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Athersys, Inc., has established an intriguing pipeline of developing therapeutic programs in multiple disease areas. The pipeline (see chart, p. 26) prominently features MultiStem®, a patented high-potential stem cell product being developed as a treatment for a broad array of disease indications. Is this a controversial embryonic stem cell product? No. MultiStem® cells are manufactured from hu-man stem cells obtained from adult bone marrow or other nonembryonic tissue sources. They there-fore present no ethical issues. Athersys has conducted preclinical animal studies to evaluate the product’s safety and therapeutic benefit in various disease indications. Based on encouraging results of these and other studies, the Company in 2008 advanced two MultiStem® programs into clinical de-velopment, launching Phase I clinical trials in cardiovascular disease (treating patients that have suf-fered an acute myocardial infarction) and in oncology treatment support involving leukemia or lym-phoma patients receiving bone marrow transplants to reduce the risk or severity of graft versus host disease. These human studies will have a major impact on the Company’s future success. Athersys believes that factors expressed by MultiStem® can reduce inflammation, protect damaged tissue, and form new blood vessels in regions of ischemic injury. If proven safe and effective in clinical tri-als, MultiStem® has tremendous commercial potential. MultiStem® cells may be expanded on a large scale for future clinical use and may be stored frozen until needed. Again, if proven safe and effective in human trials, MultiStem® has the potential to treat a range of disease indications, includ-ing ischemic injury and cardiovascular disease, certain neurological diseases, autoimmune disease, transplant support (including in oncology patients), and a range of orphan disease indications. In ad-dition, the Company is developing novel pharmaceuticals to treat indications such as obesity (although development of a key product has been discontinued), as well as certain cognitive and at-tention disorders. (Boldface items defined in “Technical Terms” section.)

DataTrends Equity Research GroupDataTrends Equity Research Group

Investor’s Corporate Profile Investor’s Corporate Profile ®® : : Athersys, Inc.Athersys, Inc.

Athersys, Inc. ( N ASDAQ: ATHX )

3201 Carnegie Avenue Cleveland, OH 44115-2634 Telephone: 216-431-9900

FAX: 216-361-9495 http://www.athersys.com/

Synopsis: ATHXSynopsis: ATHX

June 2009June 2009

Synopsis of Athersys, Inc.................................................................................................................1 Stock & Financial Summary .............................................................................................................2 FastFacts ............................................................................................................................................3 Executive Summary...........................................................................................................................4 SWOT Analysis of Athersys ............................................................................................................9 Corporate Growth Plan ...................................................................................................................13 Patent Portfolio ................................................................................................................................15 Corporate Leadership .....................................................................................................................17 Market & Products Profile...............................................................................................................21

1. Stem Cells: Scientific Backgrounder .........................................................................21 2. Athersys Product Platforms....................................................................................... 26 3. Competition ..................................................................................................................37

Talking Points ..................................................................................................................................39 Company Milestones.......................................................................................................................43 Current Financial Data ....................................................................................................................47 Investment Risks .............................................................................................................................53 Company News and Press Coverage ............................................................................................59 Technical Terms ..............................................................................................................................61 Disclaimers and Disclosures..........................................................................................................68

Contents of This ProfileContents of This Profile

Investor’s Corporate Profile ® 2 DataTrends Equity Research Group

Stock Summary: Athersys, Inc. (NASDAQ: ATHX)Stock Summary: Athersys, Inc. (NASDAQ: ATHX)

Beneficial Owners of Stock Number of Shares % of Class OrbiMed Advisors LLC 4,360,200 22.16

Radius Venture Partners 2,400,000 12.17

Angiotech Pharmaceuticals, Inc. 1,885,890 9.96

Hambrecht & Quist Capital Mgmt. 1,000,000 5.23

Gil Van Bokkelen (Chairman/CEO) 719,725 3.70

John Harrington (CSO) 626,962 3.22

William Mulligan (Director) 572,423 3.01

George Milne (Director) 2,472,188 12.49

Jordan Davis (Director) 2,457,188 12.42

Michael Sheffery (Director) 4,417,388 22.38

Floyd Loop (Director) 2,457,188 12.42

Lorin Randall (Director) 50,625

William (BJ) Lehmann (Pres./COO) 308,150 1.60

Robert Deans (SVP-Regen. Med.) 180,000

Laura Campbell (VP Finance) 153,329

ATHX: One year stock performance. (Data as of 06/15/2009)

Basic Weighted Shares Outstanding (06/15/09) …...18.93 million Diluted Weighted Shares Outstanding (06/15/09) …...18.93 million


• MultiStem®, a patented stem cell product that Athersys is developing as a treatment for multiple disease indications, is being evaluated in ongoing clinical trials.

• In preclinical studies conducted by Athersys and its collaborators, a single dose of MultiS-tem® administered intravenously demonstrated the potential to safely deliver a significant thera-peutic benefit even when administered several days after an ischemic stroke. • Factors expressed by MultiStem® have the potential to deliver a therapeutic benefit in sev-eral ways, such as the reduction of inflammation, protection of damaged or injured tissue, and the formation of new blood vessels in regions of ischemic injury. • During several years of preclinical work, MultiStem® has demonstrated the potential to ad-dress each of the fundamental limitations observed with traditional bone marrow or hematopoi-etic stem cell transplants. • The Company is developing novel pharmaceuticals to treat indications such as obesity, cer-tain cognitive and attention disorders, narcolepsy or other forms of excessive daytime sleepi-ness. • The Company has more than 20 patent applications directed to product candidates and their therapeutic uses. • Athersys' RAGE® technology portfolio includes 11 issued U.S. patents, and multiple pend-ing U.S. patent applications, and various corresponding international patents and patent applica-tions. • GECKO®, a proprietary genetic technology that leads to rapid identification of gene func-tion, directly links the gene to its role in the cell's biology and accelerates the functional valida-tion of human genes. • Gil Van Bokkelen, Ph.D., co-founded Athersys in October 1995 and served as Chief Execu-tive Officer and Director since then. He has served as the Company’s Chairman since June 2007. He is backed by a strong management team and experienced Board of Directors. • As a development stage Company, Athersys has incurred losses since inception of opera-tions in December 1995, primarily from research expenditures. It had an accumulated deficit of $178 million at December 31, 2008. • Since the Company’s founding, its revenues have consisted of license fees and milestone payments from its collaborators and federal and state grant funding. Athersys has derived no revenue from the sale of FDA-approved products to date. • The Company will need substantial additional funding to develop its products and for its fu-ture operations. If Athersys does not obtain the necessary funding, it may have to delay, scale back, or eliminate product development activities or discontinue its business. However, there is no reason to believe at this time it will be unsuccessful at attaining additional funding.

FastFactsFastFacts


Biopharmaceutical company Athersys, Inc., has established a pipeline of therapeutic product develop-ment programs in multiple disease areas. The Company’s product development portfolio includes MultiStem®, a patented stem cell product that Athersys is developing as a treatment for multiple disease indications, and is being evaluated in ongoing clinical trials. These indications include: cardiovascular disease, oncology treatment support, and ischemic stroke. In addition, the Company is developing novel pharmaceuticals to treat certain cognitive and attention disorders, narcolepsy or other forms of excessive daytime sleepiness. A product developed for the treat-ment of obesity has been discontinued for the time being.

Products

• MultiStem® MultiStem® is manufactured from human stem cells obtained from adult bone marrow or other nonem-bryonic tissue sources. The product consists of a special class of human stem cells that have the ability to express a range of therapeutically relevant proteins and other factors, as well as form multiple cell types. During several years of preclinical work, MultiStem® has shown the potential to address each of the fundamental limitations observed with traditional bone marrow or hematopoietic stem cell trans-plants. These limitations include the historical requirement for tissue matching between donor and pa-tient, the typical need for one donor for each patient (a reflection of the inability to expand cells in a con-trolled and reproducible manner), frequent use of immune suppressive drugs to avoid rejection or im-mune system complications, and a range of other potential safety issues. Unlike other cell types, MultiStem® cells, after isolation from a qualified donor, may be expanded on a large scale for future clinical use and stored in frozen form until needed. Cells obtained from a single do-nor require no genetic modification and may be used to produce banks yielding hundreds of thousands to millions of doses of MultiStem® — an amount far greater than other stem cell types. Working with independent investigators, Athersys has conducted preclinical studies in relevant animal models designed to evaluate safety and potential therapeutic benefit in various disease indications. Based on the results of these and other studies, the Company advanced two MultiStem® programs into clinical development in 2008, launching Phase I clinical trials in cardiovascular disease (treating patients who have suffered a heart attack) and in oncology treatment support (administering MultiStem® to leu-kemia or lymphoma patients who are receiving a traditional bone marrow or hematopoietic stem cell, or HSC, transplant to reduce the risk or severity of graft versus host disease, or GVHD). In December 2008, the Company was granted authorization by the U.S. FDA to begin a third clinical trial, administer-ing MultiStem® for the treatment of ischemic stroke. The Company intends to work with partners and collaborators to explore the potential utility of MultiS-tem® for treating other conditions: autoimmune diseases, other conditions that involve the immune sys-tem, and certain neurological conditions, especially those in which inflammation plays a role. The Com-pany believes that MultiStem® can be useful in treating many diseases. The product at this point has the potential to create significant value for Athersys and its stockholders.

(Continued on page 5)

Executive SummaryExecutive Summary


• ATHX-105

ATHX-105 is a potent and selective 5HT2c receptor agonist that was being developed for the treatment of obesity. Athersys completed several clinical trials involving ATHX-105. In July 2007, the Company initiated a Phase I clinical trial for ATHX-105 in the United Kingdom. The primary objective was to assess the short-term safety of ATHX-105 and to establish an appropriate dose range for subsequent clinical trials that will be conducted in order to assess safety and effectiveness. The Phase I clinical trial, which in-cluded 107 subjects, was completed in January 2008. Top line results were announced shortly after completion of the study. According to the study, ATHX-105 was well-absorbed, resulting in good drug exposures following oral administration, and was generally well tolerated up to a maximum tolerated dose of 100 mg. There were no severe or serious adverse events observed in the clinical trial, no negative effects on cardiovascular, hematology or other clinical parameters, and no discontinuations due to adverse events. In addition to this study, the Company completed two Phase I clinical trials in the United Kingdom to further assess safety and tolerability of ATHX-105 administered at various dose levels, as well as to examine regional absorption of the drug in the gastrointestinal tract for the purpose of developing a formulated product. However, an FDA-requested study conducted as part of an IND application produced data that sug-gested a rat-specific toxicological effect. Because of the expected risk, length of time, and costs related to further testing in rats, Athersys suspended further development of ATHX-105 and withdrew its IND application. The Company is instead focusing on the advancement of next generation compounds that exhibit improved characteristics. While the potential significance of the toxicological effect of ATHX-105 to humans remains unclear, it appears to Athersys to be a compound-specific effect that is not represen-tative of the class of next generation compounds that the Company is developing.

• Other Product Development Athersys is also independently developing novel, orally-active pharmaceutical products for the treatment of certain central nervous system disorders, including disorders such as narcolepsy, excessive daytime sleepiness, and chronic fatigue associated with Parkinson’s disease or other conditions, as well as other potential indications such as attention deficit hyperactivity disorder and other cognitive disorders such as schizophrenia. These programs are focused on the development of potent, selective histamine H3 receptor antagonist compounds that act by elevating levels of neurotransmitters in the sleep and cognitive centers of the brain and stimulating neurological tone. This elevation results in an enhanced state of wakefulness and cognition, without causing hyperactivity, excessive “rebound” sleepiness or addiction. The histamine H3 receptor antagonists being developed at Athersys represent a new class of drugs that could have an im-proved efficacy and safety profile relative to existing drugs used for the treatment of a range of condi-tions that affect cognitive ability, attention or wakefulness. In addition to its current product development programs, the Company developed its patented random activation of gene expression, or RAGE®, technology that provides it with the ability to produce human cell lines that express specific, biologically well validated drug targets without relying upon cloned and isolated gene sequences. While its RAGE® technology is not a product, it is a commercial technology that Athersys has successfully applied for the benefit of its partners and that the Company has also used for its own internal drug development programs.

(Continued from page 4)



Growth Strategy

Athersys is applying a "fast-follower" approach to product development in multiple areas. This approach allows the Company to strategically reduce, limit or stage development risks and costs in several ways. In implementing this approach the Company is focusing heavily on the following: • Identifying and developing best-in-class, highly differentiated products in well defined disease areas

to address major unmet medical needs • Leveraging the prior (or ongoing) clinical and/or commercial efforts and validation of others, in order

to produce better, safer and/or more convenient therapeutics than its competitors, but not develop-ing “me-too” therapeutics.

The Company’s approach and proprietary technologies have enabled it to identify, validate, and develop potential best-in-class therapeutic candidates across multiple disease areas targeted toward clinically meaningful, attractive commercial markets. Its technologies have proven successful multiple times at enabling drug development programs in partnerships Athersys has established with leading pharmaceu-tical companies, and provide the Company with the capability to rapidly pursue new opportunities as they arise. The Company’s long term commercial strategy is to advance products in selected areas through clinical trials and onto the market. While Athersys advances certain programs on its own, it also intends to explore partnering opportunities for some of its programs at various stages of development. In establishing partnerships with other companies, Athersys is seeking to expand its capital resources, broaden its capabilities and maximize value for its shareholders.

Intellectual Property Athersys, Inc., has established a broad intellectual property portfolio related to its key functional genom-ics technologies and product candidates. Its patent estate has claims directed to compositions, methods of making, and methods of using the Company’s small molecule drug candidates. The Company has regularly filed patent applications (including composition of matter and/or method of usage, as appropri-ate) related to proprietary product candidates arising from its lead development efforts and its cell ther-apy development activities. Athersys has twelve issued patents and approximately 110 patent applica-tions related to its stem cell technologies. The Company has more than 20 patent applications directed to product candidates and their therapeutic uses. The Company’s patent estate includes claims directed to compositions, methods of production, and methods of use of MAPCs and related technologies. Athersys acquired ownership of part of its stem cell technology and intellectual property as a result of the Company’s 2003 acquisition of a holding Com-pany, which held the rights to the technology originally discovered at the University of Minnesota.

Management Athersys was founded in 1995 by Gil Van Bokkelen, Ph.D., current chairman and CEO, and John J. Har-rington, Ph.D., chief scientific officer. The two co-founders guided the Company through its transition to a public corporation via a reverse merger in 2007. Dr. Van Bokkelen, Dr. Harrington and other managers




and directors are long-serving, solidly invested and dedicated to the advancement of the Company’s de-veloping products through clinical trials and into commercialization.

Financial Performance Athersys has incurred losses since inception of operations in December 1995. It had an accumulated deficit of $178 million at December 31, 2008. The Company’s losses have resulted principally from costs incurred in research and development, clinical and preclinical product development, acquisition and li-censing costs, and general and administrative costs associated with its operations. To date, Athersys has financed its operations through private equity and debt financing and investments by strategic col-laborators to develop its technologies, discover and develop therapeutic product candidates, and ac-quire certain technologies and assets. Since its inception, the Company’s revenues have consisted of license fees and milestone payments from its collaborators, and grant proceeds primarily from federal and state grants. Athersys has derived no revenue from the sale of FDA-approved products to date. The Company is debt free, and has about $27 million in working capital. Revenues of about $4 million in 2008 were derived from license fees, grants, and interest income. It is spending $22 million annually on R&D and operational expenses. The Company’s losses in 2008 totaled nearly $18 million.



Athersys: Strengths

• Several products/technologies in the pipeline: MultiStem®, RAGE® technology, 5HT2c, hista-mine H3

• Potential product advantages: safety, superior effectiveness, superior scalability, ease of ad-ministration, ethically neutral.

• Key advantage of MultiStem® cells over many others is expandability. • Proximity to commercialization: MultiStem® is in clinical trials. • Management/directors: Experienced, dedicated, committed beneficial stock owners with solid

experience at biomedical product development and at raising capital to meet operational and R&D needs.

• Company is backed by several well-known venture capital firms. • Approach/proprietary technologies: enable identification, validation, development of potential

best-in-class therapeutics across multiple diseases. • Intellectual property: 12 patents, 110 patent applications related to stem cell technologies. More

than 20 patent applications directed to product candidates and their therapeutic uses. • Company philosophy: commitment to developing safe and effective therapeutics that are sub-

stantial improvements over existing therapies and create significant value for shareholders. • Company is debt free, has about $27 million in working capital. • In 2008, the Company was selected by Frost & Sullivan to receive the 2008 North American

Product Innovation of the Year Award. Athersys: Perceived “Weaknesses”

• As a development stage company, Athersys has used financing from private equity and debt of-ferings, as well as investments by collaborators, to cover day-to-day operational expenses, to develop its technologies and therapeutic product candidates, and to acquire technologies and assets. Because it lacks commercial products, funding from these sources must continue. (NOTE: Revenues of about $4 million in 2008 derived from license fees, grants, and interest in-come. Spending $22 million annually on R&D and operational expenses.)

• Several products/technologies in the development pipeline, but is focusing mainly on the MultiS-tem® product candidate.

• Athersys is aware that it needs to establish further alliances for the development of MultiStem® for other indications. Lack of such partnerships and collaborations (and their sharing of research costs) could slow MultiStem® development. (NOTE: In partnership with Angiotech, the Com-pany is developing MultiStem® for heart attack treatment. It has also collaborated with Bristol-Myers Squibb since 2001, applying its patented RAGE® technology to provide B-MS with vali-dated drug targets for high-throughput screening and lead optimization.)

• To date has not identified any merger/acquisition targets. • Company may be more vulnerable to economic and capital market downturns if its cash

“cushion” proves inadequate over the foreseeable future. • Successful preclinical animal studies do not guarantee successful human safety and efficacy tri-


SWOT *Analysis: by the Editors of Stem Cell Business NewsSWOT *Analysis: by the Editors of Stem Cell Business News

* SWOT: An analytical model and business tool that assesses an organization’s capabilities (and incapabilities) as well as its po-tential opportunities and threats. SWOT = Strengths Weaknesses Opportunities Threats.


als. Athersys needs positive safety and efficacy results from clinical trials. • It’s still too early to call this a “weakness” in development-stage Athersys: nevertheless, the

Company lacks a sales/marketing infrastructure. • The Company acknowledges that several of its competitors are not only better funded, but are

further along in the product commercialization process. • A major competitor in the stem cell space is Osiris Therapeutics (OSIR). That company recently

partnered with Genzyme, which acquired development rights to OSIR’s Prochymal® product in exchange for $130 million in license fees, and up to $1.25 billion in clinical and sales milestones, and royalties.

• The Company also faces significant competition for its developing products in the areas of obe-sity and drug targets.

Athersys: Opportunities

• The U.S. political climate for stem cell research has become much more favorable under the Obama administration. Athersys is likely to benefit indirectly from Pres. Obama’s relaxation of Bush administration funding restrictions, though the Company’s technologies and products are not grounded in embryonic stem cell biology.

• Potential opportunity: Close competitor Osiris Therapeutics’ (OSIR, Columbia, Md.) primary product in development is mesenchymal stem cell-based Prochymal®. Athersys believes Osiris’s MSCs display limited expansion potential and more limited biological plasticity, in con-trast to MultiStem®.

• Several industry analysts, notably Adam Feuerstein of TheStreet.com and Lazard Capital Mar-kets analyst Joel Sendek, are highly skeptical of Prochymal’s efficacy in any disease indication. If they are right, this represents a market opportunity for Athersys down the road.

• MultiStem® cells can develop into multiple cell or tissue types (hence the name); can augment the repair of damaged tissue through multiple mechanisms; may be obtained from bone marrow or other organs; and can be significantly expanded.

• MultiStem® cells may be used without tissue matching or immunosuppressive drugs; can be conveniently stored in frozen form until needed by the clinician; has been shown to be safe and effective in preclinical trials.

• MultiStem® cells could become the first true "off the shelf" stem cell therapy, representing a po-tential breakthrough in stem cell medicine.

• MultiStem® cells allow the Company to pursue multiple high value commercial opportunities from a single product platform, because the Company believes it has potential application in a range of disease states and therapeutic areas.

• The pharmaceutical industry faces a growing problem in the drug development process: how to obtain access to validated drug targets in order to develop new therapies without infringing on patents that restrict the use of cloned and isolated gene sequences encoding the target. Ather-sys' RAGE® technology provides a comprehensive solution to this obstacle to drug develop-ment.

• Identification of gene function during the discovery of novel targets for therapeutic intervention is a crucial need in the biotechnology industry. The Company’s GECKO® genetic technology leads to rapid identification of gene function, directly linking the gene to its role in the cell's biol-ogy and accelerating the functional validation of human genes.

• The Company’s drug discovery platform, which employs a rigorous compound assessment, has enabled Athersys to eliminate less promising compounds earlier in development.




• There are numerous public and private companies in the cell therapy and tissue regeneration fields that would be appropriate targets for product R&D collaborations, or even outright merg-ers/acquisitions.

Athersys: Threats

• A number of public and private companies are actively developing stem cell products that en-compass a range of different cell types, including embryonic stem cells, umbilical cord stem cells, adult-derived stem cells, and processed bone marrow derived cells. Some of these firms — Geron Corp. is a classic example — are extremely well-funded.

• Athersys has at least temporarily discontinued development of its obesity drug (ATHX-105). Whether the Company resumes R&D on ATHX-105 depends on many factors, including the fi-nancial situation. Not the least of these factors, however, is the fact that obesity treatments are already on the market. And many other companies are attempting to develop novel treatments. These include large, multinational pharmaceutical firms such as Bristol-Myers Squibb, Merck, Roche, Sanofi-Aventis, GlaxoSmithKline, and Eli Lilly. Other biotechnology companies are also developing treatments for obesity.

• As to the Company’s ability to produce drug targets for its drug development programs, many companies with established intellectual property will try to restrict or protect the use of specific drug targets. These include Incyte, Human Genome Sciences, etc. This is a potential roadblock.

• The Company’s most significant competitors across its product array are fully integrated phar-maceutical companies and more established biotechnology companies that have substantially greater financial, technical, sales, marketing, and human resources than Athersys does.

• Athersys will need substantial additional funding to develop its products and to fund future op-erations. If Athersys doesn’t find that funding, it may have to delay, scale back, or eliminate its product development activities. Worst case: it may have to shut its doors.

• A large portion of the Company’s future success depends on the performance of its current and future R&D collaborators, each of whom faces its own set of risks and threats.



Athersys, Inc., has established a pipeline of therapeutic product development programs in multiple dis-ease areas. The Company is developing therapeutic products that it believes have best-in-class poten-tial, meaning therapeutic candidates that have the potential to be safer, more effective products than the current standard of care or other products in development, and that may have other advantages, such as superior scalability, safety or ease of administration. The Company’s product development portfolio consists of MultiStem®, a patented and proprietary stem cell product that it is developing as a treatment for multiple disease indications, and that is being evalu-ated in two Phase I clinical trials (one involving administration of MultiStem® to patients suffering from an acute myocardial infarction, or heart attack, and the other for cancer treatment support in leukemia and lymphoma patients at risk for certain complications such as Graft versus Host Disease). In December of 2008 the Company received authorization from the FDA to initiate a third Phase I clinical trial involving administration of MultiStem® to patients suffering an ischemic stroke, which affects more than 700,000 individuals each year in the United States. In addition to its MultiStem® programs, Athersys is developing pharmaceuticals for the treatment of obe-sity and certain neurological conditions that affect cognition, attention and wakefulness. In the obesity area, the Company is developing compounds that selectively stimulate the 5HT2c serotonin receptor in the brain, which is known to play an important role in regulating appetite. These compounds, known as 5HT2c agonists, are designed to reduce appetite and food intake, in order to achieve substantial weight loss over time. Athersys is also developing novel, orally-active pharmaceutical products for the treatment of certain cen-tral nervous system disorders, including sleep disorders such as narcolepsy, or excessive daytime sleepiness, chronic fatigue associated with Parkinson’s disease or other conditions, as well as other po-tential indications such as attention deficit hyperactivity disorder and other cognitive disorders such as schizophrenia. These programs are focused on the development of potent, selective histamine H3 re-ceptor antagonist compounds that act by elevating levels of neurotransmitters in the sleep and cognitive centers of the brain and stimulating neurological tone. This elevation results in an enhanced state of wakefulness and cognition, without causing hyperactivity, excessive “rebound” sleepiness or addiction. The histamine H3 receptor antagonists being developed at Athersys represent a new class of drugs that could have an improved efficacy and safety profile relative to existing drugs used for the treatment of a range of conditions that affect attention, cognitive ability or wakefulness. The Company is also applying a "fast-follower" approach to product development in multiple areas. This approach allows it to strategically reduce, limit or stage development risks and costs in several ways. In implementing this approach the Company is focusing heavily on the following: • Identifying and developing best-in-class, highly differentiated products in well defined disease areas

to address major unmet medical needs • Leveraging the prior (or ongoing) clinical and/or commercial efforts and validation of others, in order

to produce better, safer and/or more convenient therapeutics than its competitors, but not develop-ing “me-too” therapeutics.

The Company’s approach and proprietary technologies have enabled it to identify, validate, and develop potential best-in-class therapeutic candidates across multiple disease areas targeted toward clinically meaningful, attractive commercial markets. Its technologies have proven successful multiple times at enabling drug development programs in partnerships Athersys has established with leading pharmaceu-tical companies, and provide the Company with the capability to rapidly pursue new opportunities as they arise.

Corporate Growth PlanCorporate Growth Plan


The Company’s long term commercial strategy is to advance products in selected areas through clinical trials and onto the market. While Athersys advances certain programs on its own, it also intends to ex-plore partnering opportunities for some of its programs at various stages of development. In establishing partnerships with other companies, Athersys is seeking to expand its capital resources, broaden its ca-pabilities and maximize value for its shareholders.


Athersys, Inc., has established a broad intellectual property portfolio related to its key functional genom-ics technologies and product candidates. Its patent estate has claims directed to compositions, methods of making, and methods of using the Company’s small molecule drug candidates. The Company has regularly filed patent applications (including composition of matter and/or method of usage, as appropri-ate) related to proprietary product candidates arising from its lead development efforts and its cell ther-apy development activities. Athersys has twelve issued patents and approximately 110 patent applica-tions related to its stem cell technologies. The Company has more than 20 patent applications directed to product candidates and their therapeutic uses. Athersys has 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 enables the Company to file patent applications that cover new applications of its existing technologies or prod-uct candidates, including MultiStem®. The Company’s patent estate includes claims directed to compositions, methods of production, and methods of use of MAPCs and related technologies. Athersys acquired ownership of part of its stem cell technology and intellectual property as a result of the Company’s 2003 acquisition of a holding Com-pany, which held the rights to the technology originally discovered at the University of Minnesota. Athersys also has an exclusive license to additional MAPC-related inventions (or, in other words, im-provements) developed by the University of Minnesota and under a collaborative research agreement with the Katholieke Universiteit Leuven, or KUL (The Netherlands, http://www.kuleuven.be/english/), the Company has an exclusive license to MAPC-related inventions developed at KUL using the MAPC tech-nology or intellectual property or that result from sponsored research funded by the Company.

• MultiStem®

Athersys' MultiStem® intellectual property consists of ownership of and an exclusive worldwide license from the University of Minnesota to the MAPC technology and its uses, together with in-tellectual property developed at Athersys. The portfolio comprises one issued U.S. patent and more than 20 pending U.S. patent applications and various corresponding international patent applications.

• 5HT2c Program

In the Company’s 5HT2c program, the Company has 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.

• Histamine H3 Program

In the Company’s Histamine H3 program, the Company has 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.


Patent Portfolio and Other Intellectual PropertyPatent Portfolio and Other Intellectual Property


• RAGE®

The Company has twelve issued United States patents and various issued international patents relating to compositions and methods for the RAGE® technology. These patents will expire in 2017. There are also several patent applications relating to human proteins and candidate drug targets that the Company has identified through the application of RAGE® and the Company’s other technologies. The RAGE® technology was developed by Dr. John Harrington and other Athersys scientists internally in the mid-1990s. Athersys has also filed multiple applications di-rected to novel mutation methods (GECKO® technology).



Senior Management:

• Gil Van Bokkelen, Ph.D., Chairman and CEO

Dr. Van Bokkelen has served as the Company’s Chief Executive Officer and Chairman since June 2007. Dr. Van Bokkelen co-founded Athersys in October 1995 and served as Chief Execu-tive Officer and Director since Athersys’ founding. Prior to May 2006, he also served as Ather-sys’ 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 Medi-cine, and has served on a number of other boards, including the Biotechnology Industry Organi-zation’s ECS board of directors from 2001 to 2004 and in 2008, and the Kent State University Board of Trustees from 2001 to 2004, and has served as an advisor to a number of early stage and venture-backed companies, venture capital firms and non-profit organizations. 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.

• William (BJ) Lehmann, Jr., J.D., President and Chief Operating Officer

Lehmann has served as the Company’s President and Chief Operating Officer since May 2006. Lehmann 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 Ather-sys’ President and Chief Operating Officer. From 1994 to 2001, 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. Lehmann received his J.D. from Stanford University, his M.B.A. from the University of Chicago, and his B.A. from the Uni-versity of Notre Dame.

• John J. Harrington, Ph.D., Chief Scientific Officer, Executive Vice President and Di-

rector

Dr. Harrington has served as the Company’s Chief Scientific Officer, Executive Vice President and Director since June 2007. Dr. Harrington co-founded Athersys in October 1995 and has served as Athersys’ Executive Vice President and Chief Scientific Officer and as 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 United States 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 over-seen the therapeutic product development programs at Athersys since their inception, and dur-ing 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.

• Robert J. Deans, Ph.D., Senior Vice President, Regenerative Medicine

Dr. Deans has served as the Company’s Senior Vice President, Regenerative Medicine since


Corporate LeadershipCorporate Leadership


June 2007. Dr. Deans has led Athersys’ regenerative medicine research and development ac-tivities 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 ex-perience in this field. From 2001 to 2003, Dr. Deans worked for early-stage biotechnology com-panies. 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 Norris Com-prehensive 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

Campbell has served as the Company’s Vice President, Finance since June 2007. 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, Campbell specialized in entrepreneurial services and the biotechnology industry sector and participated in several initial public offerings. Campbell received her B.S., with distinction, in Business Admini-stration from The Ohio State University.

Board of Directors:

• Gil Van Bokkelen (see bio in Executive Management above)

• John J. Harrington (see bio in Executive Management above)

• 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 World-wide 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 be-came 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 Develop-ment 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., MedIm-mune Inc., and Aspreva Pharmaceuticals Inc. He also serves on the board of the New York Bo-tanical 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

Mulligan has been Director of Athersys since October 1998. Mulligan joined Primus Venture Partners, a Cleveland-based private equity firm and an investor in Athersys, in 1985 from




McKinsey & Company, Inc. Mulligan has served as a Managing Director of Primus since 1987. Mulligan serves as a director of several private companies and Universal Electronics, Inc. Mulli-gan is a trustee of The Cleveland Clinic Foundation and chairs the Advisory Board of CCF Inno-vations, which is responsible for commercializing technology developed at the Cleveland Clinic. Mulligan is also a trustee of Denison University and the Western Reserve Land Conservancy. Mulligan received his B.A. in economics from Denison University and his M.B.A. from the Uni-versity of Chicago.

• Jordan S. Davis, Director

Davis has served as a Director since June 2007. Davis is a Managing Partner of Radius Ven-tures, a health and life sciences venture capital firm, which he co-founded in 1997. Davis cur-rently serves on the board of directors of Health Language, Inc. and Heartscape Technologies, Inc., both Radius portfolio companies. He is also a member of the board of HealthCorps, a charitable organization engaged in educating youth on diet, nutrition and exercise. 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.

• Floyd D. Loop, M.D., Director

Dr. Loop has served as a Director since June 2007. Dr. Loop is currently retired. Until his retire-ment in October 2004, Dr. Loop was the CEO and Chairman of the Board of Governors of The Cleveland Clinic Foundation from 1989 to 2004. Dr. Loop is a Venture Partner of Radius Ven-tures Partners II, L.P. 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 Tho-racic 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 re-ceived his M.D. from the George Washington University.

• Michael B. Sheffery, Ph.D., Director

Dr. Sheffery has served as a Director since June 2007. Dr. Sheffery is a founding General Part-ner of OrbiMed Advisors, LLC, a healthcare investment firm, 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 Ana-lyst 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. and Pieris AG.

• Lorin J. Randall, Director

Randall has served as a Director since September 2007. Randall is an independent financial consultant and previously was Senior Vice President and Chief Financial Officer of Eximias Pharmaceutical Corporation, a development-stage drug development company, from 2004 to 2006. From 2002 to 2004, Randall served as Senior Vice President and Chief Financial Officer of i-STAT Corporation, a publicly-traded manufacturer of medical diagnostic devices that was acquired by Abbott Laboratories in 2004. From 1995 to 2001, Randall was Vice President and Chief Financial Officer of CFM Technologies, Inc., a publicly-traded manufacturer of semicon-ductor manufacturing equipment. Randall currently serves on the boards of directors of Point 5 Technologies, Inc., Rapid Micro Biosystems, Inc., Acorda Therapeutics, Inc. and Opexa Thera-




peutics, Inc. Randall received a B.S. in accounting from The Pennsylvania State University and an M.B.A. from Northeastern University.



1. Stem Cells: Scientific Backgrounder

Introduction The National Institutes of Health and most of the global scientific community believe firmly that research on stem cells is advancing scientific knowledge about how an organism develops from a single cell and how healthy cells replace damaged cells in adult organisms. This area of science is also leading scien-tists to investigate the possibility of cell-based therapies to treat disease, which is often referred to as regenerative or reparative medicine. A potential application of human stem cells is the generation of cells and tissues that may be used for cell-based therapies. Today, donated organs and tissues are of-ten used to replace ailing or destroyed tissue, but the need for transplantable tissues and organs far out-weighs the available supply. Stem cells, directed to differentiate into specific cell types, offer the possibil-ity of a renewable source of replacement cells and tissues to treat diseases including diabetes, liver dis-ease, corneal disease and retinal disease. Pluripotent stem cells are undifferentiated primary cells that have the potential to become any tissues or organs of the body. However, stem cell therapies have technical, ethical and legal hurdles to overcome before they will be able to be used to effect tissue and organ repair. To realize the promise of cell-based therapies for the treatment of diseases, scientists must be able to manipulate stem cells so that they possess the necessary characteristics for successful differentiation, transplantation and engraftment.


Market and Products ProfileMarket and Products Profile


The following is a list of some of the major steps in successful cell-based treatments that scientists will have to learn to precisely control to ready such treatments for clinical use. To be useful for transplant purposes, stem cells must be reproducibly made to:

● proliferate extensively and generate sufficient quantities of stem cells; ● differentiate into the desired cell type(s) and generate sufficient quantities of those cell types; ● survive in the recipient after transplant; ● integrate into the surrounding tissue after transplant; ● function appropriately; ● avoid harming the recipient; and ● avoid or reduce the problem of immune rejection.

What Makes Stem Cells Different? Stem cells are distinguished from other cells by two characteristics: they can divide to produce copies of themselves (self-renewal) under appropriate conditions, and they are pluripotent, or able to differentiate into any of the three germ layers: the endoderm (which forms the lungs, gastrointestinal tract, and inte-rior lining of the stomach), mesoderm (which forms the bones, muscles, blood, and urogenital tract), and ectoderm (which forms the epidermal tissues and nervous system). Pluripotent cells, which can differen-tiate into any mature cell type, are distinct from multipotent cells (such as hematopoietic, or blood-forming, cells) that can differ into a limited number of mature cell types. Because of their pluripotency and capacity for self-renewal, stem cells hold great potential to renew tissues that have been damaged by conditions such as eye diseases, Type 1 diabetes, Parkinson’s disease, heart attacks, and spinal cord injury. Although techniques to transplant multipotent or pluripotent cells are being developed for many specific applications, some procedures are sufficiently mature to be established options for care.

However, differentiation is influenced by numerous factors, and investigators are just beginning to un-derstand the fundamental properties of human pluripotent cells. Researchers are gradually learning how to direct these cells to differentiate into specialized cell types and to use them for research, drug dATHX-very, and transplantation therapy. However, before stem cell derivatives are suitable for clinical applica-tion, scientists require a more complete understanding of the molecular mechanisms that drive pluripo-tent cells into differentiated cells. Scientists will need to pilot experimental transplantation therapies in animal model systems to assess the safety and long-term stable functioning of transplanted cells. In par-ticular, they must be certain that any transplanted cells do not continue to self-renew in an unregulated fashion after transplantation, which may result in a teratoma, or stem cell tumor. In addition, scientists must ascertain that cells transplanted into a patient are not recognized as foreign by the patient’s im-mune system and rejected.

Sources Of Embryonic Stem Cells Stem cells derived from an early-stage human blastocyst (an embryo fertilized in vitro and grown ap-proximately five days in culture) have the capacity to renew indefinitely, and can theoretically provide an unlimited supply of cells. It is also possible to derive stem cells from non-embryonic tissues, including amniotic fluid, placenta, umbilical cord, brain, gut, bone marrow, and liver. These stem cells are some-times called “adult” stem cells, and they are typically rare in the tissue of origin. Because so-called “adult” stem cells include cells from the placenta and other early stages of development, they are more




correctly termed “non-embryonic stem cells.” Non-embryonic stem cells are more limited in their capacity to self renew in the laboratory, making it more difficult to generate a large number of stem cells for a specific experimental or therapeutic application. At least six embryonic sources have been used to establish human pluripotent stem cell lines. All ap-proaches involve isolation of viable cells during an early phase of development, followed by growth of these cells in appropriate culture medium.

• Traditional human embryonic stem cell (hESC) line generation from a blastocyst-stage em-bryo

• hESC lines from human primordial germ cells (destined to become either oocytes or sperm cells)

• hESC lines from dead embryos • hESC lines from genetically abnormal embryos • hESC lines from single cell embryo biopsy • hESC lines created via parthenogenesis


Source: NIH

Derivation of Adult Stem Cells from Bone Marrow


Stem Cell Research In The United States Much confusion exists among the general public over the legal status of human embryonic stem cell re-search. is not banned in the United States. The only prohibition is on the use of federal funds for certain kinds of research in this area. Work by private organizations is not restricted except by the restrictions applicable to all human research. Some of America’s most respected institutions have chosen to push forward with stem cell research. Stem cell science began in earnest with attempts to perform bone marrow transplants in humans. The first transplants in humans involved bone marrow transplant between identical twins, a situation guaran-teeing complete compatibility between donor and recipient. In the 1960s, physicians were able to per-form transplants between siblings who were not identical twins. And in 1973, physicians performed the first unrelated bone marrow transplant, requiring seven procedures to be successful. In 1990 the Na-tional Marrow Donor Program (NDWP) was created to administer a database needed for donors. The program expanded rapidly during the 1990s: more than 16,000 transplants have been performed for the treatment of immunodeficiencies and leukemia.

Milestones in Stem Cell Research Following is a summary of important stem cell milestones over the past three decades:

• 1973: A moratorium is placed on U.S. government funding for human embryo research.

• 1981: First embryonic stem cells are isolated in mice by Gail Martin at the University of Califor-nia, San Francisco, and Martin Evans, then with the University of Cambridge (now at the Univer-sity of Cardiff).

• 1988: An NIH panel votes 19 to 2 in favor of government funding.

• 1990: Congress votes to override the moratorium on government funding of embryonic stem cell

research, which was vetoed by Pres. George H. W. Bush. Pres. Clinton lifted the ban, but changed his mind the following year after public outcry.

• 1995: Congress bans federal funding.

• 1995: University of WATHXnsin researchers isolate the first embryonic stem cells in primates –

rhesus macaque monkeys. The research shows it’s possible to derive embryonic stem cells from primates, including humans.

• 1998: Dr. James Thomson of the University of WATHXnsin-Madison isolates cells from the in-

ner cell mass (ICM) of early embryos, and developes the first embryonic stem cell lines. In the same year, Dr. John Gearhart of Johns Hopkins University derives germ cells from cells in fetal gonadal tissue (primordial germ cells). Pluripotent stem cell “lines” are developed from both sources. The blastocysts used for human stem cell research typically come from in vitro fertiliza-tion (IVF) procedures.

• 1998: U.S. Department of Health and Human Services Secretary Sullivan extends the morato-

rium on stem cell research funding.



• 2000: Pres. Clinton allows funding of research on cells derived from aborted human fetuses, but not from embryonic cells.

• 2000: NIH issues guidelines that allow federal funding of embryonic stem-cell research. Pres.

Clinton supports the guidelines.

• 2001 (August): President George W. Bush allows federal funding of research only on existing human embryonic stem cell lines created prior to his announcement. His concern is to not foster the continued destruction of living human embryos.

• 2004: Harvard researchers create 17 new human embryonic stem cell lines to be shared freely

with scientists around the globe, more than doubling the world’s available supply of the medi-cally promising cells.

• 2004: Both houses of Congress ask Pres. George W. Bush to review his policy on embryonic

stem cell research. Pres. Bush releases a statement reiterating his moral qualms about creating human embryos to destroy them, and refuses to reverse the federal policy banning government funding of ESC research (other than for ESC lines established before the funding ban).

• 2004: California voters approve a stem cell research funding initiative by a 60 - 40 percent mar-

gin. It establishes the “California Institute for Regenerative Medicine” to regulate stem cell re-search and research facilities and authorized bonds to finance institute activities up to $3 billion dollars subject to an annual limit of $350 million.

• 2006: Superior Court Judge Bonnie Sabraw rules in April 2006 that, despite claims of a vocal

minority of stem cell opponents, Proposition 71 is constitutional in its entirety. The first research grants are funded in April 2006 after six philanthropic organizations lend a combined $14 million, to be paid back once bond market financing is available through the Proposition.

• 2008: Both presidential candidates, Sen. Barack Obama (D-Ill.) and Sen. John McCain (R-

Ariz.), express their support for embryonic stem cell research.

• 2009 (March): Pres. Barack Obama issues executive order reversing Bush administration re-strictions on federal funding of human embryonic stem cell research.

• 2009 (April): NIH issues proposed rules implementing the Obama executive order. The rules

limit eligibility for funding to embryos created, but no longer need, for in vitro fertilization (reproductive) purposes and donated under strict informed consent requirements. The rules bar NIH funding for research using human embryonic stem cells derived from other sources, includ-ing somatic cell nuclear transfer, parthenogenesis, and/or IVF embryos created for research purposes.




2. Athersys Product Platforms Athersys’ synergistic capabilities include novel, proprietary technologies that enable the Company to effi-ciently develop a diverse set of high value therapeutic product opportunities. These capabilities include a diverse compound library, proprietary genomics tools and technologies, and a distinctive adult stem cell platform. Through the integration of these capabilities, the Company has developed multiple product types, including synthetic pharmaceuticals, and cell therapy products, that encompass a range of dis-ease areas.

• The Stem Cell Platform: MultiStem®

MultiStem® is a stem cell platform based on the Multipotent Adult Progenitor Cell (MAPC) tech-nology, a pioneering discovery by Dr. Catherine Verfaillie and her colleagues at the University of Minnesota. Through the acquisition and exclusive licensing of this technology, Athersys has ownership and a worldwide exclusive license to the MAPC technology and certain related tech-nologies.

MultiStem® is a biologic product that is manufactured from human stem cells obtained from adult bone marrow or other nonembryonic tissue sources. The product consists of a special class of human stem cells that have the ability to express a range of therapeutically relevant



Athersys, Inc.

Source: Athersys


proteins and other factors, as well as form multiple cell types. Factors expressed by MultiStem® have the potential to deliver a therapeutic benefit in several ways, such as the reduction of inflammation, protection of damaged or injured tissue, and the formation of new blood vessels in regions of ischemic injury. These cells exhibit a drug-like pro-file in that they act primarily through the production of factors that regulate the immune system, protect damaged or injured cells, promote tissue repair and healing and most or all of the cells are cleared from the body over time. During several years of preclinical work, MultiStem® has demonstrated the potential to address each of the fundamental limitations observed with traditional bone marrow or hematopoietic stem cell transplants. These limitations include the historical requirement for tissue matching be-tween donor and patient, the typical need for one donor for each patient (a reflection of the in-ability to expand cells in a controlled and reproducible manner), frequent use of immune sup-pressive drugs to avoid rejection or immune system complications, and a range of other poten-tial safety issues. Unlike other cell types, MultiStem® cells, after isolation from a qualified donor, may be expanded on a large scale for future clinical use and stored in frozen form until needed. Cells obtained from a single donor require no genetic modification and may be used to produce banks yielding hundreds of thousands to millions of doses of MultiStem®, an amount far greater than other stem cell types. MultiStem® cells have the capacity to grow and develop into multiple cell or tissue types, as well as augment the repair of damaged tissue through multiple mechanisms. Unlike most other cell types that may be isolated from the human body, MultiStem® may be obtained from the bone marrow or other organs of a qualified donor and then significantly expanded in a controlled and well validated manner. In addition, MultiStem® may be used without tissue matching or immuno-suppressive drugs, (making it analogous to type O blood) and can be conveniently stored in fro-zen form until needed by the clinician. In extensive pre-clinical testing in a range of disease models, MultiStem® has been safe and effective. These characteristics make MultiStem® the first true "off the shelf" stem cell therapy, representing a potential breakthrough in stem cell medicine.

• Market Opportunity: Bone Marrow Transplant 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 sub-stantially 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 che-motherapy, 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, substantial reduc-tion in digestive capacity, and other problems, which may result in significant disability or death.

• Market Opportunity: Heart Attack

Despite recent advances in cardiovascular care, myocardial infarction remains one of the lead-ing 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, resulting in significant injury to the heart muscle that severely affects the patient's quality of life, or causes death. Such block-




ages 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 dis-ease, 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 diagno-sis, 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.

• Market Opportunity: Stroke

According to the American Heart Association, more than 780,000 individuals in the United States will suffer a stroke in 2008 - a number that is expected to increase over time with the ag-ing of the "baby boomer" generation. Neurological injury as a result of ischemic stroke, (caused by a blockage in blood flow to the brain) accounts for more than 85% 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 the leading cause of disability and third leading cause of death, there has been little progress toward the development of treat-ments 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 four 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 thera-peutic window, it is estimated that less than 5% of ischemic stroke victims currently receive treatment with tPA.

• MultiStem® Advantages

In contrast to other stem cell types that have been described, MultiStem® cells exhibit four im-portant characteristics. First, in contrast to more specialized stem cell types that can only form a limited number of cells or tissues, MultiStem® cells have significant biological plasticity, and can give rise to a broad range of cells and tissues. MultiStem® cells have been shown to differentiate into the major cell types and tissues in the body, including cells from each of the primary germ layers, which com-prise the inner (endoderm), middle (mesoderm), and outer (ectoderm) tissue layers of an adult, which makes them unique among non-embryonic stem cell types. Depending on the nature of the injury or disease and method of delivery, these cells may produce factors that protect tissue or modulate the body's response to injury and provide significant therapeutic benefit, or differen-tiate in vivo into a variety of cells to help augment functional improvement and recovery. Other non-embryonic stem or progenitor cells appear to have more limited plasticity. Second, unlike most other cell types, MultiStem® cells can be produced in significant quantities, thereby enabling scaled and reliable production. This enables Athersys and its collaborators to produce a standardized, well characterized therapeutic product in a reliable and cost effective manner. Athersys has established cultures and carried cells through sufficient passages to rep-resent potentially hundreds of thousands of potential doses from an individual donor. In March




2007, the Company and its manufacturing partner, Lonza, announced the successful establish-ment of a Master Cell Bank produced under GMP and the production of clinical grade material for its initial clinical trials. Cells are harvested from a pre-qualified donor and then expanded to form a Master Cell Bank. At each step of the MultiStem® production process, cells are ana-lyzed and qualified according to pre-established criteria to ensure that a consistent, well charac-terized product candidate is produced. In contrast, other adult stem and progenitor cells exhibit much more limited doubling potential, which limits the number of potential doses obtained from a single production run and/or results in significant loss of potency. Third, MultiStem® cells have a demonstrated record of safety and efficacy in a range of pre-clinical studies and validated disease models. Unlike embryonic stem cells (ESC), MultiStem® cells are not derived from or harvested from developing embryos, and do not appear to lead to the formation of tumor like growths (teratomas) or inappropriately placed tissue (also referred to as “ectopic” tissue) when administered to animals in a variety of disease models. Multiple in vivo experiments, in which MultiStem® cells have been administered to animals, demonstrate the cells have engrafted and differentiated into functional cells in a variety of tissue and organ sys-tems without forming teratomas. Lastly, MultiStem® cells display important immunological characteristics which may make them useful as an “allogeneic” or universal donor type product. Specifically, MultiStem® cells appear to be immune privileged/immune system advantaged. For instance, in vitro experiments demon-strate these cells can suppress an undesired T-cell response. Furthermore, in allogeneic animal models of disease MultiStem® cells have demonstrated significant therapeutic benefit. In con-trast, with conventional bone marrow or organ transplantation, the donor and the recipient typi-cally have to be very carefully matched to reduce the odds of tissue rejection. This severely lim-its the number of transplants that can take place, and frequently requires that the organ trans-plant recipient must remain on chronic immunosuppressive therapy, which can have significant risks and side effects, including an increased incidence of cancer.

If MultiStem® cells display similar results in humans (i.e., allogeneic therapeutic benefit without the need for extensive genetic matching or chronic immunosuppressive therapy), then the MultiStem® platform would provide both large scale production capability and true "off-the-shelf" utility ... making it unique among cell therapeutics, and representing a potential breakthrough in the field of regenerative medicine. MultiStem® allows the Company to pursue multiple high value commercial opportunities from a single product platform, since the Company believes it has potential application in a range of disease states and therapeutic areas. For example, based on numerous preclinical discussions with the FDA, the Company believes that it will be able to use data and information from preclini-cal 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 Mas-ter File, that contains data from multiple safety studies as well as information related to product manufacturing and characterization. As a result, the Company expects to be able to efficiently add clinical indications as it further expands the scope of potential applications for MultiStem®, enabling the Company to reduce costs and shorten development timelines in comparison to tra-ditional single-use drug development programs. In addition to the direct therapeutic application of unmodified MultiStem® cells, more specialized therapies may be developed. For example, undifferentiated cells may be used to produce cells that are targeted or primed to engraft or develop into various specific cell types, such as heart muscle cells, β-islet cells, blood or immune cells, bone, cartilage or other cell types. This proc-ess of specialized cellular development is also referred to as “differentiation.” As an alternative or complementary approach to the use of MultiStem® cells, modified, primed, or differentiated




cell populations may be optimized for certain clinical indications.

• MultiStem® R&D Athersys believes that MultiStem® represents a potential best-in-class stem cell therapy be-cause it exhibits each of the following characteristics based on research and development to date: (1) it may be produced on an industrial scale, in a well validated and reproducible manner; (2) it may be administered without tissue matching or the need for immune suppressive drugs, making it analogous to type O blood; (3) it exhibits a consistent safety profile; and (4) it appears capable of delivering a therapeutic benefit through more than one mechanism of action. Factors expressed by MultiStem® are believed to reduce inflammation and regulate immune system function, protect damaged or injured cells and tissue, promote formation of new blood vessels, and augment tissue repair and healing in other ways. Based upon work that the Company and independent collaborators have conducted over the past several years, the Company believes that MultiStem® has the potential to treat a range of disease indications, including ischemic in-jury and cardiovascular disease, certain neurological diseases, autoimmune disease, transplant support (including in oncology patients), and a range of orphan disease indications. Working with independent investigators, Athersys has conducted preclinical studies in relevant animal models designed to evaluate safety and potential therapeutic benefit in various disease indications. Based on the results of these and other studies, the Company advanced two MultiS-



Source: Athersys, Inc.


tem® programs into clinical development in 2008, initiating Phase I clinical trials in cardiovascu-lar disease (treating patients that have suffered an acute myocardial infarction) and in oncology treatment support (administering MultiStem® to leukemia or lymphoma patients who are receiv-ing a traditional bone marrow or hematopoietic stem cell, or HSC, transplant to reduce the risk or severity of graft versus host disease, or GVHD). Athersys is conducting the acute myocardial infarction clinical trial with its partner Angiotech Pharmaceuticals, Inc., or Angiotech. In May 2006, the Company entered into a product co-development collaboration with Angiotech to jointly develop and ultimately market MultiStem® for the treatment of damage caused by myocardial infarction and peripheral vascular disease. Under the terms of the collaboration, the parties are jointly funding clinical development activi-ties, whereby preclinical costs are borne solely by Athersys, costs for Phase I and Phase II clini-cal trials are borne 50 percent by Athersys and 50 percent by Angiotech, costs for the first Phase III clinical trial will be borne 33 percent by Athersys and 67 percent by Angiotech, and costs for any Phase III clinical trials subsequent to the first Phase III clinical trial will be borne 25 percent by Athersys and 75 percent by Angiotech. The Company will receive nearly half of the net profits from the sale of any jointly developed, approved products. In addition, the Company retains the exclusive commercial rights to the development of MultiStem® for other indication areas, including oncology treatment support, neurological indications, autoimmune disease, and other areas.

In December 2008, the Company was granted authorization by the United States Food and Drug Administration, or FDA, to initiate a third clinical trial, administering MultiStem® for the treatment of ischemic stroke. According to recent American Heart Association estimates, over 700,000 patients suffered an ischemic stroke in the United States in 2008. Current drug therapy for treating an ischemic stroke is limited to administration of the clot dissolving drug tPA. Accord-ing to current clinical guidelines, tPA must be administered to stroke patients within three hours after the occurrence of the ischemic stroke in order to remove the clot while minimizing potential risks, such as bleeding into the brain. However, many strokes occur at night or during a time where immediate diagnosis and medical treatment is not available, and as a result, only a very small percentage of ischemic stroke patients are treated with tPA. In preclinical studies conducted by Athersys and its collaborators, a single dose of MultiStem® administered intravenously has demonstrated the potential to safely deliver a significant thera-peutic benefit even when administered several days after an ischemic stroke has occurred. The Company believes that this benefit is achieved through several mechanisms, including reduction of inflammation and immune system modulation in the ischemic area and the protection and res-cue of damaged or injured cells, including neuronal tissue. The Phase I safety clinical trial au-thorized by the FDA is a double blind, placebo controlled study that allows for administration of MultiStem® to patients 48 to 60 hours after the ischemic stroke, which, if shown to be safe and effective, would represent a significant extension of the treatment window relative to existing standard of care. Working with partners and collaborators, and as resources permit, the Company intends to ex-plore the potential utility of MultiStem® for treating a range of other conditions, including autoim-mune diseases, other conditions that involve the immune system, and certain neurological con-ditions, especially those in which inflammation plays a role. The Company believes that MultiS-tem® could have utility in treating multiple diseases, and as a result, has the potential to create significant value for Athersys and its stockholders.




• The Obesity Platform: ATHX-105 The clinical obesity market has enormous global potential. In 1996, for example, doctors wrote 18 million monthly prescriptions for drugs comprising the fen/phen combination. (The diet drug was taken off the market in 1997 after it was found to cause significant cardiovascular problems in some patients.) However, in 1996, these drugs generated more than $400 million sales, an indicator of the substantial market opportunity for an effective drug to treat clinical obesity. For some years now, Athersys has been developing pharmaceuticals for the treatment of obe-sity, although active development has been discontinued until further notice. The company’s compounds selectively stimulate the 5HT2c serotonin receptor in the brain, which is known to play an important role in regulating appetite. These compounds, known as 5HT2c agonists, are designed to reduce appetite and food intake to achieve substantial weight loss over time.

Athersys completed several clinical trials involving ATHX-105, a potent and selective 5HT2c re-ceptor agonist that was being developed for the treatment of obesity. In July 2007, the Company initiated a Phase I clinical trial for ATHX-105 in the United Kingdom. The primary objective of the Phase I clinical trial was to assess the short-term safety of ATHX-105 and to establish an appro-priate dose range for subsequent clinical trials that will be conducted in order to assess safety and effectiveness. The Phase I clinical trial, which included 107 subjects, was completed in January 2008, and top line results were announced shortly after completion of the study. The results of the study demonstrated that ATHX-105 was well-absorbed, resulting in good drug exposures following oral administration, and was generally well tolerated up to a maximum toler-ated dose of 100 mg. There were no severe or serious adverse events observed in the clinical trial, no negative effects on cardiovascular, hematology or other clinical parameters, and no dis-continuations due to adverse events. In addition to this study, the Company completed two Phase I clinical trials in the United Kingdom to further assess safety and tolerability of ATHX-105 administered at various dose levels, as well as examine regional absorption of the drug in the gastrointestinal tract for the purpose of developing a formulated product. Based upon the results of these and other studies, the Company applied to the FDA in the sum-mer of 2008 to initiate a double blind, placebo controlled Phase II clinical trial involving admini-stration of ATHX-105 to patients in the United States. In September 2008, following the FDA’s review of its investigational new drug application, or IND, the proposed trial was placed on par-tial clinical hold pending the receipt of additional information and resolution of several issues re-lating to ATHX-105’s preclinical package and the proposed Phase II study design. At the suggestion of the FDA, the Company conducted two additional studies to provide further data about ATHX-105’s potential toxicological profile, one repeating a prior study under different conditions and another study that the Company had not previously conducted and that is not typically included in preclinical evaluation. While the first study confirmed its prior negative find-ings, meaning the absence of a relevant toxicological effect, the second study produced data that suggests a rat specific toxicological effect. Athersys met with the FDA to discuss the issues and reached resolution regarding all of the study design issues related to the partial clinical hold. However, based on the results of the additional test and discussions with the FDA, the Com-pany believes that the apparent rodent specific effect could require additional non-clinical stud-ies and greatly complicate long-term toxicology testing and thereby increase substantially the development time, risks and costs associated with subsequent development of ATHX-105. Fur-




thermore, these increased risks of development could make it substantially more difficult or im-practical for the Company to establish an attractive, third-party collaboration for the further de-velopment and commercialization of ATHX-105. Consequently, Athersys decided to suspend further development of ATHX-105 and with-draw its IND application, and are currently focusing on the advancement of next genera-tion compounds that exhibit improved characteristics. While the potential significance of this toxicological effect to humans remains unclear, it appears to be a compound-specific effect that is not representative of the class of next generation compounds that the Com-pany is continuing to develop while the Company explores potential partnerships for the program.

• The Athersys Cell-Based Drug Discovery Platforms: RAGE® and GECKO™

Athersys is independently developing novel, orally-active pharmaceutical products for the treat-ment of certain central nervous system disorders, including disorders such as narcolepsy, ex-cessive daytime sleepiness, and chronic fatigue associated with Parkinson’s disease or other conditions, as well as other potential indications such as attention deficit hyperactivity disorder and other cognitive disorders such as schizophrenia. These programs are focused on the development of potent, selective histamine H3 receptor an-tagonist compounds that act by elevating levels of neurotransmitters in the sleep and cognitive centers of the brain and stimulating neurological tone. This elevation results in an enhanced state of wakefulness and cognition, without causing hyperactivity, excessive “rebound” sleepi-ness or addiction. The histamine H3 receptor antagonists being developed at Athersys repre-sent a new class of drugs that could have an improved efficacy and safety profile relative to ex-isting drugs used for the treatment of a range of conditions that affect cognitive ability, attention or wakefulness. In addition to its current product development programs, the Company developed its patented random activation of gene expression, or RAGE™, technology that provides the Company with the ability to produce human cell lines that express specific, biologically well validated drug tar-gets without relying upon cloned and isolated gene sequences. While its RAGE™ technology is not a product, it is a commercial technology that Athersys has successfully applied for the benefit of its partners and that the Company has also used for its own internal drug development programs. Modern drug screening approaches typically require the physical isolation and structural modification of a gene of interest, an approach referred to as gene cloning, in order to create a cell line that expresses a drug target of interest. Research-ers may then use the genetically modified cell line to identify pharmaceutical compounds that inhibit or stimulate the target of interest. The RAGE™ technology enables the Company to turn on or amplify the expression of a drug target without having to physically clone or isolate the gene. In effect, the technology works through the random insertion of tiny, proprietary genetic switches that randomly turn genes on without requiring their physical isolation, or any advance knowledge of their structure. This tech-nology provides the Company with broad freedom to work with targets that may be otherwise unavailable as a result of intellectual property restrictions on the use of specific cloned and iso-lated genes. Over the past several years, Athersys has 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 Ather-sys has collaborated with, such as its ongoing collaboration with Bristol-Myers Squibb, and some have been produced for its internal drug development programs.

• RAGE: Random Activation of Gene Expression®

RAGE® provides a unique solution for drug development or other research applications in the post-genomic environment, since it can be used to produce human cell lines expressing virtually any protein encoded in the human genome, without requiring the cloning and isolation of individ-ual genes. RAGE® is used to randomly activate genes, including those that are expressed rarely or expressed at very low levels, solving one of the major problems in genomics research. RAGE® enhances productivity and shortens the drug discovery process by enabling research-ers to directly link biological function with expression of a specific protein. As opposed to taking the approach of systematically searching one by one through thousands of genes to ultimately find a protein with an interesting or medically relevant characteristic, RAGE® allows for genome-wide, simultaneous analysis and the rapid association of proteins with their biological function.

• RAGE® Genome-Wide Functional Analysis

Since RAGE® activated genes are tagged, Athersys scientists can rapidly conduct functional genomics studies on a genome-wide basis to identify and isolate those genes that express pro-teins of biological significance, such as genes that make cells resistant to chemotherapeutic drugs, are involved in apoptosis, play a role in inflammation, control cell growth and tissue for-mation, affect tumor formation or tumor biology, and affect immune cell function. RAGE® also facilitates the validation of therapeutic antibody targets that may be used to create therapeutic antibodies to treat disease. By greatly compressing the process of protein and antibody target validation, RAGE® delivers on the promise of genomics. Once an appropriate assay system has been established, Athersys scientists create a RAGE® library in which each member of the library, or cell, contains a single randomly activated gene. The randomly activated gene is expressed along with the normal complement of genes typically expressed in the host cell type. Collectively, the RAGE® library may contain millions of inde-pendent members, representing essentially the entire genome expressed in a single cell type. The RAGE® library is then analyzed with the assay designed to detect a particular biological characteristic of interest. Since genes activated by the RAGE® technology are tagged, this en-ables the rapid and efficient isolation and identification of specific genes that cause the pheno-type of interest. • RAGE® Expression of Validated Protein Targets for High Throughput Screening The pharmaceutical industry faces a growing problem in the drug development process: how to obtain access to validated drug targets in order to develop new therapies without infringing on patents that restrict the use of cloned and isolated gene sequences encoding the target. Ather-sys' RAGE® technology provides a comprehensive solution to this obstacle to drug develop-ment. RAGE® can be used to express validated protein drug targets from virtually every gene in the human genome without having to clone cDNA molecules. As a result, RAGE® may be used to create cell lines that express certain validated drug targets in a manner that is independent of conventional approaches, overcoming a significant hurdle in the drug development process. Since the RAGE® approach results in the activation of virtually every gene within the genome, RAGE® can be used to generate cells expressing many validated biological targets, including:




ion channels, G-protein coupled receptors, kinases, phosphatases, hormone receptors and cy-tokine receptors. Cell lines that express these targets may then be used for high-throughput drug screening projects at pharmaceutical companies. In this way, RAGE® enables the devel-opment of novel pharmaceutical products, directed against specific biological targets, which hold the promise of new, safer, more effective treatments for patients. Athersys has provided validated drug targets to companies such as Bristol-Myers-Squibb and Pfizer for drug discovery projects. The Company has also applied RAGE® to its own internal drug discovery programs.

• GECKO™: Genome-wide, Cell-based Knock-out™ of Gene Function

As a compliment to the RAGE® technology, Athersys has another proprietary, genetic technol-ogy that leads to rapid identification of gene function, directly linking the gene to its role in the cell's biology and accelerating the functional validation of human genes. The GECKO™ technology can:

♦ Rapidly create genome-wide knock-out libraries for use in cell-based screening sys-

tems ♦ Directly associate biological function with gene and protein structure ♦ Efficiently knock-out protein expression without requiring advance knowledge of

gene sequence

Following the same principles established in traditional genetic screens, GECKO™ libraries are utilized to reveal cellular phenotypes that are relevant to human disease. The GECKO™ tech-nology is unique for multiple reasons. First, it can be used in cell culture to knock-out gene func-tion of each expressed gene, reducing the discovery time of a genetic screen to a fraction of what it would be if conducted in whole animals. Second, the gene knock-outs produced by GECKO™ are more robust than other available approaches, such as siRNA, antisense and ri-bozymes. Third, the GECKO™ technology facilitates rapid identification of known and novel genes in the context of their cellular functions. These characteristics make the GECKO™ tech-nology a powerful approach for identifying gene function during the discovery of novel targets for therapeutic intervention.

Athersys has performed extensive validation studies using the GECKO™ technology in which GECKO™ libraries have been created and screened for a number of disease-related pheno-types, such as inflammation and resistance to known inducers of apoptotic cell death. Each screen performed has uncovered genes already known to play roles in the pathways being ex-amined, fulfilling one of the validation criteria. More importantly, however, many of the genes identified in the GECKO™ screens have been shown to be involved in specific biological or dis-ease pathways for the first time, supporting the claim that novel drug targets will emerge from use of the GECKO™ technology. As additional GECKO™ libraries are created and screened, Athersys anticipates this technology will add to the growth of its drug candidate pipeline.

• The Athersys Drug Discovery Platform

In contrast to traditional drug discovery approaches, which heavily focus initial drug develop-ment efforts primarily on compound potency and selectivity, Athersys has employed a rigorous compound assessment approach that broadens selection criteria to include extensive toxicity, PK, and bio-distribution testing early in the lead development process. Athersys believes this




approach has enabled it to eliminate less promising compounds earlier in development. The Company has advanced programs only where it has developed multiple, patentable compound series and where its compounds meet stringent performance requirements.

• High-Throughput Screening

An early step in the drug discovery process involves screening a large number of compounds to identify molecules that affect the activity of specific drug targets of interest. To facilitate large-scale compound screening, Athersys has made use of a strong high-throughput screening (HTS) capability that allows for the rapid analysis of the Company’s small molecule library. Util-izing its semi-automated screening platform, Athersys has demonstrated the ability to undertake multiple screening formats on a wide-range of drug target classes.

During HTS, Athersys has utilized its core compound screening deck of approximately 100,000 molecules. This proprietary set of compounds has been extensively optimized for drug-like physical and chemical properties, as well as for a high degree of chemical diversity. The Com-pany has an additional 300,000 compounds within its library, primarily consisting of analogs re-lated to compounds found within the screening deck. This has provided Athersys with the ability to quickly access and test compounds that are closely related to active compounds identified during HTS, leading to the rapid improvement of drug characteristics. The Athersys library has proven to be a rich source of novel, patentable compounds directed to several CNS and periph-eral drug targets.

• Medicinal Chemistry

Following HTS, compounds initially identified as “hits” have been further optimized using tradi-tional medicinal chemistry through the development of structure-activity-relationships (SAR). The Company has focused on rapid structural confirmation of new compounds, allowing mole-cules to move rapidly from synthesis to pharmacological testing. Moreover, its analytical chemis-try approach has enabled the Company the ability to analyze compound concentrations in bio-logical tissues and quickly understand ADME (absorption, distribution, metabolism and excre-tion) properties.

As part of its drug discovery strategy, Athersys has focused on multiple, distinct chemical series in each of its target programs. This strategy ensures that the success of the program is not de-pendent on a single class of compounds, and thus increases the likelihood that a compound will emerge that meets the Company’s high standards of efficacy and safety.

Historically, Athersys’ medicinal chemistry approach has emphasized rapid iterative cycles of synthesis, and in conjunction with the application of pharmacology early in the development cy-cle (see below). This approach has resulted in exceptional productivity. While Athersys does not currently have extensive internal medicinal chemistry capabilities, the Company utilizes out-side contract service organizations to advance active discovery stage projects in a selective and focused manner.

• Pharmacology

As part of the Company’s rigorous and disciplined approach to drug discovery, all compounds have been taken through a three-tier evaluation system in which compounds must pass increas-




ingly stringent standards for further development. Important safety analyses have been per-formed in the first and second tiers so that compounds that might have side effect liabilities have been quickly identified and eliminated from further consideration. This has allowed the Company to focus its efforts on those compounds that have the greatest chance of future clinical success.

As compounds progress through the Athersys tier system, the Company has obtained informa-tion related to compound specificity, selectivity, half-life and disposition in animals, toxicological properties, and efficacy in disease models. Athersys has applied rigorous pharmacological test-ing, including testing for effects on liver enzymes, specific cardiac channels, and a large number of unrelated targets where interactions might be problematic. In addition, the Company has evaluated the effects of compounds on animal behavioral endpoints, organ pathology and car-diovascular function to further increase confidence that a compound will be safe and efficacious.

3. Competition The development and commercialization of stem cell-based therapeutics is fiercely competitive in the United States and abroad. Athersys is not immune from this intensely competitive environment. It faces significant competition on several fronts.

• Stem Cell Therapy

As it develops MultiStem® as a novel stem cell therapy, a number of companies are actively de-veloping stem cell products that encompass a range of different cell types, including embryonic stem cells, umbilical cord stem cells, adult-derived stem cells, and processed bone marrow de-rived cells.

Osiris Therapeutics, Inc., (Columbia, Md.) (NASDAQ: OSIR) is engaged in multiple Phase II and Phase III clinical trials involving Prochymal, an allogeneic stem cell product based on mes-enchymal stem cells (MSCs) that are obtained from healthy consenting donors, and are admin-istered without tissue matching. However, in contrast to MultiStem®, Athersys believes MSCs display limited expansion potential and more limited biological plasticity. In November 2008, Osiris announced a partnership in which Genzyme acquired development rights to Prochymal for certain markets outside the United States and Canada in exchange for $130 million in li-cense fees, up to $1.25 billion in clinical and sales milestones, and royalties. Osiris retains com-mercial development rights to Prochymal for the United States and Canada.

Other public companies developing stem cell-related therapies include: Geron Corporation (Menlo Park, Calif.) (NASDAQ: GERN); Aastrom Biosciences, Inc. (Ann Arbor, Mich.) (NASDAQ: ASTM); StemCells, Inc. (Palo Alto, Calif.) (NASDAQ: STEM); ViaCell (a subsidiary of PerkinElmer, NYSE: PKI), Celgene Cellular Therapeutics (a subsidiary of Celgene Corpo-ration, Summit , N.J., NASDAQ: CELG); Advanced Cell Technology, Inc. (Los Angeles, Calif.) (OTCBB: ACTC); Cryo-Cell International, Inc. (Oldsmar, Fla.) (NASDAQ: CCEL); Mesoblast Limited (Melbourne, Austalia) (ASX: MSB); and Cytori Therapeutics, Inc. (San Diego, Calif.) (NASDAQ: CYTX).

In addition, private companies, such as Cognate Therapeutics, Gamida Cell, Arteriocyte, Plureon and others, are also developing cell therapy related products or capabilities. Be-cause of the potential commercial opportunity for stem cell therapy, competition in this area is likely to intensify in the coming years.




• Obesity

The Company also faces competition in its efforts to develop compounds for the treatment of obesity. There are already approved therapeutic products on the market, such as Xenical (also known as Alli), which is marketed by Roche, and Meridia, which is marketed by Abbott Phar-maceuticals. However, both of these drugs have reported side effects that Athersys believes have limited their adoption by patients and clinicians. For example, potential side effects associ-ated with taking Xenical / Alli 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 heartbeat, or a history of stroke are also cau-tioned not to take Meridia.

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 Bristol-Myers Squibb, Merck, Roche, Sanofi-Aventis, GlaxoSmithKline, Eli Lilly and others. There are also a variety of biotechnology companies de-veloping treatments for obesity, including Arena Pharmaceuticals, Orexigen, Vivus, Neu-rosearch, Amgen, Regeneron, Nastech Pharmaceutical Company, Alizyme, Amylin Phar-maceuticals, Neurocrine Biosciences, Shionogi, Metabolic Pharmaceuticals, Kyorin Phar-maceutical, and others. It is likely that, given the magnitude of the market opportunity, many companies will continue to focus on the obesity area, and that competition will remain high. If the Company is successful at developing a 5HT2c agonist as a safe and effective treatment for obesity, it is likely that other companies will attempt to develop safer and more effective com-pounds in the same class, or will attempt to combine therapies in an effort to establish a safer and more effective therapeutic product.

• Drug Targets

The Company faces competition with respect to its ability to produce drug targets for its drug de-velopment programs. There are many companies with established intellectual property that seek to restrict or protect the use of specific drug targets, including Incyte, Millennium Pharmaceuti-cals, Human Genome Sciences, Lexicon Genetics, CuraGen, Exelixis, Myriad Genetics, Sangamo BioSciences, and others.

The Company’s 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 Athersys. These companies may succeed in ob-taining regulatory approval for competitive products more rapidly than the Company can for its products. In addition, the Company’s competitors may develop technologies and products that are cheaper, safer or more effective than those being developed by it or that would render its technology obsolete. Furthermore, some of these companies may feel threatened by the Com-pany’s activities and attempt to delay or impede its efforts to develop products or apply tech-nologies.



• The Company’s long term commercial strategy is to advance products in selected areas through clinical trials and onto the market. While Athersys advances certain programs on its own, it is also exploring partnership opportunities for some programs. By establishing partner-ships with other companies, Athersys hopes to expand its capital resources, broaden its capa-bilities, and maximize value for shareholders. • The Athersys product that is furthest along the pipeline toward commercialization is MultiS-tem®, which is manufactured from human stem cells obtained from adult bone marrow or other nonembryonic tissue sources. The human stem cells in MultiStem® can express a range of therapeutically relevant proteins and other factors. They can also form multiple cell types. • Therapeutically, factors expressed by MultiStem® have the potential to reduce inflamma-tion, protect damaged or injured tissue, and form new blood vessels in regions of ischemic in-jury. • During several years of preclinical work, MultiStem® has been shown in animal models to address basic problems encountered in traditional bone marrow or hematopoietic stem cell transplants. These limitations include: the requirement for donor and patient tissue matching; the need for one donor for each patient (because of the inability to expand cells in a controlled and reproducible manner); frequent use of drugs to avoid rejection or immune system complica-tions; and a range of other potential safety issues. • The use of stem cells in therapeutic applications will only be effective and practical if the cells can be produced in sufficient quantities. What is needed ideally is an unlimited supply of expandable, stable cells that can be manipulated to give rise to specific cell types. One key ad-vantage of MultiStem® cells over many others is expandability. After isolation from a qualified donor, MultiStem® cells may be expanded on a large scale for future clinical use and stored fro-zen. Cells obtained from a single donor require no genetic modification and may be used to pro-duce banks yielding hundreds of thousands to millions of doses of MultiStem®, an amount far greater than other stem cell types. • Clinical studies involving patients are the critical final steps in the development of treatments for human diseases and disorders. Athersys has reached this important stage in the use of MultiStem® as a human therapy for several indications. Based on the results of preclinical ani-mal studies conducted with independent investigators, the Company has moved three MultiS-tem® programs into clinical development in 2008. These include: a Phase I clinical trial in car-diovascular disease (heart attack patients) with its partner Angiotech Pharmaceuticals, Inc., and a clinical trial using MultiStem® to reduce the risk or severity of graft versus host disease among leukemia or lymphoma patients receiving bone marrow or hematopoietic stem cell transplants. In December 2008, the FDA approved a third clinical trial, a Phase I safety trial administering MultiStem® for the treatment of ischemic stroke. • Each of the indications chosen for current MultiCell® therapeutic development has signifi-cant market potential: bone marrow transplantation support, acute myocardial infarction (heart attack), and stroke. • The Company also hopes to work with partners and collaborators to explore the use of MultiStem® in treating autoimmune diseases, conditions that involve the immune system, and


Talking PointsTalking Points


neurological conditions in which inflammation plays a role. • Athersys is working on other research fronts, as well. It has developed ATHX-105 for the treatment of obesity. After a successful Phase I clinical trial in the United Kingdom to test the safety of ATHX-105, completed in January 2008, a Phase II clinical trial in the United States was put on hold after questions were raised by the FDA, which asked for additional animal studies. One of these studies raised a toxicological issue (i.e., a problem with an adverse effect) that the Company believed was specific to rats. Athersys decided the issue would probably need further expensive, time-consuming animal studies. The Company decided not to pursue further preclini-cal research for the time being. It subsequently suspended development of ATHX-105 until fur-ther notice. • Athersys is developing pharmaceutical products for the treatment of certain central nervous system disorders, including narcolepsy, excessive daytime sleepiness, and chronic fatigue as-sociated with Parkinson’s disease. The Company’s histamine H3 receptor antagonists represent a new class of drugs that could be safer and more effective for the treatment of a range of con-ditions that affect cognitive ability, attention, or wakefulness. • Athersys has successfully applied its commercial RAGE® technology for the benefit of its partners. It has also used it for its own internal drug development programs. The technology en-ables turning on or amplifying the expression of a drug target without having to physically clone or isolate the gene. The technology works through insertion of tiny, proprietary genetic switches that randomly turn genes on without requiring their physical isolation, or any advance knowledge of their structure. The technology provides the Company with freedom to work with targets that may be otherwise unavailable as a result of intellectual property restrictions on the use of spe-cific cloned and isolated genes. • Athersys has collaborated with Bristol-Myers Squibb since 2001, applying its patented RAGE® technology to provide B-MS with validated drug targets for high-throughput screening and lead optimization. Under its collaboration agreement with Bristol-Myers Squibb, Athersys receives license fees for targets delivered to B-MS, as well as milestone payments and royalties on revenues from compounds developed by B-MS using the Athersys technology. Over the course of the partnership, Athersys has successfully delivered drug targets to Bristol-Myers Squibb from distinct target classes in a variety of therapeutic areas. This Phase II program represents the most advanced project to date to use the RAGE® technology. In November 2008, Bristol-Myers Squibb notified the Company that it had initiated a Phase II trial for a small molecule discovered using a target provided by Athersys, thereby triggering a milestone pay-ment. • In May 2006, the ADDVANCE division of Angiotech Pharmaceuticals, Inc. (NASDAQ: ANPI, TSX: ANP) invested in Athersys to support the development of cell-based products for treating cardiovascular disease, initially the use of MultiStem® to treat patients who suffer a heart attack (myocardial infarction). As part of the collaboration, the companies jointly manage development activities and share clinical development costs. Upon achievement of certain development and commercialization milestones, Athersys receives milestone payments. The companies share profits on all developed products. • The Company faces fierce competition in the development of a commercially viable stem cell-based therapeutic. Several public and private companies are developing stem cell-based therapeutics, though Athersys believes its MultiCell® product has significant technological ad-vantages over competitive offerings.




• In October 2008, industry researcher Frost & Sullivan awarded Athersys the 2008 North American Product Innovation of the Year. The Company was selected in recognition of its novel stem cell product, MultiStem®. The award is presented annually to the company that has dem-onstrated excellence in new products and technologies within its industry. • Athersys has twelve issued patents and approximately 110 patent applications related to its stem cell technologies. The Company has more than 20 patent applications directed to product candidates and their therapeutic uses. • The Company’s top management is long-serving, solidly invested, and dedicated to the ad-vancement of its developing products through clinical trials and into commercialization. CEO Gil Van Bokkelen and CSO John Harrington co-founded Athersys in October 1995. Van Bokkelen has served as Chief Executive Officer and Director since Athersys’ founding. He has been Chairman since 2007. Company President William (BJ) Lehmann has served as the Company’s President and Chief Operating Officer since May 2006. Lehmann joined Athersys in September 2001 and was Athersys’ Executive Vice President of Corporate Development and Finance from August 2002 until May 2006. • Charged with the responsibility of protecting shareholder assets and ensuring a decent re-turn on their investment, the Board of Directors includes two senior executives of Athersys, as well as experienced and dedicated leaders from the pharmaceutical, biotechnology, venture capital, and corporate finance fields. • The current corporate entity known as Athersys, Inc., came into being in June 2007 through a reverse merger of the original, privately-held Athersys, founded in 1995, and publicly-traded BTHC VI, Inc. (former stock symbol, OTCBB: BVIC). The merger essentially allowed Athersys to bypass the usually lengthy and complex process of going public. • Athersys has lost money since its founding in December 1995. At December 31, 2008, the accumulated deficit was $178 million. The Company has used the financing proceeds from pri-vate equity and debt offerings and other sources of capital it has raised over the years to de-velop its technologies, discover and develop therapeutic product candidates, and acquire certain technologies and assets. The Company’s losses have resulted principally from costs incurred in research and development, clinical and preclinical product development, acquisition and licens-ing costs, and general and administrative costs associated with its operations. The Company expects to continue to incur substantial losses through at least the next several years. • As of December 31, 2008, the Company was debt free.



Source: Athersys

MultiStem® Cells


• December 11, 2008: The Company said it had received authorization from the U.S. Food and Drug Administration (FDA) to begin a Phase I clinical trial evaluating the safety of ad-ministration of its "off-the-shelf" adult stem cell product, MultiStem®, in the treatment of ischemic stroke. The Phase I study would be a double-blind, placebo controlled dose esca-lation trial evaluating the safety and maximum tolerated dose of single-dose administration of MultiStem following an ischemic stroke. The trial is designed to include up to 48 patients and will be conducted at multiple clinical centers in the United States.

• November 12, 2008: Athersys announced the achievement of a clinical development mile-

stone related to its discovery alliance with Bristol-Myers Squibb Company (NYSE:BMY). Bristol-Myers Squibb notified the Company that it had initiated a Phase II trial for a small molecule discovered using a target provided by Athersys, thereby triggering a milestone payment. Athersys has collaborated with Bristol-Myers Squibb since 2001, applying its pat-ented RAGE (Random Activation of Gene Expression®) technology to provide Bristol-Myers Squibb with validated drug targets for high-throughput screening and lead optimization. Un-der its collaboration agreement with Bristol-Myers Squibb, Athersys is entitled to receive li-cense fees for targets delivered to Bristol-Myers Squibb, as well as milestone payments and royalties on revenues from compounds developed by Bristol-Myers Squibb using the Ather-sys technology. Over the course of the partnership, Athersys has successfully delivered drug targets to Bristol-Myers Squibb from distinct target classes in a variety of therapeutic areas. This Phase II program represents the most advanced project to date to utilize the RAGE technology.

• October 29, 2008: The Company announced it had been selected by Frost & Sullivan to re-

ceive the 2008 North American Product Innovation of the Year Award. The Company was selected in recognition of its novel stem cell product, MultiStem®, a therapeutic product can-didate in clinical and preclinical development for multiple disease indications, including the treatment of cardiovascular disease, cancer, ischemic stroke, and a range of other condi-tions involving ischemic injury or immune system function. The Frost & Sullivan Award for Product Innovation of the Year is presented annually to the company that has demonstrated excellence in new products and technologies within its industry. An independent team of analysts evaluates products in development and new product launches, examining product features and characteristics across a range of industries through extensive research. Prod-ucts are compared and evaluated based on a variety of metrics, including degree of innova-tion, significance of the product within a given industry, and competitive advantage relative to other products within the industry.

• October 14, 2008: Athersys announced the presentation of data from its ongoing Phase I

clinical trial of MultiStem® for individuals following acute myocardial infarction (AMI). Marc Penn, M.D., Ph.D., director of the Bakken Heart-Brain Institute at the Cleveland Clinic and co-principal investigator of the study, presented summary data at the annual Transvascular Cardiovascular Therapeutics conference (TCT) in Washington, D.C. where he described the AMI program and the successful administration of MultiStem® in the first patient enrolled at the Cleveland Clinic. Dr. Penn reported that MultiStem® was delivered safely and tolerated well by the patient following administration. The Phase I clinical trial is an open label, multi-center dose escalation trial evaluating the safety and maximum tolerated dose of single dose administration of allogeneic MultiStem® following an AMI. Following standard treat-ment, enrolled patients receive MultiStem delivered via a Cricket™ Micro-Infusion Catheter, a proprietary device developed and manufactured by Mercator Medsystems (San Leandro,


ATHX MilestonesATHX Milestones


Calif.). The Cricket catheter enables rapid and efficient delivery of MultiStem® into the re-gion of damage in the heart.

• September 23, 2008: The Company said that the U.S. Food and Drug Administration (FDA)

had requested additional information relating to the Company's Investigational New Drug (IND) application for a 12-week Phase II clinical trial of ATHX-105, the Company's lead product candidate for obesity, and has placed the study on partial hold. Athersys said that the comments made by the FDA could be addressed with data from ongoing or recently conducted studies, including two recently completed Phase I studies. These studies provide further safety and tolerability data for ATHX-105 and also indicate that the drug is well ab-sorbed throughout the gastrointestinal tract, thereby demonstrating the potential for develop-ment of a once-per-day controlled release formulation. The Company said it would submit data from these additional studies, address the FDA's questions and comments, and dis-cuss the clinical development plans for ATHX-105 with the agency.

• July 2, 2008: ATHX announced it had been added to the Russell Microcap® Index when

Russell Investments reconstituted its comprehensive family of U.S. indexes on June 27, 2008. According to the Russell Investment Group, the Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for both passive and active investment strategies. An industry-leading $4.4 trillion in assets currently are benchmarked to them.

• February 27, 2008: The Company announced top-line results from its Phase 1 clinical trial

of ATHX-105, its orally administered drug candidate for the treatment of obesity. ATHX-105 was well-absorbed, providing good drug exposures, well-tolerated up to high doses, and had no negative effect on cardiovascular, hematology or other clinical parameters.

• December 20, 2007: Athersys announced that it had received authorization from the U.S.

Food and Drug Administration (FDA) to begin a Phase I clinical trial evaluating the safety of MultiStem® administration in the treatment of acute myocardial infarction (AMI). This au-thorization would allow commencement of the second clinical study for MultiStem®, a pro-prietary stem cell product candidate, and its first trial in the cardiovascular disease area. The Company said MultiStem® may have broad potential in a number of clinical areas based on its multiple mechanisms of action, its potential to be used "off-the-shelf" like a pharmaceuti-cal product, and the safety and benefit demonstrated in preclinical studies by the Company and its collaborators.

• November 15, 2007: The Company announced that it had been notified by the U.S. Food

and Drug Administration (FDA) that its Investigational New Drug, MultiStem®, could pro-ceed to a Phase I clinical trial evaluating the safety of MultiStem® administration in support of bone marrow transplantation for the treatment of certain cancers of the blood and im-mune system. This study is the first of several planned clinical trials for MultiStem®, which the Company said it believes the product has broad potential in a number of indications based on its multiple mechanisms of action, its ability to be delivered "off-the-shelf" like a pharmaceutical product, and the safety and effectiveness that have been demonstrated in preclinical studies by the Company and its collaborators.

• September 5, 2007: Athersys said it had completed its planned name change from BTHC

VI, Inc. (OTCBB: BVIC). Effective September 6, 2007, the Company's new ticker symbol on the Over the Counter Bulletin Board is AHYS. The new CUSIP number is 04744L106 follow-ing the name change, ticker change and reverse merger. On June 8, 2007, Athersys, Inc.




completed a reverse merger with BTHC VI, Inc. The transaction was completed by the merger of a wholly-owned subsidiary of BTHC and Athersys, with Athersys remaining as the surviving company and a wholly-owned subsidiary of BTHC. As a result of the merger, the operations of Athersys and its affiliates constitutes the sole business of the Company, and the officers, directors and employees of Athersys have replaced all of the former officers and directors of BTHC.

• July 25, 2007: The Company, a wholly owned subsidiary of BTHC VI (OTC Bulletin Board:

BVIC), announced that it had initiated a Phase I clinical trial in the United Kingdom for ATHX-105, the Company's oral, selective 5HT2c receptor agonist for treating obesity. The serotonin 5HT2c receptor is a validated molecular target in the brain that regulates appetite and food intake. Compounds acting on this target have been shown to reduce appetite and result in weight loss in both animal models and humans. ATHX-105, which was developed internally, has been shown to stimulate the 5HT2c receptor without activating 5HT2b, a re-lated receptor found in the heart and linked to adverse side effects affecting the cardiovas-cular system.

• June 11, 2007: Athersys said it had successfully completed a reverse merger with BTHC

VI, Inc. (OTCBB:BVIC). BTHC changes its name to Athersys, Inc. In conjunction with the merger, BTHC completed a private placement, resulting in gross proceeds of $65 million. The merger transaction was completed by the merger of a wholly-owned subsidiary of BTHC and Athersys, with Athersys remaining as the surviving company and a wholly-owned subsidiary of BTHC. As a result of the merger, Athersys constitutes BTHC's sole business.

• March 29, 2007: The Company said it had achieved important milestones in commercial

collaborations with Bristol-Myers Squibb Company (NYSE: BMY) and Angiotech Pharma-ceuticals, Inc. (NASDAQ: ANPI, TSX: ANP), demonstrating the successful application of its technologies to drug discovery and triggering milestone-related payments.

• February 27, 2007: Athersys said it had successfully produced a clinical grade master cell

bank and initial product doses intended to support its clinical trial activity in 2007 and 2008. The master cell bank and dose production runs were completed under Good Manufacturing Practices (GMP) by Lonza, a leading contract manufacturer of biopharmaceuticals head-quartered in Basel, Switzerland.

• August 10, 2006: The Company announced it had received approval from the Medicines

and Healthcare Products Regulatory Agency (MHRA) in the United Kingdom to initiate a Phase I study to test ATHX-105, its lead obesity drug candidate, in humans. Athersys said it would begin enrollment for the Phase I study shortly.

• May 12, 2006: Athersys said that the Biomedical Research and Commercialization Program

from the State of Ohio Third Frontier Program had awarded $8 million to the Center for Stem Cell and Regenerative Medicine (CSCRM) to support development over the next three years of new cell-based therapies for cardiovascular, cancer and neurological disorders. Athersys is a founding member of CSCRM, a multi-institutional collaborative initiative estab-lished by the Cleveland Clinic, University Hospitals, Case Western Reserve University, the Ohio State University and the Company. Athersys would receive approximately $3.5 million of the grant and apply a portion toward development activities involving its CSCRM collabo-rators.

• May 15, 2006: The Company announced that the ADDVANCE division of Angiotech Phar-

maceuticals, Inc. (NASDAQ: ANPI, TSX: ANP) had made an investment in Athersys to sup-



maceuticals, Inc. (NASDAQ: ANPI, TSX: ANP) had made an investment in Athersys to sup-port the development of cell-based products for treating cardiovascular disease. The initial work would focus on applying Athersys' proprietary adult-derived stem cell product, MultiS-tem®, to treat patients who suffer a heart attack (myocardial infarction).

• April 7, 2006: - The Company said a single dose of adult donor stem cells given to animals

that have neurological damage similar to that experienced by adults with a stroke or new-borns with cerebral palsy can significantly enhance recovery from these types of injuries. Using a commonly utilized animal model for stroke, researchers administered a dose of only 200,000-400,000 human stem cells into the brain of animals that had experienced signifi-cant loss of mobility and other functions. The stem cells used in the study were a recently discovered stem cell type, referred to as multipotent adult progenitor cells, or MAPCs.

• January 6, 2006: Athersys announced that it had extended its existing alliance with Bristol-

Myers Squibb Company (NYSE: BMY) to apply its patented RAGE® technology to provide Bristol-Myers Squibb with additional validated drug targets for high-throughput screening and lead optimization in multiple therapeutic areas. The new agreement would extend the alliance for up to three years with a guaranteed minimum number of targets to be supplied by Athersys annually. Under the terms of the extension, Athersys would be entitled to re-ceive license fees for targets delivered to Bristol- Myers Squibb, as well as milestone pay-ments and royalties on compounds developed by Bristol-Myers Squibb using the Athersys technology.

• September 29, 2005: The Company said that adult stem cell therapy quickly and signifi-

cantly improved recovery of motor function in an animal model for the ischemic brain injury that occurs in about 10 percent of babies with cerebral palsy, researchers report. Within two weeks, treated animals were about 20 percent less likely to favor the unaffected side of their bodies and experienced about a 25 percent improvement in balance, compared to untreated controls, Medical College of Georgia researchers said. The findings were presented during the 34th annual meeting of the Child Neurology Society Sept. 28-Oct. 1, 2005, in Los Ange-les, Calif.



Financial History and Background

In June 2007, the Company completed a merger with BTHC VI, Inc., and its wholly-owned sub-sidiary that was formed for the purpose of completing the merger. BTHC VI was a public shell corporation with substantially no assets, liabilities or operations. The Company continued as the surviving entity in the merger and its business became the sole operations of BTHC VI after the merger. BTHC VI’s acquisition of the Company effected a change in control and was accounted for as a reverse acquisition whereby it were the account-ing acquirer for financial statement purposes. Accordingly, its financial statements present its historical results and do not include the historical financial results of BTHC VI prior to the merger. At the time the merger was effective, each share of common stock of Athersys was exchanged into 0.0358493 shares of BTHC VI common stock, par value $0.001 per share. Prior to the merger, BTHC VI effected a 1-for-1.67 reverse stock split of its shares of common stock and in-creased the number of authorized shares of common stock to 100,000,000. Athersys’ author-ized and issued shares of common and preferred stock have been retroactively restated for all periods presented to reflect the merger exchange ratio of 0.0358493. Basic and diluted net loss per share attributable to common stockholders have been computed using the retroactively re-stated common stock. In connection with the merger in June 2007, Athersys negotiated with holders of its convertible preferred stock a planned restructuring of its capital stock, which included the conversion of the preferred stock into shares of its common stock, the termination of warrants issued to the former holders of Class C Convertible Preferred Stock, and the elimination of accrued dividends pay-able to the former holders of Class C Convertible Preferred Stock. As a result, immediately prior to the consummation of the merger with BTHC VI, all convertible preferred stock (including ter-mination of warrants and elimination of accrued dividends) was converted into 53,341,747 shares of common stock. The change to the conversion ratios of the convertible preferred stock was deemed to be an induced conversion, which resulted in a $4.8 million deemed dividend and an increase to the net loss attributable to common stockholders in June 2007. Upon the closing of the merger, the 53,341,747 shares of common stock were exchanged for 1,912,356 shares of BTHC VI common stock using the merger exchange ratio. Athersys also retired all shares of stock held in treasury. Immediately after the merger, the Company completed an offering of 13,000,000 shares of com-mon stock for aggregate gross proceeds of $65.0 million in June 2007, which included the issu-ance of warrants to purchase 3,250,000 shares of common stock to the investors. The Com-pany also issued warrants to purchase 500,000 shares of common stock to the lead investor and warrants to purchase 1,093,525 shares of common stock to the placement agents. The placement agents also received cash fees in an amount equal to approximately $5.5 million, which was based on 8.5 percent of the gross proceeds, excluding proceeds from existing inves-tors. In consideration for certain advisory services, it paid an affiliate of BTHC VI’s then-largest stockholder a one-time fee of $350,000 in cash upon consummation of the merger. Upon the closing of the June offering, the $10.0 million aggregate principal amount of converti-ble notes issued to Angiotech were converted along with accrued interest into 1,885,890 shares of common stock at a conversion price of $5.50 per share, which was 110 percent of the price per share in the June offering, in accordance with the terms of the notes.

(Consolidated Statement of Operations on p. 43; Consolidated Balance Sheet on p. 44; Text continued on page 50)

Current Financial DataCurrent Financial Data


Year Ended December 31, 2008 2007 2006 2005 2004 (In thousands, except per

share data) Revenues:

License fees $ 1,880 $ 1,433 $ 1,908 $ 763 $ 820 Grants 1,225 1,827 1,817 2,833 2,318

Total revenues 3,105 3,260 3,725 3,596 3,138 Costs and expenses:

Research and develop-ment 16,500 15,817 9,741 12,578 12,415

General and administrative 5,479 7,975 3,347 3,755 4,717 Depreciation 218 283 528 982 1,297 Restructuring costs — — — 251 107

Loss from operations (19,092 ) (20,815 ) (9,891 ) (13,970 ) (15,398 )

Other income (expense): Other income and equity in

earnings of unconsoli-dated affiliate 48 2,017 208 18 —

Interest income 1,146 1,591 119 317 317

Interest expense and other (94 ) (1,263 ) (1,047 ) (964 ) (73 )

Accretion of premium on

convertible debt — (456 ) (260 ) — —

Loss before cumulative effect

of change in accounting principle $ (17,992 ) $ (18,926 ) $ (10,871 ) $ (14,599 ) $ (15,154 )

Cumulative effect of change

in accounting principle — — 306 — — Net loss (17,992 ) (18,926 ) (10,565 ) (14,599 ) (15,154 ) Preferred stock dividends — (659 ) (1,408 ) (2,253 ) (2,325 ) Deemed dividend resulting

from induced conversion of convertible preferred stock — (4,800 ) — — —

Net loss attributable to

common stockholders $ (17,992 ) $ (24,385 ) $ (11,973 ) $ (16,852 ) $ (17,479 )

Athersys, Inc.: Consolidated Statement of Operations


December 31,

2008 2007 2006 2005 2004

Consolidated Balance

Sheet Data:

Cash and cash equivalents $ 12,552 $ 13,248 $ 1,528 $ 1,080 $ 3,303 Available-for-sale securities

(short-tem) 15,460 22,477 — 3,481 13,976

Working capital (deficit) 26,789 32,849 (3,206 ) 1,828 17,018 Available-for-sale securities

(long-tem) 3,601 13,850 — — —

Total assets 33,877 52,225 4,266 7,309 20,894 Long-term obligations, less

current portion — — 9,310 4,684 7,215

Accrued dividends — — 8,882 7,473 11,236

Total stockholders’ equity

(deficit) 31,563 47,631 (20,007 ) (8,584 ) 1,151

Athersys, Inc.: Consolidated Balance Sheet

[NOTE: The Company’s financial statements of March 2009, submitted to the U.S. Securities and Exchange Com-mission, for EOY 2008 were audited by Ernst & Young LLC.]


Upon the closing of the June offering, the notes issued to bridge investors were converted along with accrued interest into 531,781 shares of common stock at a conversion price of $5.00 per share, which was the price per share in the June offering. The bridge investors also exercised their $0.01 warrants upon the conversion of the convertible preferred stock in connection with the merger for 999,977 shares of common stock at an aggregate exercise price of $10,000. Upon the conversion of the bridge notes, the bridge investors also received five-year warrants to purchase 132,945 shares of common stock at $6.00 per share, which terms were consistent with the warrants issued to new investors in the June offering. In May 2007, Athersys terminated the majority of stock option awards to its officers, employees, directors and consultants. Only a nominal number of option awards (5,052 option shares) held by former employees and consultants were assumed by the Company. Upon closing the merger, options for 3,625,000 shares of common stock were issued under its equity incentive plans to employees, directors and consultants with an exercise price of $5.00 per share, result-ing in stock compensation expense of $5.1 million in 2007. In May 2007, Athersys sold certain non-core technology related to its asthma discovery program to Wyeth Pharmaceuticals for $2.0 million.

• Historical Financial Performance

Athersys has incurred losses since inception of operations in December 1995 and had an accu-mulated deficit of $178 million at December 31, 2008. The Company’s losses have resulted prin-cipally from costs incurred in research and development, clinical and preclinical product devel-opment, acquisition and licensing costs, and general and administrative costs associated with its operations. To date, Athersys has financed its operations through private equity and debt financ-ing and investments by strategic collaborators to develop its technologies, discover and develop therapeutic product candidates, and acquire certain technologies and assets. Athersys has also built drug development capabilities that have enabled the Company to advance product candi-dates into clinical trials. Athersys has established strategic collaborations that have provided revenues and capabilities to help further advance its product candidates, and has also built a substantial portfolio of intellectual property. Since its inception, its revenues have consisted of license fees and milestone payments from its collaborators and grant proceeds primarily from federal and state grants. Athersys has derived no revenue on the sale of FDA-approved products to date. Research and development ex-penses consist primarily of costs associated with external clinical and preclinical study fees, manufacturing costs, salaries and related personnel costs, legal expenses resulting from intel-lectual property application processes, and laboratory supply and reagent costs. The Company expenses research and development costs as they are incurred. Athersys expects to continue to make significant investments in research and development to enhance its technologies, ad-vance clinical trials of its product candidates, expand its regulatory affairs and product develop-ment capabilities, conduct preclinical studies of its products and manufacture its products. Gen-eral and administrative expenses consist primarily of salaries and related personnel costs, pro-fessional fees and other corporate expenses. The Company expects to continue to incur sub-stantial losses through at least the next several years.




• Year Ended December 31, 2008 Compared to Year Ended De-cember 31, 2007

Revenues

Revenues decreased to $3.1 million for the year ended December 31, 2008 from $3.3 million for 2007. Grant revenue decreased $0.6 million primarily due to the completion of a 2006 state grant in October 2008 as well as the timing of expenditures that are reimbursed with grant pro-ceeds. License fee revenues increased $0.4 million as a result of the nature and timing of target acceptances under its collaboration agreement with Bristol-Myers Squibb and the achievement of a clinical development milestone in September 2008. During 2009, its revenues may fluctuate compared to 2008 based on the timing of Bristol-Myers Squibb’s demand for targets and the timing of its work and based on the achievement and timing of Bristol-Myers Squibb milestones, if any. Beyond 2009, the Company anticipates that Bristol-Myers Squibb’s demand for new tar-gets will be reduced. Additionally, its grant revenues could fluctuate during any year based on the timing of grant-related activities and the award of new grants.

Research and Development Expenses

Research and development expenses increased to $16.5 million in 2008 from $15.8 million in 2007. The increase of approximately $0.7 million related primarily to an increase in clinical and preclinical development costs of $2.2 million, an increase in patent legal fees of $395,000, an increase in research supplies expenses of $170,000 and an increase in personnel costs of $111,000 in 2008 compared to 2007. These increases were partially offset by a decrease in stock compensation expense of $1.7 million, a decrease in other expenses of $390,000 and a decrease in sponsored research of $72,000 in 2008 compared to 2007. The $2.2 million in-crease in preclinical and clinical costs is a result of the completion of the ATHX-105 Phase I clinical trial, preparations for the ATHX-105 Phase II clinical trial, completion of two additional Phase I trials in the United Kingdom, performance of ATHX-105 non-clinical studies, and in-creases in MultiStem preclinical and clinical costs and manufacturing expenses. Its clinical costs in 2008 and 2007 are reflected net of Angiotech’s cost-sharing amount related to its MultiStem® acute myocardial infarction collaboration in the amount of $943,000 and $63,000, respectively. The increase in patent legal fees for 2008 was a result of maintaining its growing and maturing portfolio of patent applications, including prosecution costs for several cases that entered the national phase in 2008. Personnel costs increased due to the addition of personnel in support of its clinical programs, annual salary increases and increased benefit costs, which was partially offset by the absence of bonus payments in 2008. The decrease in other expenses was primar-ily a result of a milestone payment in 2007 in the amount of $1.0 million associated with a stem cell collaboration milestone and a stem cell IND milestone and was paid to the former owners of the technology. This decrease was partially offset by an increase in outsourced research and development expenses. Athersys expects its research and development expenses to decrease in 2009, primarily as a result of the decision to suspend further development of ATHX-105, par-tially offset by expected increases in clinical development costs associated with its MultiStem® programs. Other than external expenses for its clinical and preclinical programs, the Company does not track its research expenses by project; rather, it tracks such expenses by the type of cost incurred.




General and Administrative Expenses

General and administrative expenses decreased to $5.5 million in 2008 from $8.0 million in 2007. The $2.5 million decrease was due primarily to a decrease in stock compensation ex-pense of $1.5 million, decrease in other expenses of $572,000, decrease in personnel costs of $261,000 , and a decrease in legal and professional fees of $133,000. The decrease in other expenses for 2008 was primarily as result of a one-time advisory fee of $350,000 in 2007 re-lated to the merger. Personnel costs decreased due to the absence of bonus payments in 2008, which was partially offset by the addition of administrative support personnel, annual salary in-creases and increased benefit costs. The decrease in legal and professional fees in 2008 was primarily a result of reduced legal fees incurred in connection with SEC filings and transactional work. The Company expects its general and administrative expenses to continue at similar lev-els in 2009.

Depreciation

Depreciation expense decreased to $218,000 in 2008 from $283,000 in 2007. The decrease in depreciation expense was due to more laboratory equipment, computer equipment, furniture and leasehold improvements becoming fully depreciated.

Other Income

In May 2007, Athersys sold certain non-core technology related to its asthma discovery program to Wyeth Pharmaceuticals for $2.0 million.

Interest Income

Interest income decreased to $1.1 million in 2008 from $1.6 million in 2007. The change in inter-est income was due to the receipt and investment of the proceeds from the equity offering in June 2007, the proceeds of which have been declining as they are used to fund operations. Due to declining interest rates and lower cash balances as a result of its ongoing and planned clinical and preclinical development, the Company expects its 2009 interest income to be less than 2008.

Interest Expense

Interest expense on Athersys’ debt outstanding under its senior loan and its subordinated con-vertible promissory notes decreased to $94,000 in 2008 from $1.3 million in 2007. The decrease in interest expense was due to the repayment of the senior loan in June 2008, conversion in June 2007 of $2.5 million in aggregate principal amount of subordinated convertible promissory notes issued to bridge investors, and conversion in June 2007 of $10 million in aggregate princi-pal amount of subordinated convertible promissory notes issued to Angiotech. Athersys does not expect any significant interest expense in 2009 unless it incurs new debt.


[Editor’s Note: For a more detailed discussion of the risk factors pertaining to the Company’s business and industry, see the most recent Athersys 10-K report filed with the U.S. Securities and Exchange Commission.] • Athersys has incurred losses since inception and the Company expects to incur significant net

losses in the foreseeable future and may never become profitable. • The Company’s ability to generate revenues and become profitable will depend on its ability, alone

or with potential collaborators, to timely, efficiently and successfully complete the development of its product candidates.

• The Company cannot assure investors that it will ever earn revenue or that it will ever become profit-

able. If the Company sustains losses over an extended period of time, the Company may be unable to continue its business.

• The Company will need substantial additional funding to develop its products and for its future op-

erations. If Athersys is unable to obtain the funds necessary to do so, the Company may be required to delay, scale back or eliminate its product development activities or may be unable to continue its business.

• Athersys is heavily dependent on the successful development and commercialization of MultiStem®,

and if the Company encounters delays or difficulties in the development of this product candidate, its business would be harmed.

• The results seen in animal testing of the Company’s product candidates may not be replicated in hu-

mans. • The Company’s product candidates are in an early stage of development and it currently has no

therapeutic products approved for sale. If Athersys is unable to develop, obtain regulatory approval or market any of its product candidates, its financial condition will be negatively affected, and it may have to curtail or cease its operations.

• Athersys may not successfully maintain its existing collaborative and licensing arrangements, or es-

tablish new ones, which could adversely affect its ability to develop and commercialize its product candidates.

• The Company’s agreements with its collaborators and licensees may have provisions that give rise

to disputes regarding the rights and obligations of the parties. These and other possible disagree-ments 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.

• If the Company’s collaborators do not devote sufficient time and resources to successfully carry out

their contracted duties or meet expected deadlines, Athersys may not be able to advance its product candidates in a timely manner or at all.

• The Company’s success depends on the performance by its collaborators of their responsibilities


Investment RisksInvestment Risks


under its collaboration arrangements. Some potential collaborators may not perform their obligations in a timely fashion or in a manner satisfactory to the Company.

• Even if Athersys or its collaborators receive regulatory approval for its products, those products may never

be commercially successful. • Even if the Company develops pharmaceuticals or MultiStem® related products that obtain the necessary

regulatory approval, and Athersys has access to the necessary manufacturing, sales, marketing and distri-bution capabilities that the Company needs, its success depends to a significant degree upon the commer-cial success of those products.

• Athersys may experience delays in clinical trials and regulatory approval relating to its products that could

adversely affect its financial results and its commercial prospects for its pharmaceutical or stem cell prod-ucts.

• In addition to the regulatory requirements for its pharmaceutical programs, the Company will also require

regulatory approvals for each distinct application of its stem cell product. In each case, the Company 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, the Company cannot be certain that the Company or a collaborator will successfully complete the clinical trials necessary to re-ceive regulatory product approvals. This process is lengthy and expensive.

• Athersys intends to seek approval for its product candidates through the FDA approval process. To obtain

regulatory approvals, the Company must, among other requirements, complete clinical trials showing that its products are safe and effective for a particular indication.

• All Athersys product candidates are at an early stage of development. As these programs enter and pro-

gress through early stage clinical development, or complete additional non-clinical testing, an indication of a lack of safety or lack of efficacy may result in the early termination of an ongoing trial, or may cause the Company or any of its collaborators to forego further development of a particular product candidate or pro-gram. The FDA or other regulatory agencies may require extensive clinical trials or other testing prior to granting approval, which could be costly and time consuming to conduct.

• If the Company’s pharmaceutical product candidates do not successfully complete the clinical trial process,

the Company 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 effi-cacy.

• 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 its product, certain events can nevertheless adversely impact its clinical trials.

• Even if the Company obtains regulatory approval of any of its product candidates, the approved products

may be subject to post-approval studies and will remain subject to ongoing regulatory requirements. If the Company fails to comply, or if concerns are identified in subsequent studies, its approval could be withdrawn and its product sales could be suspended.

• Athersys may rely on third parties to manufacture its pharmaceutical product candidates and its MultiStem®

product candidate. There can be no guarantee that the Company can obtain sufficient and acceptable quan-




tities of its pharmaceutical product candidates or of its MultiStem® product candidate on acceptable terms, which may delay or impair its ability to develop, test and market such products.

• If the Company does not comply with applicable regulatory requirements in the manufacture and distribution

of its product candidates, the Company may incur penalties that may inhibit its ability to commercialize its products and adversely affect its revenue.

• If Athersys is unable to create and maintain sales, marketing and distribution capabilities or enter into agree-

ments with third parties to perform those functions, the Company will not be able to commercialize its prod-uct candidates.

• If Athersys is unable to attract and retain key personnel and advisors, it may adversely affect its ability to ob-

tain financing, pursue collaborations or develop its product candidates. • The Company is highly dependent on its Chief Executive Officer, as well as other executive and scientific

officers. The loss of services of one or more of these individuals could result in product development delays or the failure of its collaborations with current and future collaborators, which, in turn, may hurt its ability to develop and commercialize products and generate revenues.

• The Company’s future success depends on its ability to attract, retain and motivate highly qualified manage-

ment and scientific, development and commercial personnel and advisors. • The Company’s ability to compete in the biopharmaceutical market may decline if it does not adequately

protect its proprietary technologies. The Company’s success depends in part on its ability to obtain and maintain intellectual property that protects its technologies and its pharmaceutical products.

• The degree of future protection for its proprietary rights is highly uncertain. • Patent law outside the United States is uncertain and in many countries intellectual property laws are under-

going review and revision. The laws of some countries do not protect intellectual property rights to the same extent as domestic laws.

• Technologies licensed to the Company by others, or in-licensed technologies, are important to its business.

The scope of its rights under its licenses may be subject to dispute by its licensors or third parties. • The Company may not have adequate protection for its unpatented proprietary information, which could ad-

versely affect its competitive position. • Disputes concerning the infringement or misappropriation of its proprietary rights or the proprietary rights of

others could be time consuming and extremely costly and could delay its research and development efforts. • The Company’s commercial success, if any, will be significantly harmed if the Company infringes the patent

rights of third parties or if the Company breaches any license or other agreements that Athersys has entered into with regard to its technology or business.

• 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 the Company’s ability to use various aspects of its discovery and development process and might prevent the Company from developing or com-mercializing newly discovered applications of its MultiStem® technology, or otherwise conducting its busi-



ness. • If the Company becomes involved in litigation, interference proceedings, oppositions, reexamination,

protest or other potentially adverse intellectual property proceedings as a result of alleged infringe-ment by the Company of the rights of others or as a result of priority of invention disputes with third parties, the Company might have to spend significant amounts of money, time and effort defending its position and it may not be successful.

• The Company believes that it has broad freedom to use and commercially develop its technologies

and product candidates. However, if successful, a patent infringement suit brought against it may force it or any of the Company’s collaborators or licensees to stop or delay developing, manufactur-ing, or selling potential products that are claimed to infringe a third party’s intellectual property, unless that party grants the Company rights to use its intellectual property. In such cases, the Com-pany may be required to obtain licenses to patents or proprietary rights of others to continue to com-mercialize the Company’s products. However, the Company 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 the Company were able to obtain rights to the third party’s intellectual property, these rights may be non-exclusive, thereby giving the Company’s competitors access to the same intellectual property. Ultimately, the Company may be unable to commercialize some of the Company’s potential prod-ucts or may have to cease some of the Company’s business operations as a result of patent in-fringement claims, which could severely harm the Company’s business.

• Many potential competitors, including those who have greater resources and experience than it

does, may develop products or technologies that make its obsolete or noncompetitive. • Athersys may face significant competition with respect to its product candidates. With regard to its

efforts to develop MultiStem® as a novel stem cell therapy, currently, there are a number of compa-nies 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 proc-essed bone marrow derived cells.

• The Company is subject to significant competition from pharmaceutical, biotechnology and diagnos-

tic companies, academic and research institutions, and government or other publicly funded agen-cies that are pursuing the development of therapeutic products and technologies that are substan-tially similar to its proposed therapeutic products and technologies, or that otherwise address the in-dications Athersys is pursuing.

• Universities and public and private research institutions are also potential competitors. • The Company’s competitors, either alone or with their collaborative partners, may succeed in devel-

oping technologies or products that are more effective, safer, more affordable or more easily com-mercialized than ours, and its competitors may obtain intellectual property protection or commercial-ize products sooner than it does.

• Developments by others may render its product candidates or its technologies obsolete. • Athersys will use hazardous and biological materials in its business. Any claims relating to improper

handling, storage or disposal of these materials could be time consuming and costly. • The Company’s products and processes will involve the controlled storage, use and disposal of cer-

tain hazardous and biological materials and waste products. (Continued on page 57)


• If the Company acquires products, technologies or other businesses, the Company will incur a vari-

ety of costs, may have integration difficulties and may experience numerous other risks that could adversely affect its business.

• To remain competitive, the Company may decide to acquire additional businesses, products and

technologies. Athersys currently has no commitments or agreements with respect to, and are not actively seeking, any material acquisitions. The Company has limited experience in identifying ac-quisition targets, successfully acquiring them and integrating them into its current infrastructure.

• To the extent the Company enters markets outside of the United States, its business will be subject

to political, economic, legal and social risks in those markets, which could adversely affect its busi-ness.

• There are significant regulatory and legal barriers in markets outside the United States that the

Company must overcome to the extent the Company enters or attempts to enter markets in coun-tries other than the United States.

• Foreign governments often impose strict price controls on approved products, which may adversely

affect its 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 its future profitability.

• If Athersys elects not to sell its products in foreign countries that impose government mandated

price controls because it decides it is uneconomical to do so, a foreign government or patent office may attempt to terminate the Company’s intellectual property rights in that country, enabling com-petitors to make and sell the Company’s products.

• Athersys may encounter difficulties managing its growth, which could adversely affect its business. • The Company’s success will also depend on the ability of its officers and key employees to continue

to improve its operational capabilities and its management information and financial control systems, and to expand, train and manage its work force.

• Athersys may be sued for product liability, which could adversely affect its business. • The Company carries product liability insurance, as well as liability insurance for conducting clinical

trials. However, in the event there are product liability claims against the Company, its insurance may be insufficient to cover the expense of defending against such claims, or may be insufficient to pay or settle such claims.

• The availability, manner, and amount of reimbursement for its product candidates from government

and private payers are uncertain, and its inability to obtain adequate reimbursement for any products could severely limit its product sales.

• If Athersys is unable to obtain or retain adequate levels of reimbursement from Medicare or from pri-

vate health plans, its ability to sell its products will be severely limited. • Legislation and regulations affecting the pricing of products like its potential products may change

further or be adopted before any of the Company’s potential products are approved for marketing.




• Public perception of ethical and social issues surrounding the use of adult-derived stem cell technol-

ogy may limit or discourage the use of its technologies, which may reduce the demand for its thera-peutic products and technologies and reduce its revenues.



[NOTE: This section lists only substantive news releases. Financial results and related announcements are not included.]

• Athersys, Inc. (ATHX) Chairman and Chief Executive Officer to Ring The NASDAQ Stock Market Closing Bell, Apr 7, 2009

• Athersys' First Annual Investor Day On April 8, 2009 in New York City, Apr 7, 2009 • Athersys to Present At Cowen and Company 29th Annual Health Care Conference, Mar 13,

2009 • Athersys to Host First Annual Investor Day to Highlight Progress in Stem Cell and Drug De-

velopment Programs, Mar 4, 2009 • Athersys to Present At 4th Annual Stem Cell Summit, Jan 27, 2009 • Athersys to Present At 5th Annual Cell and Gene Therapy Forum, Jan 9, 2009 • Athersys Receives IND Authorization for Multistem® in Treatment of Ischemic Stroke, Dec

11, 2008 • Athersys to Present At Lambert-Edwards SMID-West Stock Conference, Dec 8, 2008 e • Athersys to Participate At RBC Capital Markets 2008 Healthcare Conference, Dec 4, 2008 • Athersys Announces Clinical Development Milestone in Bristol-Myers Squibb Discovery Alli-

ance, Nov 12, 2008 • Athersys to Present At Lazard Capital Markets Annual Healthcare Conference, Nov 11,

2008 • Athersys Awarded 2008 Product Innovation of the Year by Frost & Sullivan, Oct 29, 2008 • Athersys to Present at Seventh Annual BIO Investor Forum, Oct 21, 2008 • Athersys Announces Initial Patient Dosing of MultiStem(r) in Phase I Acute Myocardial In-

farction Trial, Oct 14, 2008 • Athersys Announces Update On ATHX-105 Development Plans and Results of Recent

Clinical Studies, Sep 23, 2008 • Athersys to Present At Canaccord Adams 28th Annual Global Growth Conference, Jul 30,

2008 • Athersys Added to Russell Microcap Index, Jul 2, 2008 • Athersys to Present At Canaccord Adams Diabetes and Obesity Conference, Jun 2, 2008

Athersys Reports 2008 First Quarter Results, May 8, 2008 • Athersys to Present At Cowen's 28th Annual Health Care Conference, Mar 10, 2008 • Athersys to Present At Susquehanna Second Annual Healthcare Options Conference, Feb

29, 2008 • Athersys Announces Summary Results for Phase 1 Safety Study of Its Novel Obesity Drug,

Feb 27, 2008 • Athersys to Host Obesity Drug Phase I Data Results Conference Call, Feb 26, 2008 • Athersys Receives IND Authorization for MultiStem in Acute Myocardial Infarction, Dec 20,

2007 • Athersys Commences Trading On NASDAQ Capital Market, Dec 12, 2007 • Athersys IND for MultiStem Authorized for Phase I Clinical Trial in Bone Marrow Transplant

Support, Nov 15, 2007 • Athersys to Present At Lazard Capital Markets Fourth Annual Healthcare Conference, Oct


Company News and Press CoverageCompany News and Press Coverage


31, 2007 • Athersys Elects Jeff Randall To Board Of Directors, Sep 5, 2007 • Athersys Announces Completion Of Name Change And New Ticker Symbol, AHYS • Sep 5, 2007 • Athersys Begins Phase I Trial for ATHX-105 for Treatment of Obesity, Jul 25, 2007 • Athersys Raises $65 Million In Concurrent Reverse Merger And Private Equity Offering, Jun

11, 2007 • Athersys Successfully Advancing Multiple Commercial Collaborations, • Athersys Completes GMP Manufacturing Of MultiStem® For Clinical Trials, Feb 27, 2007 • Athersys Receives Approval to Begin Phase I Trial of Lead Obesity Drug, Aug 10, 2006 • Athersys and Partners Awarded Third Frontier Program Funding, May 12, 2006 • Athersys Announces Partnership With Angiotech To Commercialize Cell-Based Therapies

For Cardiovascular Disease, May 12, 2006 • Stem Cell Transplants Improve Recovery In Animal Models Of Stroke, Cerebral Palsy, Apr

7, 2006 • Athersys Extends Partnership With Bristol-Myers Squibb, Jan 6, 2006

Adult Stem Cells Aid Recovery In Animal Model Of Cerebral Palsy, Sep 29, 2005

Additional News Coverage: Ohio Companies, Research Centers Create Neural Repair Center (Thursday, October 26, 2006 - Stem Cell Business News) Several Northeast Ohio research centers and bioscience companies have created a center focusing on diagnosis, prevention and treatment of severe neurological diseases. Athersys Completes GMP Manufacturing Of Multistem For Clinical Trials (Thursday, March 01, 2007 - Stem Cell Business News) Athersys, Inc. has successfully produced a clinical grade master stem cell bank and initial product doses intended to support its clinical trial activity in 2007 and 2008. Ohio Company’s Adult Stem Cell Product Advances Towards Human Trials (Friday, March 30, 2007 - Stem Cell Business News) Athersys, Inc., says the positive results of several collaborative stem cell-related animal studies have proven en-couraging for the future commercialization of a proprietary therapy targeting cardiovascular disease. Reverse Merger Nets Athersys $65 M In Private Investment (Wednesday, June 13, 2007 - Stem Cell Business News) Privately-held Cleveland, Ohio-based Athersys, Inc., said on June 11 it has successfully completed a reverse merger with BTHC VI, Inc. Stem Cell Conference Scheduled For Oct. 29-30 (Tuesday, July 31, 2007 - Stem Cell Research News) The Strategic Research Institute will hold its annual International Stem Cell Conference on Oct. 29-30 in Pitts-burgh, Pa. Athersys Has New Ticker Symbol (Tuesday, September 11, 2007 - Stem Cell Business News) Cleveland, Ohio-based Athersys, Inc. said on September 5 it has a new ticker symbol on the OTCBB. FDA Okays Companies’ Phase I Stem Cell Trial In Acute Myocardial Infarction (Thursday, December 20, 2007 - Stem Cell Business News) A Cleveland, Ohio company has received authorization from the U.S. Food and Drug Administration (FDA) to be-gin a Phase I clinical trial evaluating the safety of a treatment of acute myocardial infarction (AMI). Initial Patient Dosing In Phase I Acute Myocardial Infarction Trial (Thursday, October 23, 2008 - Stem Cell Business News) A Cleveland, Ohio-based company has presented data from its ongoing phase I clinical trial of a product for indi-viduals following a heart attack.


http://www.stemcellresearchnews.com/absolutenm/anmviewer.asp?a=331









[This glossary defines technical terms used in this Profile and in stem cell biology gener-ally. Source: NIH and Athersys, Inc.] 5HT2c receptor agonists: Compounds that selectively stimulate the 5HT2c serotonin receptor in the brain, which is known to play an important role in regulating appetite. The compounds are designed to reduce appetite and food intake, in order to achieve substantial weight loss over time. Adult stem cell: See somatic stem cell. Astrocyte: A type of supporting (glial) cell found in the nervous system. Blastocoel: The fluid-filled cavity inside the blastocyst, an early, preimplantation stage of the developing embryo. Blastocyst: A preimplantation embryo of about 150 cells produced by cell division following fer-tilization. The blastocyst is a sphere made up of an outer layer of cells (the trophoblast), a fluid-filled cavity (the blastocoel), and a cluster of cells on the interior (the inner cell mass). Bone marrow stromal cells: A population of cells found in bone marrow that are different from blood cells. Bone marrow stromal stem cells (skeletal stem cells): A multipotent subset of bone marrow stromal cells able to form bone, cartilage, stromal cells that support blood formation, fat, and fi-brous tissue. Cell-based therapies: Treatment in which stem cells are induced to differentiate into the spe-cific cell type required to repair damaged or destroyed cells or tissues. Cell culture: Growth of cells in vitro in an artificial medium for research or medical treatment. Cell division: Method by which a single cell divides to create two cells. There are two main types of cell division depending on what happens to the chromosomes: mitosis and meiosis. Chromosome: A structure consisting of DNA and regulatory proteins found in the nucleus of the cell. The DNA in the nucleus is usually divided up among several chromosomes. The number of chromosomes in the nucleus varies depending on the species of the organism. Humans have 46 chromosomes. Clone: (v) To generate identical copies of a region of a DNA molecule or to generate geneti-cally identical copies of a cell, or organism; (n) The identical molecule, cell, or organism that re-sults from the cloning process.

In reference to DNA: To clone a gene, one finds the region where the gene resides on the DNA and copies that section of the DNA using laboratory techniques.

In reference to cells grown in a tissue culture dish: a clone is a line of cells that is geneti-cally identical to the originating cell. This cloned line is produced by cell division (mitosis) of the original cell.


Technical TermsTechnical Terms


In reference or organisms: Many natural clones are produced by plants and (mostly in-vertebrate) animals. The term clone may also be used to refer to an animal produced by somatic cell nuclear transfer (SCNT) or parthenogenesis.

Cloning: See Clone. Cord blood stem cells: See Umbilical cord blood stem cells. Culture medium: The liquid that covers cells in a culture dish and contains nutrients to nourish and support the cells. Culture medium may also include growth factors added to produce de-sired changes in the cells. Differentiation: The process whereby an unspecialized embryonic cell acquires the features of a specialized cell such as a heart, liver, or muscle cell. Differentiation is controlled by the inter-action of a cell’s genes with the physical and chemical conditions outside the cell, usually through signaling pathways involving proteins embedded in the cell surface. Directed differentiation: The manipulation of stem cell culture conditions to induce differentia-tion into a particular cell type. DNA: Deoxyribonucleic acid, a chemical found primarily in the nucleus of cells. DNA carries the instructions or blueprint for making all the structures and materials the body needs to function. DNA consists of both genes and non-gene DNA in between the genes. Ectoderm: The outermost germ layer of cells derived from the inner cell mass of the blastocyst; gives rise to the nervous system, sensory organs, skin, and related structures. Embryo: In humans, the developing organism from the time of fertilization until the end of the eighth week of gestation, when it is called a fetus. Embryoid bodies: Rounded collections of cells that arise when embryonic stem cells are cul-tured in suspension. Embryoid bodies contain cell types derived from all 3 germ layers. Embryonic germ cells: Pluripotent stem cells that are derived from early germ cells (those that would become sperm and eggs). Embryonic germ cells (EG cells) are thought to have proper-ties similar to embryonic stem cells. Embryonic stem cells: Primitive (undifferentiated) cells derived from a 5-day preimplantation embryo that are capable of dividing without differentiating for a prolonged period in culture, and are known to develop into cells and tissues of the three primary germ layers. Embryonic stem cell line: Embryonic stem cells, which have been cultured under in vitro con-ditions that allow proliferation without differentiation for months to years. Endoderm: The innermost layer of the cells derived from the inner cell mass of the blastocyst; it gives rise to lungs, other respiratory structures, and digestive organs, or generally “the gut.” Enucleated: Having had its nucleus removed. Epigenetic: Having to do with the process by which regulatory proteins can turn genes on or off in a way that can be passed on during cell division. Feeder layer: Cells used in co-culture to maintain pluripotent stem cells. For human embryonic




stem cell culture, typical feeder layers include mouse embryonic fibroblasts (MEFs) or human embryonic fibroblasts that have been treated to prevent them from dividing. Fertilization: The joining of the male gamete (sperm) and the female gamete (egg). Fetus: In humans, the developing human from approximately eight weeks after conception until the time of its birth. Gamete: An egg (in the female) or sperm (in the male) cell. See also Somatic cell. Gastrulation: The process in which cells proliferate and migrate within the embryo to transform the inner cell mass of the blastocyst stage into an embryo containing all three primary germ lay-ers. Gene: A functional unit of heredity that is a segment of DNA found on chromosomes in the nu-cleus of a cell. Genes direct the formation of an enzyme or other protein. Germ layers: After the blastocyst stage of embryonic development, the inner cell mass of the blastocyst goes through gastrulation, a period when the inner cell mass becomes organized into three distinct cell layers, called germ layers. The three layers are the ectoderm, the mesoderm, and the endoderm. Hematopoietic stem cell: A stem cell that gives rise to all red and white blood cells and plate-lets. Histamine H3 receptor antagonist: Compounds that act by elevating levels of neurotransmit-ters in the sleep and cognitive centers of the brain and by stimulating neurological tone. This elevation results in an enhanced state of wakefulness and cognition, without causing hyperactiv-ity, excessive “rebound” sleepiness, or addiction. Human embryonic stem cell (hESC): A type of pluripotent stem cell derived from the inner cell mass (ICM) of the blastocyst. Induced pluripotent stem cell (iPSC): A type of pluripotent stem cell, similar to an embryonic stem cell, formed by the introduction of certain embryonic genes into a somatic cell. In vitro: Latin for “in glass”; in a laboratory dish or test tube; an artificial environment. In vitro fertilization: A technique that unites the egg and sperm in a laboratory instead of inside the female body. Inner cell mass (ICM): The cluster of cells inside the blastocyst. These cells give rise to the em-bryo and ultimately the fetus. The ICM cells are used to generate embryonic stem cells. Long-term self-renewal: The ability of stem cells to replicate themselves by dividing into the same non-specialized cell type over long periods (many months to years) depending on the spe-cific type of stem cell. Macular degeneration: Macular degeneration, often called AMD or ARMD (age-related macu-lar degeneration), is the leading cause of vision loss and blindness in Americans aged 65 and older. AMD occurs with degeneration of the macula, which is the part of the retina responsible for the sharp, central vision needed to read or drive. Because the macula primarily is affected in AMD, central vision loss may occur.




Mesenchymal stem cells: Non-blood adult stem cells from a variety of tissues. It is not clear that mesenchymal stem cells from different tissues are the same. Meiosis: The type of cell division a diploid germ cell undergoes to produce gametes (sperm or eggs) that will carry half the normal chromosome number. This is to ensure that when fertiliza-tion occurs, the fertilized egg will carry the normal number of chromosomes rather than causing aneuploidy (an abnormal number of chromosomes). Mesoderm: Middle layer of a group of cells derived from the inner cell mass of the blastocyst; it gives rise to bone, muscle, connective tissue, kidneys, and related structures. Microenvironment: The molecules and compounds such as nutrients and growth factors in the fluid surrounding a cell in an organism or in the laboratory, which play an important role in deter-mining the characteristics of the cell. Mitosis: The type of cell division that allows a population of cells to increase its numbers or to maintain its numbers. The number of chromosomes remains the same in this type of cell divi-sion. Multipotent: Having the ability to develop into more than one cell type of the body. See also pluripotent and totipotent. Neural stem cell: A stem cell found in adult neural tissue that can give rise to neurons and glial (supporting) cells. Examples of glial cells include astrocytes and oligodendrocytes. Neurons: Nerve cells, the principal functional units of the nervous system. A neuron consists of a cell body and its processes: an axon and one or more dendrites. Neurons transmit information to other neurons or cells by releasing neurotransmitters at synapses. Oligodendrocyte: A supporting cell that provides insulation to nerve cells by forming a myelin sheath (a fatty layer) around axons. Parthenogenesis: The artificial activation of an egg in the absence of a sperm; the egg begins to divide as if it has been fertilized. Passage: In cell culture, the process in which cells are disassociated, washed, and seeded into new culture vessels after a round of cell growth and proliferation. The number of passages a line of cultured cells has gone through is an indication of its age and expected stability. Pluripotent: Having the ability to give rise to all of the various cell types of the body. Pluripotent cells cannot make extra-embryonic tissues such as the amnion, chorion, and other components of the placenta. Scientists demonstrate pluripotency by providing evidence of stable develop-mental potential, even after prolonged culture, to form derivatives of all three embryonic germ layers from the progeny of a single cell and to generate a teratoma after injection into an immu-nosuppressed mouse. Polar Body: A polar body is a structure produced when an early egg cell, or oogonium, under-goes meiosis. In the first meiosis, the oogonium divides its chromosomes evenly between the two cells but divides its cytoplasm unequally. One cell retains most of the cytoplasm, while the other gets almost none, leaving it very small. This smaller cell is called the first polar body. The first polar body usually degenerates. The ovum, or larger cell, then divides again, producing a second polar body with half the amount of chromosomes but almost no cytoplasm. The second




polar body splits off and remains adjacent to the large cell, or oocyte, until it (the second polar body) degenerates. Only one large functional oocyte, or egg, is produced at the end of meiosis. Preimplantation: With regard to an embryo, preimplantation means that the embryo has not yet implanted in the wall of the uterus. Human embryonic stem cells are derived from preimplanta-tion-stage embryos fertilized outside a woman’s body (in vitro). Proliferation: Expansion of the number of cells by the continuous division of single cells into two identical daughter cells. Regenerative medicine: A field of medicine devoted to treatments in which stem cells are in-duced to differentiate into the specific cell type required to repair damaged or destroyed cell populations or tissues. (See also cell-based therapies). Reproductive cloning: The process of using somatic cell nuclear transfer (SCNT) to produce a normal, full grown organism (e.g., animal) genetically identical to the organism (animal) that do-nated the somatic cell nucleus. In mammals, this would require implanting the resulting embryo in a uterus where it would undergo normal development to become a live independent being. The first animal to be created by reproductive cloning was Dolly the sheep, born at the Roslin Institute in Scotland in 1996. See also Somatic cell nuclear transfer (SCNT). Retinitis pigmentosa: RP is a rare, inherited disease in which the light-sensitive retina of the eye slowly and progressively degenerates. Eventually, blindness results. Signals: Internal and external factors that control changes in cell structure and function. They can be chemical or physical in nature. Somatic cell: Any body cell other than gametes (egg or sperm); sometimes referred to as “adult” cells. See also Gamete. Somatic cell nuclear transfer (SCNT): A technique that combines an enucleated egg and the nucleus of a somatic cell to make an embryo. SCNT can be used for therapeutic or reproductive purposes, but the initial stage that combines an enucleated egg and a somatic cell nucleus is the same. See also therapeutic cloning and reproductive cloning. Somatic (adult) stem cells: A relatively rare undifferentiated cell found in many organs and dif-ferentiated tissues with a limited capacity for both self renewal (in the laboratory) and differentia-tion. Such cells vary in their differentiation capacity, but it is usually limited to cell types in the organ of origin. This is an active area of investigation. Stem cells: Cells with the ability to divide for indefinite periods in culture and to give rise to spe-cialized cells. Stromal cells: Connective tissue cells found in virtually every organ. In bone marrow, stromal cells support blood formation. Subculturing: Transferring cultured cells, with or without dilution, from one culture vessel to an-other. Surface markers: Proteins on the outside surface of a cell that are unique to certain cell types and that can be visualized using antibodies or other detection methods. Teratoma: A multi-layered benign tumor that grows from pluripotent cells injected into mice with




a dysfunctional immune system. Scientists test whether they have established a human embry-onic stem cell (hESC) line by injecting putative stem cells into such mice and verifying that the resulting teratomas contain cells derived from all three embryonic germ layers. Therapeutic cloning: The process of using somatic cell nuclear transfer (SCNT) to produce cells that exactly match a patient. By combining a patient’s somatic cell nucleus and an enucle-ated egg, a scientist may harvest embryonic stem cells from the resulting embryo that can be used to generate tissues that match a patient’s body. This means the tissues created are unlikely to be rejected by the patient’s immune system. See also Somatic cell nuclear transfer (SCNT). Totipotent: Having the ability to give rise to all the cell types of the body plus all of the cell types that make up the extraembryonic tissues such as the placenta. (See also Pluripotent and Multi-potent). Transdifferentiation: The process by which stem cells from one tissue differentiate into cells of another tissue. Trophectoderm: The outer layer of the preimplantation embryo in mice. It contains trophoblast cells. Trophoblast: The outer cell layer of the blastocyst. It is responsible for implantation and devel-ops into the extraembryonic tissues, including the placenta, and controls the exchange of oxy-gen and metabolites between mother and embryo. Umbilical cord blood stem cells: Stem cells collected from the umbilical cord at birth that can produce all of the blood cells in the body (hematopoietic). Cord blood is used to treat patients who have undergone chemotherapy to destroy their bone marrow due to cancer or other blood-related disorders. Undifferentiated: A cell that has not yet developed into a specialized cell type.



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Disclaimers, Disclosures, and Legal Information: This Profile was developed by DataTrends Equity Research Group, a unit of DataTrends Publications, Inc., us-ing publicly available material provided by Athersys, Inc., including Securities and Exchange Commission filings, corporate press releases, corporate Web site information, etc. The SWOT Analysis was developed from these publicly available materials by the editors of Stem Cell Business News, a biweekly publication of DataTrends Publications, Inc. ATHX is solely responsible for the accuracy of the information it has provided publicly. DERG has not independently verified such information. Information as to other companies has been prepared from pub-licly available information and has not been independently verified by ATHX or DERG. DERG was not compen-sated by ATHX for its services in creating this Profile. The information in this Profile is necessarily historical and shall not, under any circumstances, create any impression that the information is correct as of any time subse-quent to the publication date of this document (June 2009). The information from or through this Profile is pro-vided as-is, as available, and is believed to be accurate and correct at the time of publication; all warranties, ex-press or implied, are disclaimed (including but not limited to the disclaimer of any implied warranties of mer-chantability and fitness for a particular purpose). Although every effort is made to provide accurate information, this document may contain errors, problems or other limitations. Our sole and entire maximum liability for any inaccurate information, for any reason, and users’ sole and exclusive remedy for any cause whatsoever, shall be limited to the amount paid by the customer for the information received (if any). In addition, in regard to public company commentaries on financial performance, if any: the Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. The forward-looking statements contained in many of the financial releases and commentaries included in this Profile are subject to certain risks and uncer-tainties, as listed in the “Investment Risks” section. Information on ATHX in this Profile should not be construed as a recommendation by DataTrends Publications, Inc., or its employees, regarding any securities being offered by ATHX. Data is provided for informational purposes only and is not intended for trading purposes. Certain in-formation about the science of stem cell research has been compiled from publicly available sources, in particu-lar the National Institutes of Health. For more complete information about ATHX, the reader is directed to the Company’s Web site at http://www.athersys.com. This Profile is published solely for information purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any state. Past perform-ance does not guarantee future performance. This Profile is available in PDF format at http://www.stemcellresearchnews.com/DERG_Page.htm DataTrends Publications, Inc., founded in 1987, is the publisher of Stem Cell Research News (1999), Stem Cell Business News (2001), Stem Cell Lab World (2007), and the Guide to Stem Cell Research Companies. Sub-scription and other information may be obtained at http://www.stemcellresearchnews.com.

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