2006 |
|
2007 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
Consolidated Balance
Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents
and investments |
|
$ |
43,871 |
|
|
$ |
25,992 |
|
|
$ |
17,279 |
|
|
$ |
4,561 |
|
|
$ |
1,528 |
|
|
$ |
2,027 |
|
|
$ |
3,311 |
|
Working capital (deficit) |
|
|
26,753 |
|
|
|
18,514 |
|
|
|
17,018 |
|
|
|
1,828 |
|
|
|
(3,106 |
) |
|
|
(1,439 |
) |
|
|
(1,056 |
) |
Total assets |
|
|
49,780 |
|
|
|
30,503 |
|
|
|
20,894 |
|
|
|
7,309 |
|
|
|
4,266 |
|
|
|
4,278 |
|
|
|
5,486 |
|
Long-term obligations,
less current portion |
|
|
1,062 |
|
|
|
578 |
|
|
|
7,215 |
|
|
|
4,684 |
|
|
|
9,310 |
|
|
|
3,998 |
|
|
|
13,788 |
|
Accrued dividends |
|
|
6,747 |
|
|
|
8,911 |
|
|
|
11,236 |
|
|
|
7,473 |
|
|
|
8,882 |
|
|
|
7,820 |
|
|
|
9,257 |
|
Total stockholders’
equity (deficit) |
|
|
35,913 |
|
|
|
14,951 |
|
|
|
1,151 |
|
|
|
(8,584 |
) |
|
|
(20,007 |
) |
|
|
(11,448 |
) |
|
|
(23,059 |
) |
36
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve numerous risks and
uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our
actual results could differ materially from those anticipated in the forward-looking statements.
Factors that could cause or contribute to these differences include those discussed in this
prospectus under “Cautionary Notice Regarding Forward-Looking Statements” and “Risk Factors,” as
well as those discussed elsewhere in this Current Report. You should read the following discussion
and analysis in conjunction with “Selected Financial Data” and Athersys’ financial statements and
related notes, each included elsewhere in this Current Report.
Overview
Athersys is a biopharmaceutical company engaged in the discovery and development of therapeutic
product candidates designed to extend and enhance the quality of human life. Through the
application of its proprietary technologies, Athersys has established a pipeline of therapeutic
product development programs in multiple disease areas that it intends to advance into clinical
trials in 2007 and 2008. Athersys’ lead product candidate is ATHX-105, which is a treatment for
obesity. Athersys is also developing novel pharmaceutical products for the treatment of cognitive
disorders, such as ADHD. In addition to these drug development programs, Athersys entered into a
collaboration with Angiotech to jointly develop a novel, proprietary non-embryonic stem cell
product, MultiStem, for the treatment of myocardial infarction and peripheral vascular disease.
Athersys is also developing MultiStem for stroke, oncology support, and certain other disease
indications.
Athersys has incurred losses since inception of operations in December 1995 and had an accumulated
deficit of $144 million at March 31, 2007. Athersys’ losses have resulted principally from costs
incurred in research and development, acquisition and licensing costs, and general and
administrative costs associated with its operations. Since its inception, Athersys has completed
four private placement transactions of its capital stock and sold shares of its capital stock to
certain strategic collaborators. Athersys has used the financing proceeds of these transactions
and other sources of capital to develop its technologies, such as RAGE, and to acquire its stem
cell technology in 2003. Athersys has also built its drug development capabilities to allow it to
begin clinical trials of its lead product candidate, ATHX-105, in 2007. Athersys has established
strategic collaborations that provide revenues and capabilities to help to further advance its
product candidates. Athersys has a pipeline of product candidates that includes potential small
molecule products to treat obesity and cognitive disorders. Athersys’ stem cell product candidates
may be used in the areas of cardiovascular disease, oncology support and stroke. Athersys has also
built a substantial portfolio of intellectual property.
In 2003 and in 2005, Athersys completed restructurings that resulted in reductions in its
personnel. Athersys refocused its activities to emphasize the development of its lead product
opportunities and reduced its spending in discovery activities. As Athersys has evolved from a
research-oriented company to a product-oriented company, its staffing needs have evolved, resulting
in the reductions in personnel. Athersys is currently optimizing the mix of its internal
capabilities with the capabilities of its outside collaborators, academic institutions, and third
party contract research organizations.
In May 2007, Athersys sold certain non-core assets related to its asthma discovery program to a
pharmaceutical company for $2 million, of which $1.5 million was received at closing. The
remaining $500,000 will be paid when Athersys delivers any remaining assets related to the program
within three months of closing. Athersys will recognize a gain on the sale of these assets in the
amount of $2.0 million in connection with this sale.
Upon the close of the Merger, the majority of Athersys’ outstanding stock options were terminated.
Following the Merger, we adopted two long-term incentive plans, which made available 4,500,000
shares of Common Stock for equity awards to be used to attract and retain officers, other
employees, directors, consultants and other independent contractors.
37
Results of Operations
Since Athersys’ inception, its revenues have consisted of license fees from its collaborators and
grant proceeds from federal and state grants. Athersys recognizes revenues over the period that it
performs the required activities under the terms of the agreements. Revenues from the achievement
of milestones are recognized when the milestone is achieved. Revenues from grants are recorded
when earned under the terms of the agreements. Athersys has derived no revenue on the sale of
FDA-approved products to date. Research and development expenses consist primarily of salaries and
related personnel costs, legal expenses resulting from intellectual property application processes,
contracted service costs, and laboratory supply and reagent costs. Athersys expenses research and
development costs as they are incurred. We expect to continue to make significant investments in
research and development to enhance our technologies, conduct preclinical studies and clinical
trials of our products, and manufacture our products. General and administrative expenses consist
primarily of salaries and related expenses for executive, business development, finance, and other
administrative personnel; professional fees; and other corporate expenses. Our general and
administrative expenses are expected to increase as we expand our regulatory affairs and product
development capabilities, as well as expand our business development and assume the obligations of
a public reporting company. Athersys depreciates its fixed assets on a straight-line basis. To
date, Athersys has financed its operations through private equity and debt financing and
investments by strategic collaborators. We expect to continue to incur substantial losses through
at least the next several years. We expect our development costs to increase as we initiate
clinical trials of our product candidates in 2007 and 2008.
38
The following table sets forth Athersys’ revenues and expenses for the periods indicated. The
following tables are stated in thousands.
Revenues
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
Three months ended March 31, |
| |
|
2004 |
|
2005 |
|
2006 |
|
2006 |
|
2007 |
License fees |
|
$ |
820 |
|
|
$ |
763 |
|
|
$ |
1,908 |
|
|
$ |
220 |
|
|
$ |
310 |
|
Grants |
|
|
2,318 |
|
|
|
2,833 |
|
|
|
1,817 |
|
|
|
409 |
|
|
|
569 |
|
| |
|
|
|
|
|
|
$ |
3,138 |
|
|
$ |
3,596 |
|
|
$ |
3,725 |
|
|
$ |
629 |
|
|
$ |
879 |
|
| |
|
|
|
|
Research and development expenses
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
Three months ended March 31, |
| Type of expense |
|
2004 |
|
2005 |
|
2006 |
|
2006 |
|
2007 |
Personnel costs |
|
$ |
4,451 |
|
|
$ |
4,587 |
|
|
$ |
2,721 |
|
|
$ |
683 |
|
|
$ |
597 |
|
Research supplies |
|
|
2,661 |
|
|
|
2,286 |
|
|
|
1,208 |
|
|
|
317 |
|
|
|
204 |
|
Facilities |
|
|
1,079 |
|
|
|
1,127 |
|
|
|
879 |
|
|
|
244 |
|
|
|
191 |
|
Sponsored research,
preclinical and
clinical costs |
|
|
647 |
|
|
|
2,095 |
|
|
|
3,281 |
|
|
|
864 |
|
|
|
941 |
|
Patent legal fees |
|
|
366 |
|
|
|
714 |
|
|
|
595 |
|
|
|
135 |
|
|
|
276 |
|
Other |
|
|
1,203 |
|
|
|
968 |
|
|
|
781 |
|
|
|
254 |
|
|
|
125 |
|
Stock compensation expense |
|
|
2,008 |
|
|
|
801 |
|
|
|
276 |
|
|
|
87 |
|
|
|
31 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,415 |
|
|
$ |
12,578 |
|
|
$ |
9,741 |
|
|
$ |
2,584 |
|
|
$ |
2,365 |
|
| |
|
|
|
|
General and administrative expenses
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
Three months ended March 31, |
| Type of expense |
|
2004 |
|
2005 |
|
2006 |
|
2006 |
|
2007 |
Personnel costs |
|
$ |
2,096 |
|
|
$ |
1,858 |
|
|
$ |
1,891 |
|
|
$ |
389 |
|
|
$ |
358 |
|
Facilities |
|
|
319 |
|
|
|
286 |
|
|
|
291 |
|
|
|
70 |
|
|
|
77 |
|
Legal and professional fees |
|
|
303 |
|
|
|
446 |
|
|
|
590 |
|
|
|
100 |
|
|
|
82 |
|
Other |
|
|
518 |
|
|
|
508 |
|
|
|
392 |
|
|
|
84 |
|
|
|
78 |
|
Stock compensation expense |
|
|
1,481 |
|
|
|
657 |
|
|
|
183 |
|
|
|
45 |
|
|
|
13 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,717 |
|
|
$ |
3,755 |
|
|
$ |
3,347 |
|
|
$ |
688 |
|
|
$ |
608 |
|
| |
|
|
|
|
Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
Revenues. Revenues increased to $879,000 for the three months ended March 31, 2007 from $629,000
in the comparable period in 2006. License fee revenues increased $90,000 for the three months
ended March 31, 2007 compared to the three months ended March 31, 2006. The increase in license
fee revenue over this period is a result of the nature and timing of target acceptances under
Athersys’ collaboration agreement with BMS. Grant revenue increased $160,000 for the three months
ended March 31, 2007 compared to the three months ended March 31, 2006. In July 2003, Athersys was
awarded a $5.0 million state grant that spanned three years and was completed in February 2006.
This grant was renewed in May 2006 for approximately $3.5 million that will also span three years.
The increase in grant revenue for the three months ended March 31, 2007 compared to the three
months ended March 31, 2006 is principally
the result of recognizing three months of revenue under this state grant in 2007 versus only two
months of revenue in 2006.
39
Research and Development Expenses. Research and development expenses decreased to $2.4 million for
the three months ended March 31, 2007 from $2.6 million in the comparable period in 2006. The
decrease of approximately $219,000 relates primarily to a decrease of $252,000 in personnel costs,
research supplies and facilities costs related to the restructuring and reduction in force effected
in late 2005 and carried over into early 2006, a decrease in other expenses of $129,000 and a
decrease of $56,000 in stock compensation expense, offset by an increase in sponsored research and
preclinical expenses of $77,000 and an increase in patent legal fees of $141,000. Included in
other expenses in 2006 was a license fee of $125,000 paid in shares of common stock to the former
holders of the MAPC technology. Patent legal fees increased in the first three months of 2007 as
a result of maintaining Athersys’ growing and maturing portfolio of patent applications.
General and Administrative Expenses. General and administrative expenses decreased to $608,000 for
the three months ended March 31, 2007 from $688,000 in the comparable period in 2006. The decrease
of $80,000 relates primarily to a $18,000 decrease in legal and professional fees, a $30,000
decrease in personnel costs, facilities costs and other expenses related to the restructuring and
reduction in force effected in late 2005 and carried over into early 2006, and a decrease of
$32,000 in stock compensation expense.
Depreciation. Depreciation expense decreased to $80,000 for the three months ended March 31, 2007
from $155,000 for the comparable period in 2006. The decrease was due to more laboratory
equipment, computer equipment, furniture, and leasehold improvements becoming fully depreciated,
combined with fewer purchases of new equipment during the first three months of 2007 compared with
the comparable period of 2006.
Other Income and Equity in Earnings of Unconsolidated Affiliate. In January 2006, a milestone was
achieved related to Athersys’ joint venture with Oculus Pharmaceuticals, Inc, a dormant entity with
rights to certain potential milestone-based consideration. As a result, Athersys received $100,000
of stock-based proceeds from Oculus, which was recorded in other income. Similarly, Oculus also
received stock-based proceeds in another company in the amount of $260,000. Athersys recorded its
share of Oculus’ net income (after recapturing past net losses) of $117,000 in equity in earnings
of unconsolidated affiliate on the statement of operations. No additional milestones where
achieved in the three months ended March 31, 2007.
Interest Income. Interest income represents interest earned on Athersys’ cash and available for
sale securities. Interest income increased to $47,000 for the three months ended March 31, 2007
from $29,000 for the comparable period in 2006 due to the increase in Athersys’ average cash
balances during those periods. Athersys obtained $5 million in January 2007 as a result of issuing
a subordinated convertible promissory note to Angiotech related to its co-development collaboration
agreement.
Interest Expense. Interest expense on Athersys’ debt outstanding under its senior loan and its
subordinated convertible promissory notes increased to $333,000 for the three months ended March
31, 2007 from $235,000 for the comparable period in 2006. The increase in interest expense is due
to the subordinated convertible promissory notes issued by Athersys in May 2006, October 2006 and
January 2007.
Accretion of Premium on Convertible Debt. The accretion of premium on convertible debt in the
amount of $260,000 for the three months ended March 31, 2007 is a result of the $2.5 million
subordinated secured convertible promissory notes issued in October 2006. The notes, if not
converted, were repayable with accrued interest at maturity, plus a repayment fee of 200% of the
outstanding principal. Athersys has computed a premium on the debt in the amount of $5,250,000 due
upon redemption, which is being accreted over the term of the notes using the effective interest
method. This accretion was reversed in June 2007 when the notes were converted into common stock
upon the closing of the Offering.
Cumulative effect of change in accounting principle. Effective January 1, 2006, Athersys adopted
the fair value recognition provisions of Statement of Financial Accounting Standards No. 123
(revised 2004)
(“SFAS No. 123R”), “Share-Based Payment,” using the modified-prospective-transition method. SFAS
No. 123R requires Athersys to estimate forfeitures in calculating the expense relating to
share-based
40
compensation, while previously Athersys was permitted to recognize forfeitures as an
expense reduction upon occurrence. The adjustment to apply estimated forfeitures to previously
recognized share-based compensation was accounted for as a cumulative effect of a change in
accounting principle at January 1, 2006 and reduced net loss by $306,000 for the three months ended
March 31, 2006.
Year Ended December 31, 2006 Compared to year ended December 31, 2005
Revenues. Revenues increased to $3.7 million for the year ended December 31, 2006 from $3.6
million for the comparable period in 2005. License fee revenues increased $1.1 million over this
period as a result of the nature and timing of target acceptances under Athersys’ collaboration
agreement with Bristol-Myers Squibb. Grant revenue decreased $1.0 million for the year ended
December 31, 2006 compared to the year ended December 31, 2005. In July 2003, Athersys was awarded
a $5.0 million state grant that spanned three years and was completed in February 2006. This grant
was renewed in May 2006 for approximately $3.5 million that will also span three years. The
decrease in grant revenue for the year ended December 31, 2006 is principally the result of
recognizing eight months of revenue under this state grant in 2006 versus twelve months of revenue
in 2005. In addition, Athersys had fewer active NIH grant awards in 2006 as compared to 2005.
Research and Development Expenses. Research and development expenses decreased to $9.7 million in
2006 from $12.6 million in 2005. The decrease of approximately $2.9 million in research and
development expenses relates primarily to a decrease in personnel costs of $1.9 million, a decrease
in research supplies expenses of $1.1 million, and a decrease in facilities and other costs of
$435,000 related to the restructuring and reduction in force that occurred late in 2005. In
addition, patent legal fees decreased $119,000 and stock compensation expense decreased $525,000 in
2006 compared to 2005. These decreases were offset by an increase in sponsored research,
preclinical and clinical expenses of $1.2 million in 2006 compared to 2005. As Athersys has
evolved from a research-oriented company to a product-oriented company, its staffing needs have
evolved, resulting in the reductions in personnel and related costs. Athersys is currently
optimizing the mix of its internal capabilities with the capabilities of its outside collaborators,
academic institutions, and third party contract research organizations resulting in an increase in
these costs.
General and Administrative Expenses. General and administrative expenses decreased to $3.3 million
in 2006 from approximately $3.8 million in 2005. The decrease in general and administrative
expenses was due primarily to a decrease in stock compensation expense of $474,000 and a decrease
in other expenses of $116,000. These decreases were offset by an increase in legal and
professional fees of $144,000, which was a result of legal costs associated with potential
financing and strategic transactions.
Depreciation. Depreciation expense decreased to $528,000 in 2006 from $982,000 in 2005. The
decrease in depreciation expense was due to more laboratory equipment, computer equipment,
furniture, and leasehold improvements becoming fully depreciated, combined with fewer purchases of
new equipment.
Restructuring Costs. Restructuring costs for the year ended December 31, 2005 were a result of the
restructuring and reduction in force, which occurred late in 2005.
Other Income and Equity in Earnings of Unconsolidated Affiliate. In January 2006, a milestone was
achieved related to Athersys’ joint venture with Oculus Pharmaceuticals, Inc., a dormant entity
with rights to certain potential milestone-based consideration. As a result, Athersys received
$100,000 of stock-based proceeds from Oculus, which was recorded in other income. Similarly,
Oculus also received stock-based proceeds in another company in the amount of $260,000. Athersys
recorded its share of Oculus’ net income (after recapturing past net losses) of $117,000 in equity
in earnings of unconsolidated affiliate on the statement of operations.
Interest Income. Interest income decreased to $119,000 for the year ended December 31, 2006 from
$317,000 in 2005. Changes in interest income was due to changes in Athersys’ average cash balances
and available for sale securities during those periods.
41
Interest Expense. Interest expense on Athersys’ debt outstanding under its senior loan and its
subordinated promissory notes increased to $1,047,000 for the year ended December 31, 2006 from
$964,000 for the comparable period in 2005. The increase in interest expense is due to the
subordinated convertible promissory notes issued by Athersys in May 2006 and October 2006.
Accretion of Premium on Convertible Debt. The accretion of premium on convertible debt for the
year ended December 31, 2006, is a result of the $2.5 million subordinated secured convertible
promissory notes issued in October 2006. The notes, if not converted, are repayable with accrued
interest at maturity, plus a repayment fee of 200% of the outstanding principal. Athersys has
computed a premium on the debt in the amount of $5,250,000 due upon redemption, which is being
accreted over the term of the notes using the effective interest method. This accretion was
reversed in June 2007 when the notes were converted into common stock upon the closing of the
Offering.
Cumulative effect of change in accounting principle. Effective January 1, 2006, Athersys adopted
the fair value recognition provisions of SFAS No. 123R using the modified-prospective-transition
method. SFAS No. 123R requires Athersys to estimate forfeitures in calculating the expense
relating to share-based compensation, while previously Athersys was permitted to recognize
forfeitures as an expense reduction upon occurrence. The adjustment to apply estimated forfeitures
to previously recognized share-based compensation was accounted for as a cumulative effect of a
change in accounting principle at January 1, 2006 and reduced net loss by $306,000 for the year
ended December 31, 2006.
Year Ended December 31, 2005 compared to year ended December 31, 2004
Revenues. Revenues increased to $3.6 million in 2005 from $3.1 million in 2004. License fee
revenue decreased $57,000 from 2004 to 2005 due to the nature and timing of target acceptances
under Athersys’ collaboration agreement with Bristol-Myers Squibb. The remaining increase of
$515,000 from 2004 to 2005 was due primarily to increased grant revenue. In 2003, Athersys was
awarded a $5 million state grant that spanned three years and was completed in April 2006.
Research and Development Expenses. Research and development expenses increased to $12.6 million in
2005 from $12.4 million in 2004. The increase of $163,000 in research and development expenses
relates to a decrease in stock compensation expense of $1.2 million, a decrease in research
supplies expenses of $375,000, an increase in outside sponsored research and preclinical expenses
of $1.5 million, and an increase in patent legal costs of $348,000.
General and Administrative Expenses. General and administrative expenses decreased to $3.8 million
in 2005 from $4.7 million in 2004. The decrease in general and administrative expenses of $962,000
is due primarily to a decrease in stock option expense of $824,000, a decrease in payroll,
facilities and other expense of $281,000 related to the restructuring and reduction in force late
in 2005, and an increase in legal and professional fees of $143,000.
Depreciation. Depreciation expense decreased to $1.0 million in 2005 from $1.3 million in 2004.
The decrease in depreciation expense was due to more laboratory equipment, computer equipment,
furniture, and leasehold improvements becoming fully depreciated, combined with fewer purchases of
new equipment.
Restructuring Costs. Restructuring costs for the year ended December 31, 2005 were a result of the
restructuring and reduction in force, which occurred late in 2005. Restructuring costs for the year
ended December 31, 2004 were a result of the restructuring and reduction in force, which occurred
late in 2003.
Interest Income. Interest income was $317,000 in 2006 and 2005. Interest income was as result of
Athersys’ average cash balances and available for sale securities during those periods.
Interest Expense. Interest expense on Athersys’ debt under credit agreements increased to $964,000
in 2005 from $73,000 in 2004. The increase in interest expense was attributable to Athersys’
borrowing $7.5 million under its senior loan late in 2004.
42
Liquidity and Capital Resources
Athersys has primarily financed its operations through private equity and debt financings that have
resulted in aggregate cumulative proceeds of approximately $131 million prior to the Offering.
In November 2004, Athersys entered into a Loan and Security Agreement (the “Senior Loan”) with
Venture Lending & Leasing IV, Inc. and Costella Kirsch IV, L.P. (the “Senior Lenders”), pursuant to
which it borrowed $7.5 million pursuant to notes that mature on June 1, 2008. Amounts outstanding
under the Senior Loan are payable in 30 monthly installments following an initial interest-only
period that expired on December 1, 2005. The Senior Loan has an implied fixed interest rate of
approximately 13%. A final payment of $487,500 is due on June 1, 2008. As of May 31, 2007, the
outstanding balance of the Senior Loan is approximately $3,528,000. Athersys’ obligations under
the Senior Loan are secured by substantially all of its assets. As a result of the Offering, the
Senior Lenders’ lien on Athersys’ intellectual property is being released. The lien on
intellectual property could, however, re-attach at any time if the ratio of Athersys’ unrestricted
cash to four months’ expenses is less than one-to-one. The agreement governing the Senior Loan
contains affirmative and negative covenants customary for such financings and customary events of
default. As of March 31, 2007, Athersys was in compliance with these covenants.
The Senior Lenders have the right to receive a milestone payment of $2.25 million upon the first to
occur of the following milestone events: (1) a firmly underwritten initial public offering of
common stock; (2) Athersys’ merger with or into another entity where its stockholders do not hold
at least a majority of the voting power of the surviving entity; (3) the sale of all or
substantially all of Athersys’ assets; and (4) Athersys’ liquidation or dissolution. The milestone
payment is payable in cash, except that if the milestone event is an initial public offering,
Athersys may elect to pay 75% of the milestone in shares of common stock at the per share offering
price to the public. Although the Offering did not constitute a milestone event under the Senior
Loan, Athersys is discussing an amendment with the Lenders to include the occurrence of an
additional significant financing or financings (occurring subsequent to the consummation of the
Merger and the Offering) as a milestone event that would obligate it to make such milestone payment
or otherwise restructure the milestone payment since an initial public offering technically can no
longer occur. The Senior Lenders also received warrants to purchase 149,026 shares of Common Stock
with an exercise price of $5.00 upon the closing of the Offering. Athersys is evaluating the
potential restructuring or prepayment of this Senior Loan.
In October 2006, Athersys completed a bridge financing of $2,500,000 in the form of 10% secured
convertible promissory notes. The notes and accrued interest were converted into Common Stock at a
conversion price of $5.00 upon the closing of the Offering. Prior to conversion, the notes were
repayable with accrued interest at maturity plus a repayment fee of 200% of the outstanding
principal. Athersys had computed a premium on the debt in the amount of $5,250,000 due upon
redemption, which was being accreted over the term of the notes using the effective interest
method. Athersys reversed this premium upon the conversion of the notes in June 2007. The
noteholders also received warrants to purchase 999,977 shares of Common Stock, which were exercised
at the closing of the Offering. In 2006, Athersys allocated $250,000 of the purchase price of the
notes to the warrants based on the relative fair value of the notes and warrants.
In connection with developing MultiStem for the treatment of the cardiovascular disorders of
myocardial infarction and peripheral vascular disease as part of a commercial collaboration with
Angiotech that was entered into in May 2006, in support of the collaboration, Angiotech purchased
$10,000,000 in aggregate principal amount of subordinated convertible promissory notes, which were
converted along with accrued interest into Common Stock upon the closing of the Offering at a
conversion price of $5.50, which was 110% of the price per share paid in the Offering. Athersys
may also receive additional equity investments
and cash payments based upon the successful achievement of specified clinical development and
commercialization milestones.
Athersys’ contractual payment obligations as of December 31, 2006 are as follows:
43
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
More than 5 |
| |
|
Total |
|
year |
|
1-3 years |
|
3-5 years |
|
years |
Operating lease for facilities |
|
$ |
201,000 |
|
|
$ |
201,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Long-term debt (principal and
interest) |
|
$ |
5,132,000 |
|
|
$ |
3,332,000 |
|
|
$ |
1,800,000 |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
5,333,000 |
|
|
$ |
3,533,000 |
|
|
$ |
1,800,000 |
|
|
|
— |
|
|
|
— |
|
The table above excludes Athersys’ convertible promissory notes since they were converted upon the
closing of the Offering. Athersys has an operating lease for its office and laboratory space that
expires in March 2009. Athersys has an option to renew the lease in six-month intervals during the
term at the existing rental rate. Athersys has exercised options to renew the lease through
September 2007.
Athersys has never paid dividends on its capital stock, and all accrued cumulative dividends were
eliminated in June 2007 in connection with the Merger.
Upon the closing of the Offering in June 2007, the Company received net proceeds of approximately
$58.8 million. The placement agents received approximately $5.5 million in fees from the gross
proceeds.
At March 31, 2007, Athersys had $3.3 million in cash, cash equivalents, and available-for-sale
securities.
Net cash used in operating activities was $8.4 million, $12.1 million, and $11.7 million in 2006,
2005, and 2004, respectively, and represented the use of cash in funding technology development and
product development initiatives. Net cash used in operating activities was $2.1 million for the
three months ended March 31, 2007 and $2.0 million for the three months ended March 31, 2006, and
was primarily attributed to expenditures used to fund Athersys’ research and product development
activities.
Net cash provided by investing activities was $3.4 million, $10.3 million, and $6.4 million in
2006, 2005, and 2004, respectively. Net cash provided by (used in) investing activities was
$(3,000) in the three months ended March 31, 2007, and $2.0 million for the comparable period in
2006. The fluctuations from period to period are due to the timing of purchases and maturity dates
of investments, and the purchase of equipment. Purchases of equipment were $83,000 in 2006,
$239,000 in 2005, $173,000 in 2004, $3,000 for the three-month period ended March 31, 2007 and
$4,000 for the three-month period ended March 31, 2006.
Financing activities provided cash of $5.4 million in 2006, $4.0 million in 2004 and $3.9 million
in the three months ended March 31, 2007. Financing activities used cash of $446,000 in 2005 and
$596,000 in the three months ended March 31, 2006. These fluctuations relate primarily to proceeds
and repayments of loans and the issuance of Athersys’ convertible promissory notes in 2006 and in
the first quarter of 2007.
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. The Company
presumes that it will continue as a going concern.
We will require substantial additional funding in order to continue our research and product
development programs, including preclinical testing and clinical trials of our product candidates.
While we believe that the net proceeds from the Offering, combined with current capital resources
and anticipated cash flows
from licensing activities, will be sufficient to meet our capital and operating requirements for
approximately three years, we cannot assure you that we will not require additional financing
before that
44
time. Our funding requirements may change at any time due to technological advances or
competition from other companies. Our future capital requirements will also depend on numerous
other factors, including scientific progress in our research and development programs, additional
personnel costs, progress in preclinical testing and clinical trials, the time and cost related to
proposed regulatory approvals, if any, and the costs in filing and prosecuting patent applications
and enforcing patent claims. We cannot assure you that adequate funding will be available to us
or, if available, that it will be available on acceptable terms. Any shortfall in funding could
result in our having to curtail our research and development efforts.
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 operations and demanding of management’s
judgment. Our discussion and analysis of financial condition and results of operation are based on
Athersys’ consolidated financial statements, which have been prepared in accordance with U.S.
generally accepted accounting principles, or GAAP. The preparation of these financial statements
requires Athersys 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.
Athersys’ critical accounting polices include:
Revenue Recognition
Revenue is recognized over the period that Athersys performs its required activities under the
terms of various agreements. Revenue from transactions that do not require future performance
obligations from Athersys is recognized as contemplated in the agreements, typically upon
acceptance and when collectibility is reasonably assured. Revenue resulting from the achievement of
milestone events stipulated in the agreements is recognized when the milestone is achieved.
Revenue from grants consists primarily of funding under cost reimbursement programs from federal
and state sources for qualified research and development activities performed by Athersys. Revenue
from grants is recorded when earned under the terms of the agreements.
Research and Development
Research and development expenditures, including direct and allocated overhead expenses, are
charged to expense as incurred.
Royalties
Athersys may be required to remit royalty payments based on product sales to certain parties under
license agreements. Athersys has not paid any such royalties for the three-year period ended
December 31, 2006 or the three-month period ended March 31, 2007.
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 seven years).
Impairment of long-lived assets is recognized 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.
45
Patent Costs and Rights
Patent costs and rights are expensed as incurred. Athersys has filed for broad intellectual
property protection on its proprietary technologies. Athersys currently has numerous U.S. patent
applications and corresponding international patent applications related to its technologies, as
well as many issued U.S. and international patents.
Stock-Based Compensation
In December 2004, SFAS No. 123R was issued as a revision to Statement of Financial Accounting
Standards No. 123 (“SFAS No. 123”), “Accounting for Stock Options.” SFAS No. 123R required to be
adopted by nonpublic companies in January 2006. Prior to January 1, 2006, Athersys elected to
account for its stock-based compensation in accordance with the intrinsic value method as described
in the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees,” and related interpretations, as permitted by SFAS No. 123. As such, compensation was
recorded in 2004 and 2005 on the date of issuance or grant as the excess of the current estimated
market value of the underlying stock over the purchase or exercise price of the stock option. Any
unearned compensation was recognized over the respective vesting periods of the equity instruments,
if any, using the graded vesting method as prescribed by Financial Accounting Standards Board
Interpretation No. 28.
Effective January 1, 2006, Athersys adopted the fair value recognition provisions of SFAS No. 123
using the modified-prospective-transition method. Under that transition method, compensation cost
recognized in 2006 includes: (1) compensation cost for all share-based payments granted prior to,
but not yet vested as of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions SFAS No. 123; and (2) compensation cost for all share-based
payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123R. Results for prior periods have not been restated.
For some of the awards granted prior to the adoption of SFAS No. 123R, Athersys recognized
compensation expense on the accelerated method. For awards granted subsequent to adoption of SFAS
No. 123R, Athersys will recognize expense on the straight line method.
Income Taxes
As of December 31, 2006, Athersys had net operating loss and research and development credit
carryforwards of approximately $109.9 million and $5.8 million, respectively. These carryforwards
may be used to reduce future tax liabilities and expire at various dates between 2013 and 2027.
Athersys’ use of its current net operating loss and research and development credit carryforwards
may be substantially limited as a result of the change in ownership related to the Merger and
Offering.
Recently issued accounting standards
In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN 48),
“Accounting for Uncertainty in Income Taxes,” which is applicable for fiscal years beginning after
December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in
an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income
Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for financial
statement recognition and measurement of a tax position reported or expected to be reported on a
tax return. FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. Athersys adopted the
provisions of FIN 48 on January 1, 2007. Upon adoption of FIN 48 and through March 31, 2007,
Athersys determined that it had no liability for uncertain income taxes as prescribed by FIN 48.
Athersys’ 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. We do not anticipate any events during 2007 that would require Athersys
to record a liability related to any uncertain income taxes.
46
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk.
Our exposure to interest rate risk is related to Athersys’ investment portfolio and its borrowings.
Fixed rate investments and borrowings may have their fair market value adversely impacted from
changes in interest rates. Floating rate borrowings will lead to additional interest expense if
interest rates increase. Due in part to these factors, Athersys’ future investment income may fall
short of expectations, and Athersys’ interest expense may be above its expectations due to changes
in U.S. interest rates. Further, Athersys may suffer losses in investment principal if it is
forced to sell securities that have declined in market value due to changes in interest rates.
Athersys invests its excess cash primarily in debt instruments of the U.S. government and its
agencies.
Athersys enters into loan arrangements with financial institutions when needed. At March 31, 2007,
Athersys had borrowings of approximately $4.0 million outstanding under its Senior Loan, which
bears interest at a fixed rate of approximately 13%, and $12.8 million under its subordinated
convertible promissory notes, which bear interest at a fixed rates of 5% and 10%.
PROPERTIES
Our principal offices are located at 3201 Carnegie Avenue in Cleveland, Ohio. We currently lease
approximately 53,000 square feet of space for our corporate offices and laboratories, with about
40,000 square feet of state-of-the-art laboratory space. The lease currently expires in September
2007, and we have an option to extend the lease in six-month increments through March 2009 at our
current rent of $267,000 per year.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information on the estimated beneficial ownership of Common Stock
after the Merger and Offering based on the current beneficial ownership of BTHC VI Common Stock by
the individuals who are our executive officers and directors and greater than 5% stockholders after
the consummation of the Merger and the Offering on June 8, 2007. Beneficial ownership is
determined according to rules of the SEC governing the determination of beneficial ownership of
securities. A person is deemed to be a beneficial owner of any securities for which that person
has a right to acquire beneficial ownership within 60 days. The table below contains the following
assumptions:
| |
|
|
|
|
|
|
|
|
| |
|
Number of |
|
Percent of |
| Name of Beneficial Owner |
|
Shares |
|
Class |
Greater Than 5% Stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OrbiMed Advisors LLC and affiliates (1) |
|
|
3,750,000 |
|
|
|
19.06 |
% |
Radius Venture Partners and affiliates (2) |
|
|
2,400,000 |
|
|
|
12.17 |
% |
Angiotech Pharmaceuticals, Inc. (3) |
|
|
1,885,890 |
|
|
|
9.96 |
% |
RA Capital Biotech Fund, LP and affiliates (4) |
|
|
1,500,000 |
|
|
|
7.80 |
% |
Accipiter Capital Management LLC and affiliates (5) |
|
|
1,500,000 |
|
|
|
7.80 |
% |
Hambrecht & Quist Capital Management LLC and affiliates (6) |
|
|
1,000,000 |
|
|
|
5.23 |
% |
|
|
|
|
|
|
|
|
|
Directors and Executive Officers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gil Van Bokkelen (7) |
|
|
392,887 |
|
|
|
2.04 |
% |
John Harrington (8) |
|
|
371,127 |
|
|
|
1.93 |
% |
47
| |
|
|
|
|
|
|
|
|
| |
|
Number of |
|
Percent of |
| Name of Beneficial Owner |
|
Shares |
|
Class |
William Mulligan (9) |
|
|
515,235 |
|
|
|
2.72 |
% |
George Milne (10) |
|
|
2,415,000 |
|
|
|
12.23 |
% |
Jordan Davis (11) |
|
|
2,400,000 |
|
|
|
12.17 |
% |
Michael Sheffery (12) |
|
|
3,750,000 |
|
|
|
19.06 |
% |
Floyd Loop (13) |
|
|
2,400,000 |
|
|
|
12.17 |
% |
William (BJ) Lehmann (14) |
|
|
166,250 |
|
|
|
* |
|
Kurt Brunden |
|
|
— |
|
|
|
* |
|
Robert Deans (15) |
|
|
96,000 |
|
|
|
* |
|
Laura Campbell (16) |
|
|
83,329 |
|
|
|
* |
|
All directors and executive officers as a group (11 persons) |
|
|
7,789,828 |
|
|
|
39.79 |
% |
|
|
|
| * |
|
Less than one percent |
| |
| (1) |
|
Includes 3,000,000 shares (2,971,698 shares held by Caduceus Private Investment III, LP and
28,302 shares held by OrbiMed Associates III, LP) of Common Stock. Also includes 750,000
shares (742,925 shares held by Caduceus Private Investment III, L.P.
and 7,075 shares held by
OrbiMed Associates III, LP) of Common Stock issuable upon the exercise of warrants at $6.00
per share. The address for OrbiMed Advisors LLC and its affiliates is 767 3rd
Avenue, 30th Floor, New York, New York 10017. |
| |
| (2) |
|
Includes 1,600,000 shares (800,000 shares held by Radius Venture Partners II, L.P., 103,766
shares held by Radius Venture Partners III, L.P., and 696,234 shares held by Radius Venture
Partners III QP, L.P.) of Common Stock. Also includes 800,000 shares (400,000 shares held by
Radius Venture Partners II, L.P., 51,883 shares held by Radius Venture Partners III, L.P., and
348,117 shares held by Radius Venture Partners III QP, L.P.) of Common Stock issuable upon the
exercise of warrants at $6.00 per share. The address for Radius Venture Partners II, L.P. and
its affiliates is 400 Madison Avenue, 8th Floor, New York, New York 10017. |
| |
| (3) |
|
Represents shares received upon the conversion of subordinated convertible promissory notes
upon the closing of the Offering. The address for Angiotech Pharmaceuticals, Inc. is 1618
Station Street, Vancouver, British Columbia, Canada V6A 1B6. |
| |
| (4) |
|
Includes 1,200,000 shares (1,178,880 shares held by RA Capital Biotech Fund, L.P. and 21,120
shares held by RA Capital Biotech Fund II, L.P.) of Common Stock. Also includes 300,000
shares (294,720 shares held by RA Capital Biotech Fund, L.P. and 5,280 shares held by RA
Capital Biotech Fund II, L.P.) of Common Stock issuable upon the exercise of warrants at $6.00
per share. The address for RA Capital Biotech Fund, LP and its affiliates is 111 Huntington
Avenue, Suite 610, Boston, Massachusetts 02199. |
| |
| (5) |
|
Includes 1,200,000 shares (319,950 shares held by Accipiter Life Sciences Fund (Offshore),
L.P., 318,500 shares held by Accipiter Life Sciences Fund, L.P., 271,450 shares held by
Accipiter Life Sciences Fund II (Offshore), L.P., 157,750 shares held by Accipiter Life
Sciences Fund II (QP), L.P., and 132,350 shares held by Accipiter Life Sciences Fund II, L.P.)
of Common Stock. Also includes 300,000 shares (79,988 shares held by Accipiter Life Sciences
Fund (Offshore), L.P., 79,625 shares held by Accipiter Life Sciences Fund, L.P., 67,863 shares
held by Accipiter Life Sciences Fund II (Offshore), L.P., 39,437 shares held by Accipiter Life
Sciences Fund II (QP), L.P., and 33,087 shares held by Accipiter Life Sciences Fund II, L.P.)
of Common Stock issuable upon the exercise of warrants at $6.00 per share. The address for
Accipiter Capital Management LLC and its affiliates is 399 Park Avenue, 38th Floor,
New York, New York 10022. |
| |
| (6) |
|
Includes 800,000 shares (472,000 shares held by H&Q Healthcare Investors and 328,000 shares
held by H&Q Life Sciences Investors) of Common Stock. Also includes 200,000 shares (118,000
shares held by H&Q Healthcare Investors and 82,000 shares held by H&Q Life Sciences Investors)
of Common Stock issuable upon the exercise of warrants at $6.00 per share. The address for
Hambrecht & Quist Capital Management LLC and its affiliates is 30 Roews Wharf, Boston,
Massachusetts 02110. |
| |
| (7) |
|
Includes 41,299 shares (537 of which are held in trust for his children) of Common Stock
issued upon exchange of the Athersys shares of capital stock upon consummation of the Merger.
Also includes 21,271 |
48
|
|
|
| |
|
shares of Common Stock issued upon conversion of a secured subordinated
convertible promissory note and the exercise of a related warrant for 39,999 shares of Common
Stock at $0.01 per share. Also includes
warrants to purchase 5,318 shares of Common Stock at $6.00 per share that were issued upon
the conversion of the note. Also includes vested options of 285,000 granted with an
exercise price of $5.00. |
| |
| (8) |
|
Includes 24,539 shares of Common Stock issued upon exchange of the Athersys shares of capital
stock upon consummation of the Merger. Also includes 21,271 shares of Common Stock issued upon
conversion of a secured subordinated convertible promissory note and the exercise of a related
warrant for 39,999 shares of Common Stock at $0.01 per share. Also includes warrants to
purchase 5,318 shares of Common Stock at $6.00 per share that were issued upon the conversion
of the note. Also includes vested options of 280,000 granted with an exercise price of $5.00. |
| |
| (9) |
|
Includes 182,292 shares (175,004 shares held by Primus Capital Fund IV Limited Partnership
and 7,288 shares held by Primus Executive Fund Limited Partnership) of Common Stock issued
upon exchange of the Athersys shares of capital stock upon consummation of the Merger. Also
includes 106,356 (102,102 shares held by Primus Capital Fund IV Limited Partnership and 4,245
shares held by Primus Executive Fund Limited Partnership) shares of Common issued upon
conversion of a secured subordinated convertible promissory note and the exercise of a related
warrant for 199,998 shares (191,999 shares held by Primus Capital Fund IV Limited Partnership
and 7,999 shares held by Primus Executive Fund Limited Partnership) of Common Stock at $0.01
per share. Also includes warrants to purchase 26,589 shares (25,526 shares held by Primus
Capital Fund IV Limited Partnership and 1,063 shares held by Primus Executive Fund Limited
Partnership) of Common Stock at $6.00 per share that were issued upon the conversion of the
note. Mr. Mulligan is a limited partner of the General Partner of Primus Venture Partners,
L.P. and disclaims beneficial ownership of the reported securities except to the extent of his
pecuniary interest therein. Mr. Mulligan was appointed to our Board of Directors in June 2007
(formerly on Athersys board since 1998). |
| |
| (10) |
|
Includes 1,600,000 shares (800,000 shares held by Radius Venture Partners II, L.P., 103,766
shares held by Radius Venture Partners III, L.P., and 696,234 shares held by Radius Venture
Partners III QP, L.P.) of Common Stock. Also includes 800,000 shares (400,000 shares held by
Radius Venture Partners II, L.P., 51,883 shares held by Radius Venture Partners III, L.P., and
348,117 shares held by Radius Venture Partners III QP, L.P.) of Common Stock issuable upon the
exercise of warrants at $6.00 per share. Also includes 10,000 shares of Common Stock
purchased by Dr. Milne in this Offering, and related warrants to purchase 5,000 shares of
Common Stock at $6.00 per share. Dr. Milne is a venture partner
of Radius Ventures, LLC and disclaims beneficial ownership of the reported securities except to the
extent of his pecuniary interest therein. Dr. Milne was appointed to our Board of Directors
in June 2007 (formerly on Athersys board since 2003). The
address for Dr. Milne is c/o Athersys, Inc., 3201
Carnegie Avenue, Cleveland, Ohio 44115. |
| |
| (11) |
|
Includes 1,600,000 shares (800,000 shares held by Radius Venture Partners II, L.P., 103,766
shares held by Radius Venture Partners III, L.P., and 696,234 shares held by Radius Venture
Partners III QP, L.P.) of Common Stock. Also includes 800,000 shares (400,000 shares held by
Radius Venture Partners II, L.P., 51,883 shares held by Radius Venture Partners III, L.P., and
348,117 shares held by Radius Venture Partners III QP, L.P.) of Common Stock issuable upon the
exercise of warrants at $6.00 per share. Mr. Davis is a managing member of the General
Partner of each of Radius Venture Partners II, L.P., Radius Venture Partners III, L.P. and Radius
Venture Partners III QP, L.P., and disclaims beneficial ownership of the reported securities
except to the extent of his pecuniary interest therein. Mr. Davis was appointed to our Board
of Directors in June 2007. The address for Mr. Davis is
Radius Ventures, LLC, 400
Madison Avenue, 8th Floor, New York, New York 10017. |
| |
| (12) |
|
Includes 3,000,000 shares (2,971,698 shares held by Caduceus Private Investment III, L.P. and
28,302 shares held by OrbiMed Associates III, L.P.) of Common Stock. Also includes 750,000
shares (742,925 shares held by Caduceus Private Investment III, L.P. and 7,076 shares held by
OrbiMed Associates III, L.P.) of Common Stock issuable upon the exercise of warrants at $6.00
per share. Mr. Sheffery is a partner of OrbiMed Advisors LLC and disclaims beneficial
ownership of the reported securities except to the extent of his pecuniary interest therein.
Mr. Sheffery was appointed to our Board of Directors in June 2007. The address for Mr.
Sheffery is 767 Third Avenue, 30th Floor, New York, New York 10017. |
| |
| (13) |
|
Includes 1,600,000 shares (800,000 shares held by Radius Venture Partners II, L.P., 103,766
shares held by Radius Venture Partners III, L.P., and 696,234 shares held by Radius Venture
Partners III QP, L.P.) of Common Stock. Also includes 800,000 shares (400,000 shares held by
Radius Venture Partners II, L.P., 51,883 shares held by Radius Venture Partners III, L.P., and
348,117 shares held by Radius Venture |
49
|
|
|
| |
|
Partners III QP, L.P.) of Common Stock issuable upon the
exercise of warrants at $6.00 per share. Dr. Loop is venture
partner of Radius Ventures, LLC and disclaims beneficial ownership of the reported
securities except to the extent of his pecuniary interest therein. Dr. Loop was appointed
to our Board of Directors in June 2007. The address for
Dr. Loop is c/o Athersys, Inc., 3201 Carnegie
Avenue, Cleveland, Ohio 44115. |
| |
| (14) |
|
Includes 5,000 shares of Common Stock purchased by Mr. Lehmann in the Offering, and related
warrants to purchase 1,250 shares of Common Stock at $6.00 per share. Also includes vested
options of 160,000 granted with an exercise price of $5.00. |
| |
| (15) |
|
Includes vested options of 96,000 granted with an exercise price of $5.00. |
| |
| (16) |
|
Includes 1,064 shares of Common Stock issued upon conversion of a secured subordinated
convertible promissory note and the exercise of a related warrant for 1,999 shares of Common
Stock at $0.01 per share. Also includes warrants to purchase 266 shares of Common Stock at
$6.00 per share that were issued upon the conversion of the note. Also includes vested
options of 80,000 granted with an exercise price of $5.00. |
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors is responsible for the overall management of Athersys and elects the
executive officers who are responsible for administering Athersys’ day-to-day operations. Athersys’
management team is comprised of experienced executives of understanding that have participated in
other development stage, venture capital-funded, start-up companies and corporate development
transactions and have held executive positions in publicly traded companies.
In connection with the Merger, the following persons were elected to serve as officers and
directors on the board of directors of BTHC VI:
| |
|
|
|
|
|
|
| Name |
|
Age |
|
Position |
Gil Van Bokkelen, Ph.D.
|
|
|
46 |
|
|
Chief Executive Officer and Chairman |
William (BJ) Lehmann |
|
|
|
|
|
|
Jr., J.D., M.B.A.
|
|
|
41 |
|
|
President and Chief Operating Officer |
John J. Harrington, Ph.D.
|
|
|
39 |
|
|
Chief Scientific Officer and
Executive VP and Director |
Kurt R. Brunden, Ph.D.
|
|
|
49 |
|
|
Senior VP – Biopharmaceuticals |
Robert J. Deans Ph.D.
|
|
|
55 |
|
|
Senior VP – Regenerative Medicine |
Laura K. Campbell, C.P.A.
|
|
|
43 |
|
|
VP – Finance |
George M. Milne, Ph.D.
|
|
|
63 |
|
|
Director |
William C. Mulligan
|
|
|
53 |
|
|
Director |
Jordan S. Davis
|
|
|
45 |
|
|
Director |
Floyd D. Loop, M.D.
|
|
|
70 |
|
|
Director |
Michael Sheffery
|
|
|
56 |
|
|
Director |
Gil Van Bokkelen, Ph.D.
Chief Executive Officer and Chairman
Dr. Van Bokkelen co-founded Athersys in October 1995 and has served as Chief Executive Officer and
a director since Athersys’ founding. Prior to May 2006, he also served as Athersys’ President. He
has served as Chairman of Athersys’ Board of Directors since August 2000. Dr. Van Bokkelen is the
current Chairman of the Center for Stem Cells and Regenerative Medicine, and has served on a number
of other boards, including the Biotechnology Industry Organization’s ECS Board of Directors from
2001 to 2004, the Kent State University Board of Trustees from 2001 to 2004 and serves as an
advisor to Early Stage Partners, a venture capital firm. He received his Ph.D. in Genetics from
Stanford University, 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.
50
William (BJ) Lehmann, J.D., M.B.A.
President and Chief Operating Officer
William (BJ) Lehmann, Jr., J.D. joined Athersys in September 2001 and was Athersys’ Executive Vice
President of Corporate Development and Finance from August 2002 until May 2006, when he became
Athersys’ President. 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.
John J. Harrington
Chief Scientific Officer and Executive Vice President, and Director
Dr. Harrington co-founded Athersys in October 1995 and has served as Athersys’ Executive Vice
President and Chief Scientific Officer and as a director since Athersys’ 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 20 issued or
pending U.S. patents, has authored 20 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 during his career he has also held positions at Amgen and
Scripps Clinic. He received his Ph.D. in Cancer Biology from Stanford University and his B.A. in
Biochemistry and Cell Biology from the University of California at San Diego.
Kurt R. Brunden, Ph.D.
Senior Vice President – Biopharmaceuticals
Dr. Brunden joined Athersys as Vice President of Drug Discovery in September 2000 and has served as
Athersys’ Senior Vice President of Biopharmaceuticals since October 2004. Dr. Brunden was employed
at Gliatech Inc., a pharmaceutical and device company, from 1991 to 2000, where his most recent
position was Vice President of Research. In that capacity, he was responsible for the initiation
and development of small molecule and protein drug discovery programs. From 1988 to 1991, Dr.
Brunden held a tenure-track faculty position within the Department of Biochemistry at the
University of Mississippi Medical Center. He was a Research Fellow at the Mayo Clinic from 1985 to
1988. Dr. Brunden received his Ph.D. in Biochemistry from Purdue University and his B.S. in
Biology and Chemistry from Western Michigan University. Dr. Brunden is considering a possible
return to a faculty position, which would begin in late summer 2007. If Dr. Brunden does take a
faculty position, Athersys currently anticipates that he would continue his involvement with the
Company as a consultant, providing his expertise to the advancement of its biopharmaceutical
programs.
Robert J. Deans, Ph.D.
Senior Vice President – Regenerative Medicine
Dr. Deans has led Athersys’ regenerative medicine research and development activities since
February 2003 and has served as Vice President of Regenerative Medicine since October 2003. He was
named Senior Vice President of Regenerative Medicine in June 2006. Dr. Deans is highly regarded as
an expert in stem cell therapeutics, with over fifteen years of experience in this field. From
2001 to 2003, Dr. Deans worked for early-stage biotechnology companies. Dr. Deans was formerly the
Vice President of Research at Osiris Therapeutics, Inc., a biotechnology company, from 1998 to 2001
and Director of Research and Development with the Immunotherapy Division of Baxter International,
Inc., a global healthcare company, from 1992 to 1998. Dr. Deans was also previously on faculty at
USC Medical School in Los Angeles, between 1981 and 1998, in the departments of Microbiology and
Neurology at the
51
Norris Comprehensive Cancer Center. Dr. Deans was an undergraduate at MIT,
received his Ph.D. at the University of Michigan, and did his post-doctoral work at UCLA in Los
Angeles.
Laura K. Campbell, CPA,
Vice President — Finance
Laura Campbell joined Athersys in January 1998 as Controller and has served as Vice President of
Finance since May 2006. Prior to joining Athersys, she was at Ernst & Young LLP, a public
accounting
firm, for 11 years, in the 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.
George M. Milne, Ph.D.
Director
Dr. Milne has been a director of Athersys since January 2003 after his retirement in 2002 from
Pfizer Inc, a pharmaceutical company, where he most recently served as President of Worldwide
Strategic and Operations Management and Executive Vice President of Global Research and
Development. He joined Pfizer Inc in 1970 and held a variety of positions conducting both
chemistry and pharmacology research. Dr. Milne is a Venture Partner of Radius. Dr. Milne became
Director of the Department of Immunology and Infectious Diseases at Pfizer Inc in 1981, was
Executive Director from 1984 to 1985 and was Vice President of Research and Development from 1985
to 1988. He was appointed Senior Vice President in 1988 and President of Central Research in 1993
with global responsibility for Human and Veterinary Medicine R&D. Dr. Milne serves as a director
of Mettler-Toledo, Inc., Charles River Laboratories, Inc., MedImmune Inc., and Aspreva
Pharmaceuticals Inc. He also serves on the board of the New York Botanical Garden and the Mystic
Aquarium/Institute for Exploration. Dr. Milne received his B.S. in Chemistry from Yale University
and his Ph.D. in Organic Chemistry from Massachusetts Institute of Technology.
William C. Mulligan
Director
Mr. Mulligan has been a director of Athersys since October 1998. Mr. Mulligan joined Primus
Venture Partners, a Cleveland-based private equity firm and an investor in Athersys, in 1985 from
McKinsey & Company, Inc. Mr. Mulligan has served as a Managing Director of Primus since 1987. His
previous work experience includes management positions at Deere and Company, and First Chicago
Corporation. Mr. Mulligan serves as a director of several private companies and Universal
Electronics, Inc. (NASDAQ: UEIC). Mr. Mulligan is a trustee of The Cleveland Clinic Foundation and
chairs the Advisory Board of CCF Innovations, which is responsible for commercializing technology
developed at the Cleveland Clinic. Mr. Mulligan is also a trustee of Denison University, the
Western Reserve Land Conservancy. Mr. Mulligan received his B.A. in economics from Denison
University and his M.B.A. from the University of Chicago.
Jordan S. Davis
Director
Mr. Davis is a Managing Partner of Radius Ventures, a health and life sciences venture capital
firm, which he co-founded in 1997. Mr. Davis currently serves on the board of directors of several
Radius portfolio companies, including Health Language, Inc., Heartscape Technologies, Inc.,
Impliant, Inc., and Zettacore, Inc. He also serves on the board of American Bank Note
Holographics, Inc. (OTC: ABHH). Mr. Davis earned an M.B.A. from the Kellogg School of Management at
Northwestern University and a B.A. in Economics from The State University of New York at
Binghamton.
52
Floyd D. Loop, M.D.
Director
Dr. Loop was the CEO and chairman of the Board of Governors of The Cleveland Clinic Foundation from
1989 to 2004. Earlier, he chaired the Department of Thoracic and Cardiovascular Surgery at the
Cleveland Clinic from 1975 to 1989. Dr. Loop and his colleagues were responsible for today’s
widespread use of arterial conduits in coronary artery surgery, innovations in valve repair,
reoperations and numerous changes in technical procedure. As a surgeon, Dr. Loop performed more
than 12,000 open heart operations and authored 350 papers on all aspects of cardiovascular surgery.
During his tenure as CEO, the Cleveland Clinic revenues grew from $650 million to $3.6 billion.
His accomplishments included a significant development of basic and applied research, creation of a
delivery system comprised
of 12 hospitals and 14 outpatient sites, a new medical school for physician investigators and
construction of two hospitals in Florida. Dr. Loop is a Venture Partner of Radius. Dr. Loop was
president of the American Association for Thoracic Surgery, Chairman of the Residency Review
Committee, and a member of the American Board of Thoracic Surgery. Dr. Loop has received honorary
degrees from Cleveland State University, Purdue University, and St. Louis University among many
other international awards. He currently serves on two public boards, Tenet Healthcare Corporation
and Intuitive Surgical, Inc. Dr. Loop received his M.D. from the George Washington University.
Michael B. Sheffery, Ph.D.
Director
Dr. Sheffery is a founding General Partner of OrbiMed Advisors, LLC and Co-Head of Private Equity.
Dr. Sheffery was formerly Head of the Laboratory of Gene Structure and Expression at Memorial
Sloan-Kettering Cancer Center. He received both his Ph.D. in Molecular Biology and his B.A. in
Biology from Princeton University. Dr. Sheffery joined Mehta and Isaly in 1996 as a Senior Analyst
covering the biotechnology industry. Since 1998, Dr. Sheffery had been a General Partner of
OrbiMed Advisors, LLC. He is currently a Director of Affimed Therapeutics, AG, Supernus
Pharmaceuticals, Inc., CoGenesys, Inc., and Sientra, Inc.
COMPENSATION DISCUSSION & ANALYSIS
This section discusses the principles underlying our executive compensation policies and decisions
and the most important factors relevant to an analysis of these policies and decisions. It
provides qualitative information regarding the manner and context in which compensation is awarded
to and earned by our named executive officers, which we refer to further under “Executive
Compensation” below, and places in perspective the data presented in the compensation tables and
narratives that follow.
Compensation Objectives and Philosophy
Historically, Athersys’ board of directors has been responsible for establishing and approving the
compensation of its executive officers and key employees. In connection with the completion of the
Offering, the Compensation Committee of the Board of Directors was established, and will be
responsible for overseeing executive and other employee compensation, as well as certain other
matters. With respect to compensation matters, the initial objective of the Board of Directors and
Compensation Committee will be to establish a compensation program that attracts and helps retain
talented and experienced individuals for senior level positions throughout the organization, as
well as to authorize appropriate compensation for our employees and key consultants.
The Board of Directors and the Compensation Committee will oversee compensation programs designed
to also:
| |
• |
|
Recruit, retain, and motivate executives and employees that can help us achieve our
core business goals; |
53
| |
• |
|
Provide incentives to promote and reward superior performance throughout the organization; |
| |
| |
• |
|
Facilitate stock ownership and retention by our executives and other employees; and |
| |
| |
• |
|
Promote alignment between executives and other employees and the long term interests of
stockholders. |
The Board of Directors and Compensation Committee will seek to achieve these objectives by:
| |
• |
|
Establishing a compensation program that is market competitive and internally fair; and |
| |
| |
• |
|
Linking performance with certain elements of compensation through the use of equity
options, stock grants, cash performance bonuses or other means of compensation the value of
which is substantially tied to the achievement of our company goals. |
Components of Compensation
The Company’s executive compensation program will include the following elements:
| |
• |
|
Base salary; |
| |
| |
• |
|
Discretionary and performance-based bonuses; |
| |
| |
• |
|
Long-term incentive plan awards; and |
| |
| |
• |
|
Retirement and health insurance benefits. |
The Compensation Committee will set a competitive rate of annual base salary for each executive
officer in order to attract and retain top quality executives. However, the Compensation Committee
has not yet committed to the means by which it will determine competitive rates of annual base
salary in the market, which means might include executive officer and director input, input from a
compensation consultant and third-party information.
We do not have a specific formula for allocating total compensation between current and long-term
compensation or between cash and non-cash compensation. However, we do vary the mix of our
executive officers’ compensation elements based on competitive practices and their relative
management level to recognize each individual’s operating responsibilities and reward his or her
ability to impact short- and long-term results.
Elements of Executive Compensation
We will pay our executive officers the following compensation:
Base Salary. We pay base salaries in order to attract executive officers and provide a basic level
of financial security. We establish base salaries for our executives based on the scope of their
responsibilities, taking into account competitive market compensation paid by other companies for
similar positions. Base salaries are reviewed (1) at the time of renewal of an executive’s
employment agreement, or (2) annually, with adjustments based on the individual’s responsibilities,
performance and experience during the year. This review occurs each year at the annual review.
Discretionary and Performance-Based Bonuses. The Board of Directors expects to adopt a formal
process for determining and awarding discretionary and performance-based annual bonuses later in
2007.
54
The Board of Directors intends to utilize annual incentive bonuses to reward officers and
other employees for achieving financial and operational goals and for achieving individual annual
performance objectives. These objectives will vary depending on the individual executive and
employee, but will relate generally to strategic factors, including establishment and maintenance
of key strategic relationships, advancement of our product candidates, identification and
advancement of additional programs or product candidates, and to financial factors, including
raising capital, improving our results of operations and increasing the price per share of our
common stock. Commencing in 2007, the Board of Directors will have authority to award
discretionary annual bonuses to, or enter into commitments for the award of an annual bonus with,
our executive officers.
Long-Term Incentive Program. We believe that we can encourage superior long-term performance by
our executive officers and employees through encouraging them to own, and assisting them with the
acquisition of, our stock. We have established the BTHC VI, Inc. Long-Term Incentive Plan and the
BTHC VI, Inc. Equity Incentive Compensation Plan, which we refer to as our equity compensation
plans, to provide our employees, including executive officers, with incentives to help align their
interests with the interests of our stockholders. Our Board of Directors believes that the use of
stock and stock-based awards offers the best approach to achieving our compensative objective of
fostering a culture of ownership, which it believes will, in turn, motivate our executive officers
to create and enhance stockholder value. Historically, Athersys has elected to use stock options
as its primary long-term equity incentive vehicle. We have not adopted stock ownership guidelines,
but our equity compensation plans provide a principal method for our executive officers to acquire
equity in our Company.
Stock Options. Our equity compensation plans authorize us to grant options to purchase
shares of Common Stock to our employees, directors and consultants. The Compensation Committee
of the Board of Directors administers our equity compensation plans. Stock option grants are
made at the commencement of employment and, on occasion, following a significant change in job
responsibilities or to meet other special retention objectives. The Compensation Committee
annually reviews and approves stock option awards to executive officers based upon a review of
competitive compensation data, its assessment of individual performance, a review of each
executive’s existing long-term incentives and retention considerations. Periodic stock option
grants are made at the discretion of the Compensation Committee to eligible employees, including
named executive officers, and, in appropriate circumstances, the Compensation Committee
considers the recommendations of members of management. Our stock options are generally
exercisable for a period of ten years, have an exercise price equal to the fair market value of
our Common Stock on the day of grant and typically vest over a four-year period, with 25%
vesting twelve months after the vesting commencement date and the remainder vesting 25% per year
(on a quarterly basis) thereafter based upon continued employment. Incentive stock options also
include certain other terms necessary to assure compliance with particular provisions of the
Internal Revenue Code.
In June 2007, upon the closing of the Merger, we granted option awards to purchase 3,250,000
shares of Common Stock with an exercise price of $5.00 to our employees, including our executive
officers, and certain consultants in June 2007 upon the closing of the Merger. These option
awards generally vest 40% on the date of grant, and 20% in each of the three years (on a
quarterly basis) thereafter. Dr. Van Bokkelen received stock option grants to purchase 712,500
shares of Common Stock at $5.00 per share; Dr. John Harrington received stock option grants to
purchase 700,000 shares of Common Stock at $5.00 per share; Mr. Lehmann received stock option
grants to purchase 400,000 shares of Common Stock at $5.00 per share; Dr. Brunden received stock
option grants to purchase 50,000 shares of Common Stock at $5.00 per share; Dr. Deans received
stock option grants to purchase 240,000 shares of Common Stock at $5.00 per share; and Ms.
Campbell received stock option grants to purchase 200,000 shares of Common Stock at $5.00 per
share. Also in June 2007, option awards to purchase 75,000 shares of Common Stock with an
exercise price of $5.00 were granted to each of our directors (options for a total of 375,000
shares), which stock options vest at a rate of 50% in the first year (on a
55
quarterly basis), and
25% in each of the two years (on a quarterly basis) thereafter, based on participation at
quarterly meetings of the Board of Directors.
We expect to continue to use stock options as a long-term incentive vehicle because we believe:
• Stock options align the interests of our executives with those of our stockholders,
support a pay-for-performance culture, foster an employee stock ownership culture and focus the
management team on increasing value for our stockholders;
• The value of stock options is based on our performance, because all the value received
by the recipient of a stock option is based on the growth of our stock price;
• Stock options help to provide a balance to the overall executive compensation program
because, while base salary and our discretionary annual bonus program focus on short-term
compensation rewards, vesting stock options reward increases in stockholder value over the
longer term; and
• The vesting period of stock options encourages executive retention and their efforts to
preserve stockholder value.
In determining the number of stock options to be granted to executives, we take into account the
individual’s position, scope of responsibility, ability to affect profits and stockholder value
and the individual’s historic and recent performance and the value of stock options in relation
to other elements of the individual executive’s total compensation.
Restricted Stock and Restricted Stock Units. Our equity compensation plans authorize us
to grant restricted stock and restricted stock units to our employees, directors and
consultants. To date, we have not granted any restricted stock or restricted stock units under
our equity compensation plans. We anticipate that in order to implement the long-term incentive
goals of the Compensation Committee, we may grant restricted stock units in the future.
Retirement and Health Insurance Benefits. Consistent with our compensation philosophy, we intend
to continue to maintain our current benefits for our executive officers, including medical, dental,
vision and life and disability insurance coverage and the ability to contribute to a 401(k)
retirement plan; however, the Board of Directors, in its discretion, may revise, amend or add to
the executive officer’s benefits if it deems it advisable. We believe these benefits are currently
lower than median competitive levels for comparable companies. We have no current plans to change
the level of benefits provided to our executive officers.
Severance Arrangements
See the disclosure under “Potential Payments Upon Termination or Change of Control” for more
information about severance arrangements with our named executive officers.
Employment Agreements and Arrangements
Dr. Gil Van Bokkelen. On December 1, 1998, Athersys entered into a one-year employment
agreement, effective April 1, 1998, with Dr. Gil Van Bokkelen, to serve initially as president
and chief executive officer. The agreement automatically renews for subsequent one-year terms
on April 1 of each year unless either party gives notice of termination at least 30 days before
the end of any term. Dr. Van Bokkelen is entitled to a base
salary of $350,000, which may be
increased at the discretion of the Athersys board of directors, and an annual discretionary
incentive bonus of up to 33% of his base salary. Dr. Van Bokkelen also received options to
purchase shares of Athersys common stock. Dr. Van Bokkelen is also entitled to life insurance
coverage for the benefit of his family in the amount of approximately $2 million and is provided
the use of a company automobile for business use. The agreement was amended as of May 31, 2007
to provide technical accommodations for the Merger and Offering. For more information about
severance arrangements under the amended agreement, see the disclosure under “Potential Payments
Upon Termination or Change of Control.” Dr. Van Bokkelen has also entered into a
non-competition and confidentiality agreement with Athersys under which, during his employment
and for a period of 18 months thereafter, he is restricted from, among other things, competing
with Athersys.
56
Dr. John J. Harrington. On December 1, 1998, Athersys entered into a one-year
employment agreement, effective April 1, 1998, with Dr. John J. Harrington to serve initially as
executive vice president and chief scientific officer. The agreement automatically renews for
subsequent one-year terms on April 1 of each year unless either party gives notice of
termination at least thirty days before the end of any term. Dr. Harrington is entitled to a
base salary of $300,000, which may be increased at the discretion of the Athersys board of
directors, and an annual discretionary incentive bonus of up to 33% of his base salary. Dr.
Harrington also received options to purchase shares of Athersys common stock. Dr. Harrington is
also entitled to life insurance coverage for the benefit of his family in the amount of
approximately $2 million. The agreement was amended as of May 31, 2007 to provide technical
accommodations for the Merger and Offering. For more information about severance arrangements
under the amended agreement, see the disclosure under “Potential Payments Upon Termination or
Change of Control.” Dr. Harrington has also entered into a non-competition and confidentiality
agreement with Athersys under which, during his employment and for a period of 18 months
thereafter, he is restricted from, among other things, competing with Athersys.
Laura K. Campbell. On May 22, 1998, Athersys entered into a two-year employment
agreement with Laura K. Campbell to serve initially as controller. The agreement automatically
renews for subsequent one-year terms on May 22 of each year unless either party gives notice of
termination at least thirty days before the end of any term. Ms. Campbell is entitled to a base
salary of $195,000, which may be increased at the discretion of the Athersys board of directors.
Ms. Campbell also received options to purchase shares of Athersys common stock. The agreement
was amended as of May 31, 2007 to provide technical accommodations for the Merger and Offering.
For more information about severance arrangements under the amended agreement, see the
disclosure under “Potential Payments Upon Termination or Change of Control.”
Dr. Kurt Brunden. On September 25, 2000, a subsidiary of Athersys entered into a
four-year employment agreement with Dr. Kurt Brunden to serve initially as vice president of
drug discovery. The agreement automatically renews for subsequent one-year terms on September
25 of each year unless either party gives notice of termination at least thirty days before the
end of any term. Dr. Brunden is entitled to a base salary of
$240,000, which may be increased
at the discretion of the Athersys board of directors, and guaranteed bonuses for 2001 and 2002.
Dr. Brunden also received options to purchase shares of Athersys common stock. Dr. Brunden is
also entitled to life insurance coverage for the benefit of his family of approximately $1
million. The agreement was amended as of May 31, 2007 to provide technical accommodations for the Merger and Offering. For more
information about severance arrangements under the amended agreement, see the disclosure under
“Potential Payments Upon Termination or Change of Control.” Dr. Brunden has also entered into a
non-competition and confidentiality agreement with Athersys under which, during his employment
and for a period of 18 months thereafter, he is restricted from, among other things, competing
with Athersys.
Dr. Robert Deans. On October 3, 2003, a subsidiary of Athersys entered into a four-year
employment agreement with Dr. Robert Deans to serve initially as vice president of regenerative
medicine. The agreement automatically renews for subsequent one-year terms on October 3 of each
year unless either party gives notice of termination at least thirty days before the end of any
term. Dr. Deans is entitled to a base salary of $235,000, which may be increased at the
discretion of the Athersys board of directors, and an annual discretionary incentive bonus of up
to 30% of his base salary. Dr. Deans also received options to purchase shares of Athersys
common stock. Dr. Deans is also entitled to life insurance coverage for the benefit of his
family of approximately $1 million. The agreement was amended as of May 31, 2007 to provide
technical accommodations for the Merger and Offering. For more information about severance
arrangements under the amended agreement, see the disclosure under “Potential Payments Upon
Termination or Change of Control.” Dr. Deans has also entered into a non-competition and
confidentiality agreement with Athersys under which, during his employment and for a period of
18 months thereafter, he is restricted from, among other things, competing with Athersys.
William (BJ) Lehmann. On January 1, 2004, a subsidiary of Athersys entered into a
four-year employment agreement with William (BJ) Lehmann to serve initially as executive vice
president of corporate development and finance. The agreement automatically renews for
subsequent one-year terms on January 1 of each year unless either party gives notice of
termination at least 30 days before the end of any term. Mr. Lehmann is entitled to a base
salary of $300,000, which may be increased at the discretion of the Athersys board of directors.
Mr. Lehmann is entitled to life insurance coverage for the benefit of his family in the amount
of approximately $1 million. The agreement was amended as of May 31, 2007 to provide technical
accommodations for the Merger and Offering. For more information about severance arrangements
under the amended agreement, see the disclosure under “Potential Payments Upon Termination or
Change of Control.” Mr. Lehmann has also entered into a non-competition and confidentiality
agreement with Athersys under which, during his employment and for a period of 18 months
thereafter, he is restricted from, among other things, competing with Athersys.
57
Recoupment of Incentive Payments
We do not have a formal policy regarding adjusting or recovering discretionary or performance-based
bonuses or long-term incentive plan awards or payments if the relevant performance metrics upon
which such awards or payments are based are later restated or otherwise adjusted in a manner that
reduces the actual size of the award or payment. We will consider making such adjustments on a
case-by-case basis if such situations arise.
General Tax Deductibility of Executive Compensation
We intend to structure our compensation program to comply with Internal Revenue Code Sections
162(m) and 409A. Under Section 162(m) of the Internal Revenue Code, a limitation was placed on tax
deductions of any publicly-held corporation for individual compensation to certain executives of
such
corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based.
If an executive is entitled to nonqualified deferred compensation benefits that are subject to
Section 409A, and such benefits do not comply with Section 409A, then the benefits are taxable in
the first year they are not subject to a substantial risk of forfeiture. In such case, the
executive is subject to regular federal income tax, interest and an additional federal income of
20% of the benefit includible in income. We intend for our Compensation Committee to generally
manage our incentive programs to qualify for the performance based exemption. The Compensation
Committee also reserves the right to provide compensation that does not meet the exemption criteria
if, in its sole discretion, it determines that doing so advances our business objectives.
EXECUTIVE COMPENSATION
The following tables and narratives provide, for the fiscal year ended December 31, 2006,
descriptions of the cash compensation paid by us, as well as certain other compensation paid or
accrued, for that year to Dr. Gil Van Bokkelen, Chief Executive Officer; and Laura Campbell, Vice
President – Finance; and the four most highly compensated executive officers other than Dr. Van
Bokkelen and Ms. Campbell who were serving as executive officers as of December 31, 2006. We
refer to these individuals as our named executive officers. The stock option information set
forth in this section is historical information based on the option plans of Athersys. All
employee and director options under the Athersys stock option plans were terminated upon closing
of the Merger, and new options were granted under the BTHC VI incentive plans.
2006 Summary Compensation Table
The following table shows compensation information for 2006 for our named executive officers:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
| |
|
|
|
|
|
Salary |
|
Bonus |
|
Option Awards |
|
Compensation |
|
Total |
| Name and Principal Position |
|
Year |
|
($) (1) |
|
($) |
|
($) (2) |
|
($) |
|
($) |
| (a) |
|
(b) |
|
(c) |
|
(d) |
|
(f) |
|
(i) |
|
(j) |
Dr. Gil Van Bokkelen, Chief
Executive Officer (3)
|
|
|
2006 |
|
|
$ |
350,000 |
|
|
$ |
25,000 |
|
|
$ |
0 |
|
|
$ |
149,604 |
(4) |
|
$ |
524,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Lehmann, Jr.,
President and Chief Operating
Officer
|
|
|
2006 |
|
|
$ |
300,000 |
|
|
$ |
20,833 |
|
|
$ |
91,015 |
|
|
$ |
1,000 |
|
|
$ |
412,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. John Harrington, Chief
Scientific Officer and
Executive Vice President (3)
|
|
|
2006 |
|
|
$ |
300,000 |
|
|
$ |
21,667 |
|
|
$ |
0 |
|
|
$ |
1,000 |
|
|
$ |
322,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Kurt Brunden, Vice
President – Biopharmaceuticals
|
|
|
2006 |
|
|
$ |
240,000 |
|
|
$ |
18,333 |
|
|
$ |
75,570 |
|
|
$ |
2,000 |
|
|
$ |
335,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Robert Deans, Vice
President – Regenerative
Medicine
|
|
|
2006 |
|
|
$ |
235,000 |
|
|
$ |
16,667 |
|
|
$ |
105,119 |
|
|
$ |
6,000 |
|
|
$ |
362,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laura Campbell, Vice President
– Finance
|
|
|
2006 |
|
|
$ |
195,000 |
|
|
$ |
14,219 |
|
|
$ |
20,056 |
|
|
$ |
0 |
|
|
$ |
229,275 |
|
58
|
|
|
| (1) |
|
The 2006 salary increase was approved by Athersys’ Compensation Committee effective June
1, 2006, but payment was deferred until the closing of the Offering. |
| |
| (2) |
|
Amounts in column (f) do not necessarily reflect compensation actually received by Athersys’
named executive officers. The amounts in column (f) reflect the dollar amount recognized for
financial statement reporting purposes for the fiscal year ended December 31, 2006, in
accordance with SFAS No. 123R, for option awards
granted prior to 2006. Assumptions used in the calculation of these amounts are included in
Notes A and J to Athersys’ audited consolidated financial statements for the fiscal year ended
December 31, 2006, which are filed as an exhibit to this Current Report on Form 8-K. |
| |
| (3) |
|
Drs. Van Bokkelen and Harrington also served as Athersys directors for 2006, but did not
receive any compensation as Athersys directors. |
| |
| (4) |
|
Includes $145,604 representing a loan which was forgiven by Athersys’ Board of Directors,
including certain tax benefits. |
2006 Grants of Plan-Based Awards
Athersys implemented an incentive plan in 2005, which was amended in June 2007, which provides the
named executive officers with cash (or equity, as applicable) bonus payments upon the achievement
of certain thresholds from financing transactions, mergers or acquisitions, and asset sale
transactions. Payments under this plan are set forth in the 2006 Summary Compensation Table. No
plan-based awards were granted to our named executive officers during 2006.
Certain of our named executive officers are parties to employment agreements with us. For more
information about these agreements, see “Compensation Discussion & Analysis—Employment Agreements
and Arrangements” above. For more information about the compensation arrangements in which our
named executive officers participate and the proportion of our named executive officers’ total
compensation represented by base salary and bonus, see “2006 Summary Compensation Table” above.
Outstanding Equity Awards at 2006 Fiscal Year End Table
The following table shows all outstanding equity awards held by our named executive officers at
the end of 2006.
59
| |
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Option Awards |
| |
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
|
|
| |
|
Number |
|
|
|
|
|
Plan Awards: |
|
|
|
|
| |
|
of |
|
Number of Securities |
|
Number of |
|
|
|
|
| |
|
Securities |
|
Underlying |
|
Securities |
|
|
|
|
| |
|
Underlying |
|
Unexercised Options |
|
Underlying Unexer- |
|
|
|
|
| |
|
Unexercised Options |
|
(#) |
|
cised Unearned |
|
Option Exercise |
|
|
| |
|
(#) |
|
Unexercisable |
|
Options |
|
Price |
|
Option Expiration |
| Name |
|
Exercisable |
|
(1) |
|
(#) |
|
($) |
|
Date |
| (a) |
|
(b) |
|
(c) |
|
(d) |
|
(e) |
|
(f) |
Dr. Van Bokkelen |
|
|
199,980 |
|
|
|
— |
|
|
|
— |
|
|
$ |
1.65 |
|
|
April 1, 2008 |
|
|
|
100,020 |
|
|
|
— |
|
|
|
— |
|
|
$ |
1.20 |
|
|
April 1, 2008 |
|
|
|
45,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
3.25 |
|
|
April 2, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
345,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Lehmann |
|
|
50,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
1.00 |
|
|
November 14, 2011 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
15.60 |
|
|
November 14, 2011 |
|
|
|
75,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
4.00 |
|
|
December 9, 2013 |
|
|
|
— |
|
|
|
25,000 |
|
|
|
— |
|
|
$ |
4.00 |
|
|
December 9, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Harrington |
|
|
199,980 |
|
|
|
— |
|
|
|
— |
|
|
$ |
1.50 |
|
|
April 1, 2008 |
|
|
|
100,020 |
|
|
|
— |
|
|
|
— |
|
|
$ |
1.50 |
|
|
April 1, 2008 |
|
|
|
457,500 |
|
|
|
— |
|
|
|
— |
|
|
$ |
1.50 |
|
|
April 1, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
757,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Brunden |
|
|
50,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
1.00 |
|
|
September 25, 2010 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
15.60 |
|
|
September 25, 2010 |
|
|
|
70,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
4.00 |
|
|
December 9, 2013 |
|
|
|
— |
|
|
|
20,000 |
|
|
|
— |
|
|
$ |
4.00 |
|
|
December 9, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Deans |
|
|
7,500 |
|
|
|
— |
|
|
|
— |
|
|
$ |
13.00 |
|
|
October 3, 2013 |
|
|
|
37,500 |
|
|
|
— |
|
|
|
— |
|
|
$ |
3.25 |
|
|
October 3, 2013 |
|
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
4.00 |
|
|
December 9, 2013 |
|
|
|
— |
|
|
|
2,500 |
|
|
|
— |
|
|
$ |
13.00 |
|
|
October 3, 2013 |
|
|
|
— |
|
|
|
12,500 |
|
|
|
— |
|
|
$ |
3.25 |
|
|
October 3, 2013 |
|
|
|
— |
|
|
|
10,000 |
|
|
|
— |
|
|
$ |
4.00 |
|
|
December 9, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Campbell |
|
|
60,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
1.50 |
|
|
May 22, 2008 |
|
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
1.00 |
|
|
February 22, 2010 |
|
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
7.00 |
|
|
February 22, 2010 |
|
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
4.00 |
|
|
December 9, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
The stock options listed in column (c) for Mr. Lehmann were granted on December 9, 2003,
vest at a rate of 25% on each grant date anniversary, and will be fully exercisable on
December 9, 2007. The stock options listed in column (c) for Dr. Brunden were granted on
December 9, 2003 and vest at a rate of 11% on the date of grant, and 22% on each subsequent
grant date anniversary thereafter, and will be fully exercisable on December 9, 2007. The
stock options listed in column (c) for Dr. Deans were granted on October 3, 2003, October 3,
2003, and December 9, 2003, respectively, vest at a rate of 25% on each grant date
anniversary, and will be fully exercisable on October 3, 2007, October 3, 2007 and December 9,
2007, respectively. |
Upon the close of the Merger, the majority of Athersys’ outstanding stock options were
terminated, including all of the stock options listed in the table above. Following the Merger,
new grants were made to employees, including the named executive officers.
2006 Options Exercised and Stock Vested
None of our named executive officers’ stock awards vested during 2006, and none of our named
executive officers exercised any stock options during 2006.
60
Potential Payments Upon Termination or Change of Control
Upon termination, the named executive officers may be entitled to certain potential payments. In
the event that an executive officer is terminated without cause or terminates employment for good
reason including a change of control, we would be obligated to pay full base salary and other
benefits for a defined period, subject to mitigation related to other employment. For Dr. Gil Van
Bokkelen and Dr. John Harrington, this period is eighteen months, and for all other executive
officers, the period is six months. In addition, we would be obligated to continue the
participation of the executive officer in all medical, life and other employee “welfare” benefit
programs for a period of eighteen months to the extent available and possible under the programs.
In the event than an executive officer is terminated for cause, other than for good reason, or as
a result of death, we would be obligated to pay full base salary and other benefits, including any
unpaid expense reimbursements, through the date of termination, and would have no further
obligations to the executive officer. In the event that an executive officer is unable to perform
duties as a result of a disability, we would be obligated to pay full base salary and other
benefits until employment is terminated and for a
period of twelve months from the date of such termination.
61
2006 Director Compensation Table
Our non-employee directors received the following compensation for 2006:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fees Earned or |
|
|
|
|
|
|
| |
|
Paid in |
|
Option |
|
All Other |
|
|
| |
|
Cash |
|
Awards |
|
Compensation |
|
Total |
| Name |
|
($) |
|
($) (1) |
|
($) |
|
($) |
| (a) |
|
(b) |
|
(d) |
|
(g) |
|
(h) |
Dr. George M. Milne |
|
$ |
25,000 |
|
|
$ |
38,481 |
(2) |
|
$ |
0 |
|
|
$ |
38,481 |
|
William C. Mulligan |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Timothy G. Biro |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
|
| (1) |
|
Amounts in column (d) do not necessarily reflect compensation actually received by
Athersys’ directors. The amounts in column (d) reflect the dollar amount recognized for
financial statement reporting purposes for the fiscal year ended December 31, 2006, in
accordance with SFAS No. 123R, for option awards granted prior to 2006. Assumptions used in
the calculation of these amounts are included in Notes A and J to Athersys’ audited
consolidated financial statements for the fiscal year ended December 31, 2006, which are filed
as an exhibit to this Current Report on Form 8-K. No grants of stock awards or stock options
were made by Athersys to its directors in 2006. The non-employee directors had option awards
outstanding as of December 31, 2006 for the following number of shares of Athersys common
stock (which option awards were terminated upon the closing of the Merger): Dr.
Milne, 100,000; Mr. Mulligan, 150,000; and Mr. Biro, 150,000. |
| |
| (2) |
|
The amount in column (d) for Dr. Milne relates to an option that Athersys granted Dr. Milne
in January 2003 for 33,000 shares of Athersys common stock, at an exercise price of $10.00 per
share, and an option that Athersys granted Dr. Milne in January 2003 for 67,000 shares of
Athersys common stock at an exercise price of $3.25 per share. These options vested over a
four-year period, and were terminated in connection with the Merger. |
Athersys’ directors typically have not received cash for services they provide as directors;
however, Dr. Milne has historically received $25,000 annually for his services as a board member.
Also, Athersys’ non-employee directors have historically received grants of options to purchase
shares of Athersys common stock. During 2006, none of Athersys’ other non-employee directors
received any compensation for his service as a director.
Upon the closing of the Merger and the Offering, all existing members of the Athersys board of
directors, other than Mr. Timothy Biro, along with some new individuals, were appointed to the
Board. The new directors are Mr. Jordan Davis, Dr. Floyd Loop, and Mr. Michael Sheffery.
The Board approved a compensation program for the Board beginning in June 2007. The new
compensation program includes an initial stock option grant to purchase 75,000 shares of Common
Stock at fair market value on the date of grant, which options vest at a rate of 50% in the first
year (on a quarterly basis), and 25% in each of the two years (on a quarterly basis) thereafter.
Each of our non-employee directors received a grant of stock options to purchase 75,000 shares of
Common Stock at $5.00 per share in June 2007.
Additionally, the non-employee directors will receive, at each anniversary of service, an option
award to purchase 15,000 shares of Common Stock at fair market value on the date of grant. These
additional awards will vest at a rate of 50% in the first year (on a quarterly basis), and 25% in
each of the two years (on a quarterly basis) thereafter.
The non-employee directors also receive cash compensation of $30,000 per year, paid quarterly, plus
62
daily fees of $1,500 for participating in person, or $500 for participating by telephone, at Board
meetings.
The chair of the audit committee receives additional cash compensation of $10,000 per year, paid
quarterly, and the chair of the compensation committee receives additional cash compensation of
$6,000 per year, paid quarterly. All audit committee and compensation committee members also
receive additional daily fees of $1,000 for participating in person, or $500 for participating by
telephone, at each audit committee or compensation committee meeting. Directors, however, cannot
receive more than $2,500 in any one day for participation in Board and committee meetings.
Directors will be reimbursed for reasonable out-of-pocket expenses incurred while attending Board
and committee meetings.
Incentive Plans
Athersys has a cash incentive plan that generally will result in the payment of bonuses of one
month of salary to its employees (two months of salary for officers) upon achievement of certain
milestones, which included the sale of certain non-core assets related to Athersys’ asthma
discovery program and the completion of this Offering. Additionally, Mr. Lehmann was eligible
for a one-time bonus in the amount of $50,000 in connection with the completion of the Offering
pursuant to the terms of his employment agreement. In connection with the sale of the non-core
assets and the completion of the Offering, the named executive officers received the following cash
bonuses: Dr. Van Bokkelen — $74,537; Dr. Harrington — $63,889; Mr. Lehmann — $113,889; Dr.
Brunden — $51,111; Dr. Deans — $50,047; and Ms. Campbell — $41,528.
Equity Incentive Plans
Upon the close of the Merger, the majority of Athersys’ outstanding options were terminated.
However, pursuant to the terms of the Merger Agreement, the Registrant has agreed to assume 5,052
options granted to former employees and consultants of Athersys. In June 2007, we adopted our
equity plans, which authorize the Board, or a committee thereof, to provide 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, which will be used to
attract and retain qualified employees, directors and consultants. Equity awards will be granted
from time to time under the guidance and approval of the Compensation Committee. Total awards
under these plans are limited to 4,500,000 shares of Common Stock. Option awards to purchase
3,250,000 shares of Common Stock with an exercise price of $5.00 were granted to our employees,
including our executive officers, and certain consultants in June 2007 upon the closing of the
Merger. Theses option awards generally vest 40% on the date of grant, and 20% in each of the three
years (on a quarterly basis) thereafter. Also in June 2007, option awards to purchase 375,000
shares of Common Stock with an exercise price of $5.00 were granted to our non-employee directors,
which options vest 50% in the first year (on a quarterly basis), and 25% in each of the two years
(on a quarterly basis) thereafter, based on participation at quarterly meetings on the Board of
Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directors Biro and Mulligan served as members of the compensation committee of the Athersys board
of directors during 2006. No interlocking relationship within the meaning of the rules of the
Securities and Exchange Commission exists regarding any of our executive officers and any executive
officer of any other company, and no interlocking relationship has existed in the past. The
current compensation committee of the Board of Directors of BTHC VI consists of Directors Davis,
Mulligan and Sheffery.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
BTHC VI Relationships, Indebtedness, and Related Party Transactions
In September 1999, Ballantrae Healthcare LLC (and affiliated limited liability companies including
BTHC VI, LLC, collectively, “Ballantrae”), was organized for the purpose of operating nursing homes
throughout the United States. On March 28, 2003, Ballantrae filed a petition for reorganization
under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court,
Northern District of Texas (the “Bankruptcy Court”). On November 29, 2004, the Bankruptcy Court
approved the First Amended Joint Plan of Reorganization of Ballantrae and its creditors (the
“Bankruptcy Plan”). On April 11, 2006, pursuant to the Bankruptcy Plan, BTHC VI, LLC was merged
into BTHC VI, Inc., a Delaware corporation.
Halter Financial Group, L.P. (“HFG”) participated with Ballantrae and their creditors in
structuring the Bankruptcy Plan. As part of the Bankruptcy Plan, HFG provided $76,500 to be used
to pay professional fees associated with the Bankruptcy Plan confirmation process. HFG was granted
an option to be repaid through the issuance of equity securities in 17 of the reorganized
Ballantrae entities, including the Registrant. HFG exercised the option, and as provided in the
Plan, 70% of the BTHC VI’s then-
63
outstanding common stock, or 350,000 shares, were issued to HFG, in
satisfaction of HFG’s
administrative claims. The remaining 30% of the Registrant’s then-outstanding common stock, or
150,000 shares, were issued to 499 holders of administrative and tax claims and unsecured debt.
The 500,000 shares (the “Plan Shares”) were issued pursuant to Section 1145 of the Bankruptcy Code.
As further consideration for the issuance of the 350,000 Plan Shares to HFG, the Bankruptcy Plan
required HFG to assist BTHC VI in identifying a potential merger or acquisition candidate. HFG was
responsible for the payment of BTHC VI’s operating expenses and HFG was obligated to provide BTHC
VI with consulting services at no cost to BTHC VI, including assisting BTHC VI with formulating
the structure of any proposed merger or acquisition. Additionally, HFG was responsible for paying
BTHC VI’s expenses incurred in consummating a merger or acquisition. On February 15, 2006, HFG
transferred its 350,000 Plan Shares to Halter Financial Investments L.P., a Texas limited
partnership controlled by Timothy P. Halter (“HFI”). Timothy P. Halter is the sole officer,
director and shareholder of HFG and an officer and member of Halter Financial Investments GP, LLC,
general partner of HFI. Mr. Halter recently served as BTHC VI’s President, Chief Executive
Officer, Chief Financial Officer and sole director until his resignation in connection with Merger.
Other than the participation of HFG and Timothy P. Halter in the Plan of Reorganization and the
issuance to HFG of 350,000 shares of Common Stock for satisfaction of certain administrative claims
and for HFG’s agreement to provide BTHC VI with certain services as described, there were no
relationships or transactions between BTHC VI and any of its directors, officers and principal
stockholders.
Athersys Relationships, Indebtedness, and Related Person Transactions
The following is a description of transactions during 2004, 2005 and 2006 to which Athersys has
been a party, in which the amount involved in the transaction exceeds $120,000 and in which any of
Athersys’ directors, executive officers or holders (or immediate family members of holders) of more
than 5% of its capital stock had or will have a direct or indirect material interest, other than
compensation arrangements, which are described under “Executive Compensation.” Athersys believes
the terms obtained or consideration that was paid or received, as applicable, in connection with
the transactions described below were comparable to terms available or the amounts that would be
paid or received, as applicable, in arm’s-length transactions.
In 2006 and 2007, Athersys issued $10,000,000 in aggregate principal amount of 5% unsecured
convertible promissory notes to Angiotech, one of its collaborators. In 2006, Athersys also issued
$2,500,000 in aggregate principal amount of 10% secured convertible promissory notes to bridge
investors. Investors in the bridge financing consisted primarily of existing Athersys stockholders
and Drs. Van Bokkelen and Harrington and Ms. Campbell. Upon the closing of the Offering on June 8,
2007, the convertible promissory notes were converted into shares of Common Stock. The securities
offered in these financings to such persons were sold at their fair market value upon the same
price, terms and conditions that were given to unaffiliated third parties.
In 2006, a subsidiary of Athersys forgave a 2002 loan made to Dr. Van Bokkelen in aggregate
principal and accrued interest amount of approximately $122,000. In connection with loan
forgiveness, Athersys paid Dr. Van Bokkelen approximately $24,000 as a partial gross up for his tax obligations
in connection with such forgiveness.
Director Independence
After closing the Merger, our Board of Directors will review at least annually the independence of
each director. During these reviews, our Board of Directors will consider transactions and
relationships between each director (and his or her immediate family and affiliates) and our
company and its management to determine whether any such transactions or relationships are
inconsistent with a determination that the director was independent. Our Board of Directors will
conduct its annual review of director independence and to determine if any transactions or
relationships exist that would disqualify any of the individuals who then served as a director
under the rules of the NASDAQ Stock Market, or require disclosure under SEC rules. Currently, we
have two members of management who also serve on the
64
Board of Directors, Dr. Van Bokkelen, who is
also our Chairman and Chief Executive Officer, and Dr.
Harrington, who is our Chief Scientific Officer and Executive Vice President. Neither Dr. Van
Bokkelen nor Dr. Harrington would be considered independent under the independence rules of the
NASDAQ Stock Market.
One of the requirements that the Company will have to meet in order for the Common Stock to be
listed on the NASDAQ Capital Market is that a majority of the members of the Company’s Board of
Directors will have to be independent. Additionally, the Company will also be required to have an
audit committee comprised of at least three members, all of whom must be independent.
Related Person Transaction Policy
We give careful attention to related person transactions because they may present the potential for
conflicts of interest. We refer to “related person transactions” as those transactions,
arrangements, or relationships in which:
| |
• |
|
we were, are or are to be a participant; |
| |
| |
• |
|
the amount involved exceeds $120,000; and |
| |
| |
• |
|
any of our directors, director nominees, executive officers or greater-than five percent
shareholders (or any of their immediate family members) had or will have a direct or
indirect material interest. |
To identify related person transactions in advance, we rely on information supplied by our
executive officers, directors and certain significant stockholders. Although we currently do not
have a comprehensive written policy for the review, approval or ratification of related person
transactions, our Board of Directors reviews all related person transactions identified by us, and
memorializes its decisions in the written minutes of Board meetings. The Board of Directors
approves or ratifies only those related person transactions that are determined by the Board of
Directors to be, under all of the circumstances, in the best interest of our company and its
shareholders.
LEGAL PROCEEDINGS
From time to time, the Company may become involved in various investigations, claims and legal
proceedings that arise in the ordinary course of the Company’s business. These matters may relate
to intellectual property, employment, tax, regulation, contract or other matters. The resolution of
these matters as they arise will be subject to various uncertainties. As of the date of this
current report, Athersys is not a party to any material pending legal proceeding.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Trading Market and Outstanding Equity
Prior to the Merger, BTHC VI was a shell company with no operations and no or nominal assets. BTHC
VI’s Common Stock is eligible for trading on the OTC Bulletin Board, although no trading took place
prior to the Merger because none of BTHC VI’s outstanding shares were able to be transferred under
the terms of BTHC VI’s bankruptcy plan until the Merger was consummated. Since the completion of
the Merger, there has been no established public trading market for our Common Stock. As soon as
reasonably practicable, once we satisfy all necessary listing requirements, we intend to apply to
list the Common Stock for trading on the NASDAQ Stock Market.
As a result of both the Merger and the Offering, we have 18,927,990 shares of Common Stock issued
and outstanding. Additionally, 5,125,496 shares of Common Stock are subject to outstanding
warrants to purchase our Common Stock. Of these warrant shares, 4,976,470 are subject to five-year
warrants to
65
purchase shares of Common Stock at an exercise price of $6.00 per share, and 149,026
are subject to seven-year warrants with a cash or cashless exercise price of $5.00 per share. The five-year
warrants were issued as part of the Offering, to our placement agents, to holders of Athersys’ 10%
secured convertible promissory notes, and to our lead investor, Radius. The seven-year warrants
were issued to the lenders under our Senior Loan agreement.
Holders
As a result of both the Merger and the Offering, the number of holders of record at June 8, 2007
was approximately 938.
Dividends
All of our assets consist of the stock of Athersys. We would have to rely upon dividends and other
payments from Athersys to generate the funds necessary to make dividend payments, if any, on our
Common Stock. Athersys, however, is legally distinct from us and has no obligation to pay amounts
to us. The ability of Athersys to make dividend and other payments to us is subject to, among
other things, the availability of funds, the terms of our indebtedness and applicable state laws.
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.
Registration Rights
We intend to file a “resale” registration statement with the SEC covering all shares of Common
Stock issued in the Offering, including shares of Common Stock into which any warrants are
exercisable, no later than 45 days after June 8, 2007. We will use our best efforts to have such
“resale” registration statement declared effective by the SEC as soon as possible and, in any
event, within 90 days of the filing (or within five days after receipt of a no review letter from
the SEC), and to maintain its effectiveness until such time as all securities registered under the
registration statement have been sold or are otherwise able to be sold under Rule 144 of the
Securities Act without regard to volume limitations, whichever is earlier.
Prior to the Merger, Athersys entered into a registration rights agreement that provided demand and
“piggyback’’ registration rights to some of its stockholders, which rights are described below. As
a condition to the closing of the Offering, the holders: waived their demand rights until 180 days
after the effective date of the “resale” registration statement; and waived their “piggyback”
rights in connection with the filing of the “resale” registration statement.
“Piggyback’’ Rights
Former holders of shares of Athersys capital stock that now own 3,256,845 shares of Common Stock
are entitled to “piggyback’’ registration rights. If we propose to register any of our securities,
we will be obligated to provide to these holders notice of the registration and include, at our
expense, their shares of Common Stock in the registration, subject to certain limitations.
Demand Rights
Long-Form
Certain former holders of shares of Athersys capital stock that hold shares of Common Stock have
the right to require us to file a long-form registration statement under the Securities Act with
respect to shares of Common Stock owned by them. We will be required to use our reasonable best
efforts to effect the requested registration.
66
Short-Form
Certain former holders of shares of Athersys capital stock that hold shares of Common Stock have
the right to require us to file a short-form registration statement under the Securities Act with
respect to shares of Common Stock owned by them, and we will be required to use our reasonable best
efforts to effect the requested registration; provided, that the reasonably anticipated price to
the public for those shares requested to be registered would have equal or exceed $500,000.
All of these registration rights are subject to various conditions and limitations, among them our
right to limit the number of shares included in a registration and our right to not effect a
requested registration (1) within 180 days after the effective date of an initial public offering,
(2) within 90 days after the effective date of a previous registration on a Form S-1 or (3) within
90 days after the effective date of a registration that included all shares requested by holders of
registrable shares. We will bear all of the expenses incurred in connection with all exercises of
these registration rights excluding discounts and commissions.
Shares Eligible for Future Sale
Of the 18,927,990 shares of Common Stock that we had issued and outstanding upon completion of the
Merger and the Offering, 299,622 shares of Common Stock will be freely tradeable without further
restriction or further registration under the Securities Act. The remaining 18,628,368 shares are
deemed to be “restricted securities” as that term is defined under Rule 144 promulgated under the
Securities Act (“Rule 144”). The “restricted” shares will not be registered under the Securities
Act and may be transferred only pursuant to a registration under the Securities Act or pursuant to
an available exemption from registration, such as Rule 144 under the Securities Act. Under Rule
144, restricted securities may be sold into the public market, subject to holding period, volume,
manner of sale, public information, filing and other limitations set forth under Rule 144. In
general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least one year, including any person who may be
deemed to be an “affiliate” of ours (i.e., directors, officers and 10% stockholders), as defined
under the Securities Act, is entitled to sell, within any three-month period, an amount of shares
that together with all other sales of restricted securities of the same class (including, for
“affiliates,” sales of other non-restricted securities of the same class) does not exceed the
greater of:
| |
• |
|
the average weekly trading volume of the Common Stock, as reported through the
automated quotation system of a registered securities association, during the four
calendar weeks preceding such sale; or |
| |
| |
• |
|
1% of the shares then outstanding. |
In order for a stockholder to rely on Rule 144, we must have available adequate current public
information with respect to its business and financial status. A person who is not deemed to be an
affiliate and has not been an affiliate for the most recent three months, and who has held
restricted shares for at least two years would be entitled to sell such shares under Rule 144(k)
without regard to the various resale limitations of Rule 144.
Under Rule 144, the holding periods will commence as of the Effective Time for former Athersys
stockholders who received shares of Common Stock in the Merger. Sales under Rule 144 are also
subject to manner of sale provisions and notice requirements and to the availability of current
public information about the Company.
We intend to file a “resale” registration statement with the SEC covering all shares of Common
Stock issued in the Offering, including shares of Common Stock into which any warrants are
exercisable, no later than 45 days after June 8, 2007. We will use our best efforts to have such
“resale” registration
67
statement declared effective by the SEC as soon as possible and, in any
event, within 90 days of the filing
(or within five days after receipt of a no review letter from the SEC), and to maintain its
effectiveness until such time as all securities registered under the registration statement have
been sold or are otherwise able to be sold under Rule 144 of the Securities Act without regard to
volume limitations, whichever is earlier.
RECENT SALES OF UNREGISTERED SECURITIES
For more information about unregistered sales of the Company’s securities, see Item 1.01 and
elsewhere in this Item 2.01 of this Current Report.
DESCRIPTION OF REGISTRANT’S CAPITAL STOCK
Common Stock
Holders of shares of Common Stock will be entitled to receive dividends if and when declared by the
Board of Directors from funds legally available therefor, and upon liquidation, dissolution or
winding-up of the Company will be entitled to share ratably in all assets remaining after payment
of liabilities. The holders of shares of Common Stock will not have any preemptive rights, but
will be entitled to one vote for each share of Common Stock held of record. Stockholders will not
have the right to cumulate their votes for the election of directors. The shares of Common Stock
offered hereby, when issued, will be fully paid and nonassessable.
Preferred Stock
Our Board of Directors is authorized, without action by our stockholders, to designate and issue up
to 10,000,000 shares of preferred stock, par value $0.001 per share, in one or more series. The
Board of Directors can fix the rights, preferences and privileges of the shares of each series and
any of its qualifications, limitations or restrictions. Our Board of Directors may authorize the
issuance of preferred stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of Common Stock. The issuance of preferred stock, while
providing flexibility in connection with possible future financings, acquisitions and other
corporate purposes could, under certain circumstances, have the effect of delaying, deferring or
preventing a change in control of the Company and could adversely affect the market price of our
Common Stock. We do not have any shares of preferred stock outstanding, and we have no current
plans to issue any preferred stock.
Warrants
As of the closing of the Offering, we issued warrants to investors to acquire 3,750,000 shares of
Common Stock, warrants to the placement agents to acquire 1,093,525 shares of Common Stock,
warrants to the former holders of Athersys’ 10% secured convertible promissory notes to acquire
132,945 shares of Common Stock, and warrants to our senior secured lenders to acquire 149,026
shares of Common Stock, as further described below, for an aggregate of 5,125,496 shares of Common
Stock underlying such warrants.
Warrants
The warrants issued to investors have a cash exercise price of $6.00 per share and a term of five
years from the closing date of the Offering. Additionally, if at any time after the one-year
anniversary of the issuance of the Warrants there is no effective “resale” registration statement
for the Common Stock issuable upon exercise of the Warrants, then the Warrants provide for cashless
exercise. The shares of Common Stock issuable upon exercise of the Warrants will be afforded the
same registration rights as all other shares of Common Stock sold in the Offering.
Placement Agent Warrants
The warrants issued to the placement agents have a cash or cashless exercise price of $6.00 per
share and a term of five years from the closing date of the Offering. The shares of Common Stock
issuable upon
68
exercise of the placement agents’ warrants will be afforded the same registration rights as all
other shares of Common Stock sold in the Offering.
Lead Investor Warrants
The warrants issued to the lead investor, Radius, have a cash or cashless exercise price of $6.00
per share and a term of five years from the closing date of the Offering. The shares of Common
Stock issuable upon exercise of the Radius warrants will be afforded the same registration rights
as all other shares of Common Stock sold in the Offering.
10% Secured Convertible Promissory Note Warrants
The warrants issued to the former holders of Athersys’ 10% secured convertible promissory notes
have a cash exercise price of $6.00 per share and a term of five years from the closing date of the
Offering. Additionally, if at any time after the one-year anniversary of the issuance of the
noteholder warrants there is no effective “resale” registration statement for the Common Stock
issuable upon exercise of the noteholder warrants, then the noteholder warrants will provide for
cashless exercise. The shares of Common Stock issuable upon exercise of the noteholder warrants
will be afforded the same registration rights as all other shares of Common Stock sold in the
Offering.
Lender Warrants
The warrants issued to the lenders under Athersys’ Senior Loan Agreement have a cash or cashless
exercise price of $5.00 per share and a term of seven years from the closing date of the Offering.
Delaware Anti-Takeover Law
We are subject to Section 203 of the General Corporation Law of the State of Delaware (“DGCL”).
Section 203 generally prohibits a public Delaware corporation from engaging in a “business
combination” with an “interested stockholder” for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless:
| |
• |
|
prior to the date of the transaction, the board of directors of the corporation
approved either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder; |
| |
| |
• |
|
the interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding (1) shares owned by persons who are
directors and also officers and (2) shares owned by employee stock plans in which
employee participants do not have the right to determine whether shares held subject to
the plan will be tendered in a tender or exchange offer; or |
| |
| |
• |
|
on or subsequent to the date of the transaction, the business combination is
approved by the board and authorized at an annual or special meeting of stockholders,
and not by written consent, by the affirmative vote of at least 66-2/3% of the
outstanding voting stock that is not owned by the interested stockholder. |
Section 203 defines a business combination to include:
| |
• |
|
any merger or consolidation involving the corporation and the interested stockholder; |
| |
| |
• |
|
any sale, transfer, pledge or other disposition involving the interested stockholder
of 10% or more of the assets of the corporation; |
| |
| |
• |
|
subject to exceptions, any transaction that results in the issuance or transfer by
the corporation of any stock of the corporation to the interested stockholder; and |
69
| |
• |
|
the receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the corporation. |
In general, Section 203 defines an interested stockholder as any entity or person beneficially
owning 15% or more of the outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by the entity or person.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Limitation of Liability and Indemnification Matters
Delaware law provides that directors of a company will not be personally liable for monetary
damages for breach of their fiduciary duty as directors, except for liabilities:
| |
• |
|
for any breach of their duty of loyalty to the company or its stockholders; |
| |
| |
• |
|
for acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; |
| |
| |
• |
|
for unlawful payment of dividend or unlawful stock repurchase or redemption, as
provided under Section 174 of the DGCL; or |
| |
| |
• |
|
for any transaction from which the director derived an improper personal benefit. |
Our current amended certificate of incorporation requires us to indemnify, to the fullest extent
permitted by the DGCL, any and all persons we have the power to indemnify under the DGCL from and
against any and all expenses, liabilities or other matters covered by the DGCL. Additionally, our
current amended certificate of incorporation requires us to indemnify each of our directors and
officers in each and every situation where the DGCL permits or empowers us (but does not obligate
us) to provide such indemnification, subject to the provisions of our bylaws. Our bylaws require
us to indemnify our directors to the fullest extent permitted by the DGCL, and permit us, to the
extent authorized by the Board of Directors, to indemnify our officers and any other person we have
the power to indemnify against liability, reasonable expense or other matters.
Under our current amended certificate of incorporation, indemnification may be provided to
directors and officers acting in their official capacity, as well as in other capacities.
Indemnification will continue for persons who have ceased to be directors, officers, employees or
agents, and will inure to the benefit of their heirs, executors and administrators. Additionally,
under our current amended certificate of incorporation, except under certain circumstances, our
directors are not personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director.
Insofar as the indemnification for liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons pursuant to the foregoing or otherwise, we have been
advised that, in the opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
70
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Previous Independent Accountants.
On June 11, 2007, BTHC VI dismissed S.W. Hatfield, CPA as its independent accountant. The reports
of S.W. Hatfield, CPA on the financial statements of BTHC VI for each of the past two fiscal years
contained no adverse opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.
The decision to change independent accountants was approved by the Audit Committee of BTHC VI’s
Board of Directors on June 12, 2007.
During BTHC VI’s two most recent fiscal years and through the date of this Current Report on Form
8-K, BTHC VI has had no disagreements with S.W. Hatfield, CPA on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of S.W. Hatfield, CPA, would have caused it to
make reference to the subject matter of such disagreements in its report on the financial
statements of BTHC VI for such periods.
During BTHC VI’s two most recent fiscal years and through the date of this Current Report on Form
8-K, there were no reportable events as defined under Item 304(a)(1)(v) of Regulation S-K adopted
by the SEC.
BTHC VI has provided S.W. Hatfield, CPA with a copy of this disclosure before its filing with the
SEC. BTHC VI has requested the S.W. Hatfield, CPA furnish it with a letter addressed to the SEC
stating whether it agrees with the above statements. A copy of such letter, dated June 11, 2007,
is filed as Exhibit 16.1 to this Current Report on Form 8-K.
New Independent Accountants.
The Audit Committee of BTHC VI’s Board of Directors appointed Ernst & Young, LLP (“Ernst & Young”)
as its new independent registered public accounting firm as of June 12, 2007. During the two most
recent fiscal years and through the date of Ernst & Young’s engagement by BTHC VI, BTHC VI did not
consult Ernst & Young regarding either (1) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that might be rendered on
BTHC VI’s financial statements, or (2) any matter that was either the subject of a disagreement (as
defined in Regulation S-K Item 304(a)(1)(iv) and the related instructions to Item 304) or a
reportable event (as defined in Regulation S-K Item 304(a)(1)(v)). Ernst & Young served as
Athersys’ independent registered public accounting firm before the Merger.
FINANCIAL STATEMENTS AND EXHIBITS
See Item 9.01 of this Current Report.
Item 3.02. Unregistered Sale of Equity Securities.
See Item 1.01 and Item 2.01 of this Current Report, which are incorporated herein by reference.
Item 3.03. Material Modification to Rights of Security Holders.
See Item 1.01 and Item 2.01 of this Current Report, which are incorporated herein by reference.
Item 4.01. Changes in Registrant’s Certifying Accountant.
See Item 2.01 of this Current Report, which is incorporated herein by reference.
Item 5.01. Changes in Control of Registrant.
See Item 1.01 and Item 2.01 of this Current Report, which are incorporated herein by reference.
71
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain
Officers.
See Item 2.01 of this Current Report, which is incorporated herein by reference.
Item 5.03. Amendments to Articles of Incorporation of Bylaws; Change in Fiscal Year.
On June 8, 2007, the Board of Directors of BTHC VI adopted, effective as of June 8, 2007, amended
Bylaws for BTHC VI. Apart from non-substantive language and other technical edits, the Bylaws of
BTHC VI (which were last adopted as of April 10, 2006) were amended by BTHC VI to:
| |
(i) |
|
mandate the election of a Chief Executive Officer of BTHC VI; |
| |
| |
(ii) |
|
establish the duties and powers of the Chief Executive Officer, which consist
of: (A) general charge and supervision of BTHC VI’s business; (B) the exercise and
performance of all duties incident to the office of Chief Executive Officer; (C) the
direct supervision of BTHC VI’s other officers; (D) the exercise and performance of all
powers and duties assigned to the Chief Executive Officer by the board of directors of
BTHC VI; (E) the exercise of the powers and performance of the duties of the President
of BTHC VI during the President’s absence or disability; and (F) supervise the
Secretary of BTHC VI; |
| |
| |
(iii) |
|
remove the authority of the Chairman of the board of directors of BTHC VI to:
(A) sign all certificates, contracts and other instruments of BTHC VI; and (B) exercise
the powers and perform the duties of the President of BTHC VI during the President’s
absence or disability; |
| |
| |
(iv) |
|
permit the Chief Executive Officer of BTHC VI to, among other things: (A)
call, under certain circumstances, stockholders’ special meetings; (B) direct the
delivery to stockholders of notice of stockholder meetings; (C) call, under certain
circumstances, special meetings of the board of directors of BTHC VI; and (D) delegate
powers and duties to the President, Secretary, Treasurer, Vice Presidents, Assistant
Secretaries and Assistant Treasurers of BTHC VI from time to time; (E) sign stock
certificates of BTHC VI; and (F) accept written notices of resignation from any
director, officer or agent of BTHC VI; |
| |
| |
(v) |
|
eliminate reference to BTHC VI’s certificate of incorporation to determine the
size of the first board of directors of BTHC VI; |
| |
| |
(vi) |
|
permit committees of the board of directors of BTHC VI to consist of a minimum
of one (rather than two) directors, and eliminating the requirement that committees of
the board of directors of BTHC VI consist of at least a majority of employee directors;
and |
| |
| |
(vii) |
|
remove the authority of the President of BTHC VI to: (A) act as the Chief
Executive Officer of BTHC VI; and (B) supervise and control BTHC VI’s business and
affairs. |
The foregoing is a brief description of the material amendments to the Bylaws of BTHC VI and is
qualified in its entirety by reference to the full text of the Revised Bylaws. This description
should be read in conjunction with the amended Bylaws, a copy of which is filed herewith as Exhibit
3.2 and is incorporated herein by reference.
Item 5.06. Change in Shell Company Status.
As a result of the consummation of the Merger described in Items 1.01 and 2.01 of this Current
Report, we believe that the Company is no longer a shell corporation, as that term is defined in
Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.
72
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
In accordance with Item 9.01(a), Athersys’ audited financial statements for the fiscal years
ended December 31, 2006, 2005 and 2004 and unaudited financial statements for the three months ended March 31, 2007
and 2006 are filed with this Current Report as Exhibit 99.1 and Exhibit 99.2, respectively.
(b) Pro Forma Financial Information.
In accordance with Item 9.01(b), filed herewith as Exhibit 99.3 are the pro forma consolidated financial
statements of Athersys and BTHC VI for the requisite periods.
(d) Exhibits
| |
|
|
| Exhibit No. |
|
Description |
|
|
|
2.1
|
|
Agreement and Plan of Merger, dated as of May 24, 2007, by and among
Athersys, Inc., BTHC VI, Inc. and B-VI Acquisition Corp. (incorporated
herein by reference to Exhibit 10.1 to Registrant’s Current Report on
Form 8-K (Commission No. 000-52108) filed with the SEC on May 24, 2007) |
|
|
|
2.2
|
|
First Amendment to Agreement and Plan of Merger, dated as of June 8,
2007, by and among Athersys, Inc., BTHC VI, Inc. and B-VI Acquisition
Corp. |
|
|
|
3.1
|
|
Certificate of Incorporation of BTHC VI, Inc., last amended June 1, 2007 |
|
|
|
3.2
|
|
Bylaws of BTHC VI, Inc., dated as of June 8, 2007 |
|
|
|
4.1
|
|
Form of Investor Warrant |
|
|
|
4.2
|
|
Form of Lead Investor Warrant |
|
|
|
4.3
|
|
Form of Placement Agent Warrant |
|
|
|
4.4
|
|
Form of Lender Warrant |
|
|
|
10.1 *
|
|
Research Collaboration and License Agreement, dated as of December 8,
2000, by and between Athersys, Inc. and Bristol-Myers Squibb Company |
|
|
|
10.2 *
|
|
Cell Line Collaboration and License Agreement, dated as of July 1,
2002, by and between Athersys, Inc. and Bristol-Myers Squibb Company |
|
|
|
10.3 *
|
|
Extended Collaboration and License Agreement, dated as of January 1,
2006, by and between Athersys, Inc. and Bristol-Myers Squibb Company |
|
|
|
10.4
|
|
License Agreement, effective as of May 5, 2006, by and between
Athersys, Inc. and Angiotech Pharmaceuticals, Inc. |
|
|
|
10.5
|
|
Sublicense Agreement, effective as of May 5, 2006, by and between
Athersys, Inc. and Angiotech Pharmaceuticals, Inc. |
|
|
|
10.6
|
|
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 |
73
| |
|
|
| Exhibit No. |
|
Description |
|
|
|
10.7
|
|
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) |
|
|
|
10.8
|
|
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) |
|
|
|
10.9
|
|
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) |
|
|
|
10.10
|
|
BTHC VI, Inc. Long-Term Incentive Plan |
|
|
|
10.11
|
|
BTHC VI, Inc. Equity Incentive Compensation Plan |
|
|
|
10.12
|
|
Loan and Security Agreement, and Supplement, dated as of
November 2, 2004, by and among Athersys, Inc., Advanced
Biotherapeutics, Inc., Venture Lending & Leasing IV,
Inc., and Costella Kirsch IV, L.P. |
|
|
|
10.13
|
|
Amendment to Loan and Security Agreement, dated as of
September 29, 2006, by and among Athersys, Inc., Advanced
Biotherapeutics, Inc., Venture Lending & Leasing IV,
Inc., and Costella Kirsch IV, L.P. |
|
|
|
10.14
|
|
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 |
|
|
|
10.15
|
|
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 |
|
|
|
10.16
|
|
Non-Competition and Confidentiality Agreement, dated as
of December 1, 1998, by and between Athersys, Inc. and
Dr. Gil Van Bokkelen |
|
|
|
10.17
|
|
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 |
|
|
|
10.18
|
|
Amendment No. 1 to Amended and Restated Employment
Agreement, dated as of May 31, 2007, by and between
Advanced Biotherapeutics, Inc. and John Harrington |
|
|
|
10.19
|
|
Non-Competition and Confidentiality Agreement, dated as
of December 1, 1998, by and between Athersys, Inc. and
Dr. John J. Harrington |
|
|
|
10.20
|
|
Employment Agreement, dated as of May 22, 1998, by and
between Athersys, Inc. and Laura K. Campbell |
|
|
|
10.21
|
|
Amendment No. 1 to Employment Agreement, dated as of May
31, 2007, by and between Advanced Biotherapeutics, Inc.
and Laura Campbell |
|
|
|
10.22
|
|
Employment Agreement, dated as of September 25, 2000, by
and between Advanced Biotherapeutics, Inc. and Kurt
Brunden |
74
| |
|
|
| Exhibit No. |
|
Description |
|
|
|
10.23
|
|
Amendment No. 1 to Employment Agreement, dated as of May 31,
2007, by and between Advanced Biotherapeutics, Inc. and Kurt
Brunden |
|
|
|
10.24
|
|
Non-Competition and Confidentiality Agreement, dated as of
September 25, 2000, by and among Athersys, Inc., Advanced
Biotherapeutics, Inc. and Kurt Brunden |
|
|
|
10.25
|
|
Employment Agreement, dated as of October 3, 2003, by and
between Advanced Biotherapeutics, Inc. and Robert Deans,
Ph.D. |
|
|
|
10.26
|
|
Amendment No. 1 to Employment Agreement, dated as of May 31,
2007, by and between Advanced Biotherapeutics, Inc. and
Robert Deans |
|
|
|
10.27
|
|
Non-Competition and Confidentiality Agreement, dated as of
October 3, 2003, by and among Athersys, Inc., Advanced
Biotherapeutics, Inc. and Robert Deans |
|
|
|
10.28
|
|
Employment Agreement, dated as of January 1, 2004, by and
between Advanced Biotherapeutics, Inc. and William Lehmann |
|
|
|
10.29
|
|
Amendment No. 1 to Employment Agreement, dated as of May 31,
2007, by and between Advanced Biotherapeutics, Inc. and
William Lehmann |
|
|
|
10.30
|
|
Non-Competition and Confidentiality Agreement, dated as of
September 10, 2001, by and among Athersys, Inc., Advanced
Biotherapeutics, Inc. and William Lehmann |
|
|
|
10.31
|
|
Form Incentive Agreement by and between
Advanced Biotherapeutics, Inc. and named executive officers,
and acknowledged by Athersys, Inc. and ReGenesys, LLC |
|
|
|
10.32
|
|
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 |
|
|
|
10.33
|
|
Securities Purchase Agreement, dated as of June 8, 2007, by
and among Athersys, BTHC VI, Inc. and Investors (as defined
therein) |
|
|
|
10.34 *
|
|
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 |
|
|
|
10.35 *
|
|
Strategic Alliance Agreement, by and between Athersys, Inc.
and Angiotech Pharmaceuticals, Inc., dated as of May 5, 2006 |
|
|
|
10.36
|
|
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 |
|
|
|
16.1
|
|
Letter from S. W. Hatfield, CPA, dated June 11, 2007 |
|
|
|
21.1
|
|
List of Subsidiaries |
|
|
|
99.1
|
|
Consolidated Audited Financial Statements of Athersys, Inc. |
|
|
|
99.2
|
|
Unaudited Financial Statements of Athersys, Inc. |
|
|
|
99.3
|
|
Pro Forma Consolidated Financial Statements of Athersys, Inc. and BTHC VI |
|
|
|
|
|
|
|
|
|
| * |
|
Confidential treatment has been requested for the redacted portions of this exhibit, and
such confidential portions have been omitted and filed separately with the Securities and
Exchange Commission. |
75
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: June 14, 2007
| |
|
|
|
|
| |
BTHC VI, INC.
|
|
| |
By: |
/s/ Dr. Gil Van Bokkelen
|
|
| |
|
Name: |
Dr. Gil Van Bokkelen |
|
| |
|
Title: |
Chief Executive Officer |
|
EXHIBIT INDEX
| |
|
|
| Exhibit No. |
|
Description |
2.1
|
|
Agreement and Plan of Merger, dated as of May 24, 2007, by and among
Athersys, Inc., BTHC VI, Inc. and B-VI Acquisition Corp. (incorporated
herein by reference to Exhibit 10.1 to Registrant’s Current Report on
Form 8-K (Commission No. 000-52108) filed with the SEC on May 24, 2007) |
|
|
|
2.2
|
|
First Amendment to Agreement and Plan of Merger, dated as of June 8,
2007, by and among Athersys, Inc., BTHC VI, Inc. and B-VI Acquisition
Corp. |
|
|
|
3.1
|
|
Certificate of Incorporation of BTHC VI, Inc., last amended June 1, 2007 |
|
|
|
3.2
|
|
Bylaws of BTHC VI, Inc., dated as of June 8, 2007 |
|
|
|
4.1
|
|
Form of Investor Warrant |
|
|
|
4.2
|
|
Form of Lead Investor Warrant |
|
|
|
4.3
|
|
Form of Placement Agent Warrant |
|
|
|
4.4
|
|
Form of Lender Warrant |
|
|
|
10.1 *
|
|
Research Collaboration and License Agreement, dated as of December 8,
2000, by and between Athersys, Inc. and Bristol-Myers Squibb Company |
|
|
|
10.2 *
|
|
Cell Line Collaboration and License Agreement, dated as of July 1,
2002, by and between Athersys, Inc. and Bristol-Myers Squibb Company |
|
|
|
10.3 *
|
|
Extended Collaboration and License Agreement, dated as of January 1,
2006, by and between Athersys, Inc. and Bristol-Myers Squibb Company |
|
|
|
10.4
|
|
License Agreement, effective as of May 5, 2006, by and between
Athersys, Inc. and Angiotech Pharmaceuticals, Inc. |
|
|
|
10.5
|
|
Sublicense Agreement, effective as of May 5, 2006, by and between
Athersys, Inc. and Angiotech Pharmaceuticals, Inc. |
|
|
|
10.6
|
|
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 |
|
|
|
10.7
|
|
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) |
|
|
|
10.8
|
|
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) |
EXHIBIT INDEX (CONTINUED)
| |
|
|
| Exhibit No. |
|
Description |
10.9
|
|
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) |
|
|
|
10.10
|
|
BTHC VI, Inc. Long-Term Incentive Plan |
|
|
|
10.11
|
|
BTHC VI, Inc. Equity Incentive Compensation Plan |
|
|
|
10.12
|
|
Loan and Security Agreement, and Supplement, dated as of
November 2, 2004, by and among Athersys, Inc., Advanced
Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc., and
Costella Kirsch IV, L.P. |
|
|
|
10.13
|
|
Amendment to Loan and Security Agreement, dated as of
September 29, 2006, by and among Athersys, Inc., Advanced
Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc., and
Costella Kirsch IV, L.P. |
|
|
|
10.14
|
|
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 |
|
|
|
10.15
|
|
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 |
|
|
|
10.16
|
|
Non-Competition and Confidentiality Agreement, dated as of
December 1, 1998, by and between Athersys, Inc. and Dr. Gil
Van Bokkelen |
|
|
|
10.17
|
|
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 |
|
|
|
10.18
|
|
Amendment No. 1 to Amended and Restated Employment Agreement,
dated as of May 31, 2007, by and between Advanced
Biotherapeutics, Inc. and John Harrington |
|
|
|
10.19
|
|
Non-Competition and Confidentiality Agreement, dated as of
December 1, 1998, by and between Athersys, Inc. and Dr. John
J. Harrington |
|
|
|
10.20
|
|
Employment Agreement, dated as of May 22, 1998, by and between
Athersys, Inc. and Laura K. Campbell |
|
|
|
10.21
|
|
Amendment No. 1 to Employment Agreement, dated as of May 31,
2007, by and between Advanced Biotherapeutics, Inc. and Laura
Campbell |
|
|
|
10.22
|
|
Employment Agreement, dated as of September 25, 2000, by and
between Advanced Biotherapeutics, Inc. and Kurt Brunden |
|
|
|
10.23
|
|
Amendment No. 1 to Employment Agreement, dated as of May 31,
2007, by and between Advanced Biotherapeutics, Inc. and Kurt
Brunden |
|
|
|
10.24
|
|
Non-Competition and Confidentiality Agreement, dated as of
September 25, 2000, by and among Athersys, Inc., Advanced
Biotherapeutics, Inc. and Kurt Brunden |
|
|
|
10.25
|
|
Employment Agreement, dated as of October 3, 2003, by and
between Advanced Biotherapeutics, Inc. and Robert Deans, Ph.D. |
|
|
|
10.26
|
|
Amendment No. 1 to Employment Agreement, dated as of May 31,
2007, by and between Advanced Biotherapeutics, Inc. and Robert
Deans |
EXHIBIT INDEX (CONTINUED)
| |
|
|
| Exhibit No. |
|
Description |
10.27
|
|
Non-Competition and Confidentiality Agreement, dated as of
October 3, 2003, by and among Athersys, Inc., Advanced
Biotherapeutics, Inc. and Robert Deans |
|
|
|
10.28
|
|
Employment Agreement, dated as of January 1, 2004, by and
between Advanced Biotherapeutics, Inc. and William Lehmann |
|
|
|
10.29
|
|
Amendment No. 1 to Employment Agreement, dated as of May 31,
2007, by and between Advanced Biotherapeutics, Inc. and
William Lehmann |
|
|
|
10.30
|
|
Non-Competition and Confidentiality Agreement, dated as of
September 10, 2001, by and among Athersys, Inc., Advanced
Biotherapeutics, Inc. and William Lehmann |
|
|
|
10.31
|
|
Form Incentive Agreement by and between
Advanced Biotherapeutics, Inc. and named executive officers,
and acknowledged by Athersys, Inc. and ReGenesys, LLC |
|
|
|
10.32
|
|
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 |
|
|
|
10.33
|
|
Securities Purchase Agreement, dated as of June 8, 2007, by
and among Athersys, BTHC VI, Inc. and Investors (as defined
therein) |
|
|
|
10.34 *
|
|
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 |
|
|
|
10.35 *
|
|
Strategic Alliance Agreement, by and between Athersys, Inc.
and Angiotech Pharmaceuticals, Inc., dated as of May 5, 2006 |
|
|
|
10.36
|
|
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 |
|
|
|
16.1
|
|
Letter from S. W. Hatfield, CPA, dated June 11, 2007 |
|
|
|
21.1
|
|
List of Subsidiaries |
|
|
|
99.1
|
|
Consolidated Audited Financial Statements of Athersys, Inc. |
|
|
|
99.2
|
|
Unaudited Financial Statements of Athersys, Inc. |
|
|
|
99.3
|
|
Pro Forma Consolidated Financial Statements of Athersys, Inc. and BTHC VI |
|
|
|
| * |
|
Confidential treatment has been requested for the redacted portions of this exhibit, and
such confidential portions have been omitted and filed separately with the Securities and
Exchange Commission. |