UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2010
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
.
Commission file number:
001-33876
Athersys, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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20-4864095
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer Identification No.)
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3201 Carnegie Avenue, Cleveland, Ohio
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44115-2634
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
(216) 431-9900
Former name, former address and former fiscal year, if changed since last report:
Not Applicable
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days: Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer
o
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act): Yes
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No
þ
The number of outstanding shares of the registrants common stock, $0.001 par value, as of October
31, 2010 was 18,930,678.
ATHERSYS INC.
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements.
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Athersys, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
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September 30,
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December 31,
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2010
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2009
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(Unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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2,210
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$
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11,167
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Available-for-sale securities
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13,615
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10,135
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Accounts receivable
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2,739
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352
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Receivable from Angiotech
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132
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229
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Investment interest receivable
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78
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93
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Prepaid expenses and other
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168
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173
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Total current assets
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18,942
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22,149
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Available-for-sale securities
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2,015
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5,080
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Equipment, net
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1,017
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849
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Deposits and other
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207
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253
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Total assets
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$
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22,181
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$
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28,331
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Liabilities and stockholders equity
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Current liabilities:
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Accounts payable
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$
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1,774
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$
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1,128
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Accrued compensation and related benefits
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472
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667
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Accrued clinical trial costs
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194
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83
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Accrued expenses and other
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1,088
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857
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Deferred revenue
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5,543
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3,123
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Total current liabilities
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9,071
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5,858
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Deferred revenue
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2,253
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3,516
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Stockholders equity:
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Preferred stock, at stated value;
10,000,000 shares authorized, and no
shares issued and outstanding at
September 30, 2010 and December 31, 2009
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Common stock, $0.001 par value;
100,000,000 shares authorized, and
18,930,678 and 18,929,333
shares issued and outstanding at
September 30, 2010 and December 31,
2009, respectively
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19
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19
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Additional paid-in capital
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213,954
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212,704
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Accumulated other comprehensive income
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47
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71
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Accumulated deficit
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(203,163
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)
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(193,837
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Total stockholders equity
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10,857
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18,957
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Total liabilities and stockholders equity
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$
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22,181
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$
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28,331
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See accompanying notes to unaudited condensed consolidated financial statements.
3
Athersys, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
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Three months ended
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Nine months ended
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September 30,
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September 30,
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2010
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2009
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2010
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2009
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Revenues
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Contract revenue
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$
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1,601
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$
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167
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$
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4,515
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$
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636
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Grant revenue
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395
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317
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1,092
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654
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Total revenues
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1,996
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484
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5,607
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1,290
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Costs and expenses
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Research and development
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4,342
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2,704
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10,569
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7,868
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General and administrative
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1,329
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1,189
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4,249
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3,928
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Depreciation
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71
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58
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216
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175
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Total costs and expenses
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5,742
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3,951
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15,034
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11,971
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Loss from operations
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(3,746
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(3,467
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(9,427
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(10,681
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Interest income and other
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58
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87
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101
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329
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Net loss
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$
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(3,688
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$
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(3,380
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$
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(9,326
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$
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(10,352
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Basic and diluted net loss per share
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$
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(0.19
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$
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(0.18
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$
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(0.49
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$
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(0.55
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Weighted average shares outstanding,
basic and diluted
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18,929,640
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18,928,193
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18,929,436
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18,928,057
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See accompanying notes to unaudited condensed consolidated financial statements.
4
Athersys, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Nine months ended
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September 30,
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2010
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2009
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Operating activities
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Net loss
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$
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(9,326
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$
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(10,352
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Adjustments to reconcile net loss to net cash
used in operating activities:
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Depreciation
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216
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175
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Gain on sale of fixed assets
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(21
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Stock-based compensation
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1,246
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1,520
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Amortization of premium on
available-for-sale securities and other
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192
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154
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Changes in operating assets and liabilities:
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Accounts receivable
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(2,387
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150
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Receivable from Angiotech
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97
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51
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Prepaid expenses and other assets
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20
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21
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Accounts payable and accrued expenses
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793
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(603
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Deferred revenue
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1,157
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(58
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Net cash used in operating activities
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(7,992
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)
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(8,963
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Investing activities
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Purchase of available-for-sale securities
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(8,834
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(7,634
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Maturities of available-for-sale securities
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8,253
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13,300
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Proceeds from sale of fixed assets
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21
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Purchase of securities of cost-method investee
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(14
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Purchase of equipment
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(384
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(54
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)
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Net cash (used in) provided by investing activities
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(965
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5,619
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Financing activities
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Decrease in cash and cash equivalents
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(8,957
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(3,344
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)
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Cash and cash equivalents at beginning of the
period
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11,167
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12,552
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Cash and cash equivalents at end of the period
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$
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2,210
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$
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9,208
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See accompanying notes to unaudited condensed consolidated financial statements.
5
Athersys, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Three- and Nine-Month Periods Ended September 30, 2010 and 2009
1. Background and Basis of Presentation
We are a biopharmaceutical company engaged in the discovery and development of therapeutic products
in one business segment. Our operations consist primarily of research and product development
activities.
The accompanying unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in our Annual Report
on Form 10-K for the year ended December 31, 2009. The accompanying financial statements have been
prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim
financial information and Article 10 of Regulation S-X. Accordingly, since they are interim
statements, the accompanying financial statements do not include all of the information and notes
required by GAAP for complete financial statements. The accompanying financial statements reflect
all adjustments, consisting of normal recurring adjustments, that are, in the opinion of
management, necessary for a fair presentation of financial position and results of operations for
the interim periods presented. Interim results are not necessarily indicative of results for a
full year.
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Our critical accounting policies, estimates and assumptions are described in
Managements Discussion and Analysis of Financial Condition and Results of Operations, which is
included below in this Quarterly Report on Form 10-Q.
Certain prior year amounts have been reclassified to conform with the current year presentations.
2. Recently Issued Accounting Standards
In September 2009, Accounting Standards Codification (ASC) 605-25,
Multiple-Element Arrangements
,
was updated (Accounting Standards Update (ASU) No. 2009-13) related to revenue recognition for
arrangements with multiple elements. The revised guidance provides for two
significant changes to the existing guidance, the first relates to the determination of when the
individual deliverables included in a multiple-element arrangement may be treated as separate units
of accounting, which will likely result in the requirement to separate more deliverables within an
arrangement leading to less revenue deferral. The second change modifies the manner in which the
transaction consideration is allocated across the separately identified deliverables. Together,
these changes are likely to result in earlier recognition of revenue for multiple-element
arrangements than under previous guidance. The new guidance also significantly expands the
disclosures required for multiple-element revenue arrangements. The new guidance is effective for
fiscal years beginning on or after June 15, 2010, and early adoption is permitted provided that the
new guidance is retroactively applied to the beginning of the year of adoption. We have not yet
evaluated the potential effect of the future adoption of this new guidance.
In March 2010, ASC 605-28,
Milestone Method of Revenue Recognition
, was amended (ASU No. 2009-13)
related to the ratification of the application of the proportional performance model of revenue
recognition when applied to milestones in research and development arrangements. Accordingly, the
consensus states that an entity can make an accounting policy election to recognize a payment that
is
contingent upon the achievement of a substantive milestone in its entirety in the period in which
the milestone is achieved. The new guidance is effective for fiscal years beginning on or after
June 15, 2010, and may be applied prospectively or retrospectively. Early adoption is permitted
provided that the new guidance is retrospectively applied to the beginning of the year of adoption.
We do not expect this new guidance to have a material effect on our financial statements upon
adoption.
6
3. Net Loss per Share
Basic and diluted net loss per share has been computed using the weighted-average number of shares
of common stock outstanding during the period. We have outstanding options and warrants that are
not used in the calculation of diluted net loss per share because to do so would be anti-dilutive.
The following instruments were excluded from the calculation of diluted net loss per share because
their effects would be anti-dilutive:
1)
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Outstanding stock options to purchase 4,188,950 shares of common stock for both the three-
and nine-month periods ended September 30, 2010, and 3,881,149 shares of common stock for both
the three- and nine-month periods ended September 30, 2009; and
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2)
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Warrants to purchase 5,125,496 shares of common stock for each of the three- and nine-month
periods ended September 30, 2010 and 2009.
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4. Comprehensive Loss
All components of comprehensive loss, including net loss, are reported in the financial statements
in the period in which they are recognized. Comprehensive loss is defined as the change in equity
during a period from transactions and other events and circumstances from non-owner sources.
Below is a reconciliation, in thousands, of net loss to comprehensive loss for all periods
presented.
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Three months ended
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Nine months ended
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September 30,
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September 30,
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2010
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2009
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2010
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2009
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Net loss
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$
|
(3,688
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)
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|
$
|
(3,380
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)
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$
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(9,326
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)
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$
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(10,352
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)
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Unrealized loss on
available-for-sale securities
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(5
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)
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|
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(25
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)
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|
|
(24
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)
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|
|
(17
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)
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|
|
|
|
|
|
|
|
|
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Comprehensive loss
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$
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(3,693
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)
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$
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(3,405
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)
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$
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(9,350
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)
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$
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(10,369
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)
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5. Fair Value of Financial Instruments
Our available-for-sale securities include U.S. government obligations and corporate debt
securities. As of September 30, 2010, approximately 84% of our investments were in U.S. government
obligations, including government-backed agencies.
The inputs used to measure fair value are classified into the following hierarchy:
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Level 1
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Unadjusted quoted prices in active markets for identical assets or liabilities.
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Level 2
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Unadjusted quoted prices in active markets for similar assets or liabilities,
or unadjusted quoted prices for identical or similar assets or liabilities in
markets that are not active, or inputs other than quoted prices that are
observable for the asset or liability.
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Level 3
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Unobservable inputs for the asset or liability.
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7
The following table provides a summary of the fair values of our assets and liabilities measured at
fair value on a recurring basis as of September 30, 2010 (in thousands):
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Fair Value Measurements at September 30, 2010 Using
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Quoted Prices in Active
|
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Significant Other
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Balance as of
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Markets for Identical
|
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Observable Inputs
|
|
|
Significant Unobservable
|
|
Description
|
|
September 30, 2010
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Available-for-sale
securities
|
|
$
|
15,630
|
|
|
$
|
15,630
|
|
|
$
|
|
|
|
$
|
|
|
Fair value is based upon quoted market prices in active markets. We had no level 2 or level 3
assets at September 30, 2010. We review and reassess the fair value hierarchy classifications on a
quarterly basis. Changes from one quarter to the next related to the observability of inputs to a
fair value measurement may result in a reclassification between hierarchy levels.
The following is a summary of available-for-sale securities (in thousands) at September 30, 2010
and December 31, 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Losses
|
|
|
Gains
|
|
|
Value
|
|
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
obligations, including
government-backed
agencies
|
|
$
|
13,055
|
|
|
$
|
|
|
|
$
|
33
|
|
|
$
|
13,088
|
|
Corporate debt securities
|
|
|
2,528
|
|
|
|
|
|
|
|
14
|
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,583
|
|
|
$
|
|
|
|
$
|
47
|
|
|
$
|
15,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
obligations, including
government-backed
agencies
|
|
$
|
12,613
|
|
|
$
|
(12
|
)
|
|
$
|
52
|
|
|
$
|
12,653
|
|
Corporate debt securities
|
|
|
2,531
|
|
|
|
|
|
|
|
31
|
|
|
|
2,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,144
|
|
|
$
|
(12
|
)
|
|
$
|
83
|
|
|
$
|
15,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had no realized gains or losses on the sale of available-for-sale securities for any of the
periods presented. Unrealized gains and losses on our available-for-sale securities are excluded
from earnings and are reported as a separate component of stockholders equity within accumulated
other comprehensive income until realized. We have no other-than-temporary impairments recognized
in accumulated other comprehensive loss. When available-for-sale securities are sold in the
future, the cost of the securities will be specifically identified and used to determine any
realized gain or loss. The net unrealized gain on available-for-sale securities was $47,000 and
$71,000 as of September 30, 2010 and December 31, 2009, respectively.
The amortized cost of and estimated fair value of available-for-sale securities at September 30,
2010, by contractual maturity, are shown below (in thousands). Actual maturities may differ from
contractual maturities because the issuers of the securities may have the right to repay the
obligations without prepayment penalties. Although the investments are available-for-sale, it is
our intention to hold the investments classified as long-term for more than a year from September
30, 2010.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
13,573
|
|
|
$
|
13,615
|
|
Due after one year through two years
|
|
|
2,010
|
|
|
|
2,015
|
|
|
|
|
|
|
|
|
|
|
$
|
15,583
|
|
|
$
|
15,630
|
|
|
|
|
|
|
|
|
8
6. Collaborative Arrangements and Revenue Recognition
Collaborative Arrangements
Collaborative arrangements that involve cost or future profit sharing are reviewed to determine the
nature of the arrangement and the nature of the collaborative parties businesses. The
arrangements are also reviewed to determine if one party has sole or primary responsibility for an
activity, or whether the parties have shared responsibility for the activity. If responsibility
for an activity is shared and there is no principal party, then the related costs of that activity
are recognized by us on a net basis in the statement of operations (e.g., total cost, less
reimbursement from collaborator). If we are deemed to be the principal party for an activity, then
the costs and revenues associated with that activity are recognized on a gross basis in the
statement of operations. The accounting may be susceptible to change if the nature of a
collaborators business changes. Currently, our only collaboration accounted for on a net basis is
our cost-sharing collaboration with Angiotech Pharmaceuticals, Inc. (Angiotech), since the
responsibilities under this collaboration are shared with no principal party.
Revenue Recognition
Our license and collaboration agreements may contain multiple elements, including license and
technology access fees, research and development funding, manufacturing revenue, cost-sharing,
milestones and royalties. The deliverables under such an arrangement are evaluated under ASC
605-25,
Multiple-Element Arrangements
, (which originated primarily from the guidance in EITF 00-21)
to assess whether they have standalone value and objective and reliable evidence of fair value, and
if so, are accounted for as a single unit. We then recognize revenue for each unit based on the
culmination of the earnings process under ASC 605-S25 (issued as SAB Topic 13) and our estimated
performance period for the single units of accounting based on the specific terms of each
collaborative agreement. We subsequently adjust the estimated performance periods, if appropriate,
on a prospective basis based upon available facts and circumstances. Future changes in estimates of
the performance period may materially impact the timing of future revenue recognized. Amounts
received prior to satisfying the revenue recognition criteria for contract revenues are recorded as
deferred revenue in the accompanying balance sheets. Reimbursement amounts (other than those
accounted for using collaboration accounting) paid to us are recorded on a gross basis in the
statements of operations as contract revenues. We entered into collaboration agreements with Pfizer
Inc. (Pfizer) in December 2009 and RTI Biologics, Inc. (RTI) in September 2010 that contain
multiple elements and deliverables, as described below.
Also included in contract revenue are license fees received from Bristol-Myers Squibb, which are
specifically set forth in the license and collaboration agreement as amounts due to us based on our
completion of certain tasks (e.g., delivery and acceptance of a cell line) and development
milestones (e.g., clinical trial phases), and as such, are not based on estimates that are
susceptible to change. Such amounts are invoiced and recorded as revenue as tasks are completed
and as milestones are achieved.
Similarly, grant revenue consists of funding under cost reimbursement programs primarily from
federal and state sources for qualified research and development activities performed by us, and
as such, are not based on estimates that are susceptible to change. Such amounts are invoiced
(unless prepaid) and recorded as revenue as tasks are completed.
9
Angiotech
In our co-development collaboration with Angiotech, we bear all preclinical costs and the parties
jointly fund clinical development activity. We have primary responsibility for preclinical and
early clinical development and clinical manufacturing, and Angiotech will take the lead on pivotal
and later clinical trials and commercialization. The parties will share net profits from the future
sale of approved products and we may receive cash payments and an equity investment and based on
the successful achievement of specified clinical development and commercialization milestones.
We continue to jointly fund clinical development activities with Angiotech in accordance with our
co-development collaboration, and $132,000 was due from Angiotech as of September 30, 2010. Our
clinical costs for the three months ended September 30, 2010 and 2009 are reflected net of
Angiotechs cost-sharing amount of $132,000 and $183,000, respectively.
Pfizer
In December 2009, we entered into a collaboration with Pfizer to develop and commercialize
MultiStem to treat inflammatory bowel disease (IBD) for the worldwide market. Under the terms of
the agreement, we received an up-front license and technology access payment of $6.0 million from
Pfizer and receive research funding and support. In addition, we are also eligible to receive
milestone payments upon the successful achievement of certain development, regulatory and
commercial milestones, for which we evaluated the nature of the events triggering these contingent
payments and concluded that these events constituted substantive milestones that will be recognized
as revenue in the period in which the underlying triggering event occurs.
Pfizer pays us for manufacturing product for clinical development and commercialization purposes.
Pfizer has responsibility for development, regulatory and commercialization and will pay us tiered
royalties on worldwide commercial sales of MultiStem IBD products. Alternatively, in lieu of
royalties and certain commercialization milestones, we may elect to co-develop with Pfizer and the
parties will share development and commercialization expenses and profits/losses on an agreed basis
beginning at phase III clinical development.
We evaluated the facts and circumstances of the agreement to determine whether the Pfizer agreement
has obligations constituting deliverables and concluded that it has multiple deliverables,
including deliverables relating to the grant of a license and access to our technology, performance
of research and development services and performance of certain manufacturing services, and
concluded that these deliverables should be combined into a single unit of accounting. We recognize
the license and technology access fee and research and development funding ratably on a
straight-line basis over the estimated performance period, which began in December 2009 and is
estimated to be completed in 2012, and recognize manufacturing revenue ratably from when services
are performed through the remaining research period. Prepaid license and technology access fee and
prepaid research and development funding are recorded as deferred revenue and are amortized on a
straight-line basis over the research period.
RTI Biologics, Inc.
In September 2010, we entered into an agreement with RTI, a provider of orthopedic and other
biologic implants, under which we provided RTI a license to our Multipotent Adult Progenitor Cell
(MAPC) technologies to enable RTI to develop and commercialize MAPC technology-based biologic
implants exclusively for certain orthopedic applications in the bone graft substitutes market.
Under the terms of the agreement, we will receive a $3 million license fee in installments, of
which $1.0 million was received at inception and the remaining balance will be received in $1.0
million installments in each of December 2010 and March 2011, which is reflected in receivables on
the balance sheet at September 2010. We are also eligible to receive milestone payments upon the
successful achievement of certain
development and commercial milestones. We evaluated the nature of the events triggering these
contingent payments and concluded that these events are substantive and that revenue will be
recognized in the period in which the underlying triggering event occurs. In addition, we will
receive tiered royalties on worldwide commercial sales, if any, of implants using our technologies.
10
We evaluated the facts and circumstances to determine whether the RTI agreement has obligations
constituting deliverables and concluded that it has multiple deliverables, including deliverables
relating to the grant of a license to our technology and performance of research and development
services, and concluded that these deliverables should be combined into a single unit of
accounting. We recognize the license fee ratably on a straight-line basis over the estimated
performance period, which began in September 2010 and is estimated to be completed in the third
quarter of 2011.
7. Stock-Based Compensation
We have two incentive plans that authorize an aggregate of 4,500,000 shares of common stock for
awards to employees, directors and consultants. These equity incentive plans authorize the
issuance of equity-based compensation in the form of stock options, stock appreciation rights,
restricted stock, restricted stock units, performance shares and units, and other stock-based
awards to qualified employees, directors and consultants.
As of September 30, 2010, a total of 312,125 shares were available for issuance under our equity
compensation plans and options to purchase 4,188,950 shares of common stock were outstanding (which
includes options to purchase 1,075 shares of common stock related to our old option plans prior to
our merger in June 2007). For the three-month periods ended September 30, 2010 and 2009, stock
compensation expense was approximately $202,000 and $515,000, respectively. At September 30, 2010,
total unrecognized estimated compensation cost related to unvested stock options was approximately
$762,000, which is expected to be recognized by the end of 2013 using the straight-line method.
8. Warrants
As of September 30, 2010, we had the following outstanding warrants to purchase shares of common
stock:
|
|
|
|
|
|
|
|
|
Number of underlying shares
|
|
Exercise Price
|
|
|
Expiration
|
|
|
|
|
|
|
|
|
|
|
4,976,470
|
|
$
|
6.00
|
|
|
June 8, 2012
|
149,026
|
|
$
|
5.00
|
|
|
June 8, 2014
|
5,125,496
|
|
|
|
|
|
|
|
|
9. Income Taxes
We have net operating loss and research and development tax credit carryforwards that may be used
to reduce future taxable income and tax liabilities. Our deferred tax assets have been fully offset
by a valuation allowance due to our cumulative losses.
10.
Subsequent Event
In October 2010, we were awarded grants from the Internal Revenue Service under section 48D of the
Internal Revenue Code aggregating $733,438 for qualifying therapeutic discovery investments
incurred in 2009.
11
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
This discussion and analysis should be read in conjunction with our financial statements and notes
thereto included in this Quarterly Report on Form 10-Q and the audited financial statement and
notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009.
Operating results are not necessarily indicative of results that may occur in future periods.
Overview and Recent Developments
We are a biopharmaceutical company engaged in the discovery and development of therapeutic product
candidates designed to extend and enhance the quality of human life. Through the application of our
proprietary technologies, we have established a pipeline of therapeutic product development
programs in multiple disease areas. Our current product development portfolio includes
MultiStem
®
, a patented and proprietary stem cell product that we are developing as a
treatment for multiple disease indications, and is currently being evaluated in clinical trials.
In addition, we are developing novel pharmaceuticals to treat indications such as obesity and for
certain cognitive, attention and wakefulness disorders.
Current Programs
In 2008, we advanced two MultiStem programs into clinical development, initiating phase I studies
in cardiovascular disease (treating patients that have suffered an acute myocardial infarction, or
AMI) and in oncology treatment support (administering MultiStem to leukemia or lymphoma patients
who are receiving a traditional bone marrow or hematopoietic stem cell transplant to reduce the
risk or severity of graft-versus-host disease, or GvHD). We are conducting the AMI clinical trial
with our partner Angiotech Pharmaceuticals, Inc., and we completed phase I enrollment in the first
quarter of 2010. In July 2010, we announced positive results of the phase I clinical trial, based
on four months of post-treatment patient data, which demonstrate that MultiStem was well tolerated
at all dose levels and also suggest the potential for improvement in heart function in treated
patients. With Angiotech, we continue to evaluate the phase I results and are planning for a
subsequent clinical study, which we currently anticipate will be initiated in 2011. In our GvHD
trial, we have completed dosing in the first five of six dosing cohorts in the single dose arm of
the study and have dosed the first two of six dosing cohorts in the multi-dose arm of the study.
In addition to these two MultiStem clinical studies, we have authorization from the Food and Drug
Administration, or FDA, to initiate a third clinical study administering MultiStem to patients for
the treatment of ischemic stroke, a leading cause of death and disability. In 2009, we took a
cautious approach to initiating this clinical study in light of the volatile and uncertain capital
markets. While we continue our preparations to initiate this phase I trial, we also have been
furthering our research efforts designed to deepen our understanding of the ways in which MultiStem
promotes healing and repair in the wake of an ischemic stroke or other neurological injury.
In December 2009, we entered into a collaboration agreement with Pfizer Inc. to develop and
commercialize MultiStem for the treatment of inflammatory bowel disease, or IBD, for the worldwide
market. We are currently planning and preparing for a clinical study
in IBD and received authorization from the FDA in November 2010 to initiate
the study.
In September 2010, we entered into an agreement with RTI Biologics, Inc., or RTI, to develop and
commercialize MAPC technology-based biologic implants for certain orthopedic applications in the
bone graft substitutes market. The agreement provides for a $3 million license fee, potential
milestone payments and tiered royalties on worldwide commercial sales of implants using our
technologies. We are currently working with RTI to develop products for these applications.
We are also independently developing novel orally active pharmaceutical products for the treatment
of obesity and for certain cognitive, attention and wakefulness disorders. We are actively
evaluating these compounds, as we seek to identify candidates to advance further into development
while we explore
opportunities with potential collaboration partners who could work with us to develop these
promising candidate compounds.
12
Financial
We have incurred losses since inception of operations in 1995 and had an accumulated deficit of
$203 million at September 30, 2010. Our losses have resulted principally from costs incurred in
research and development, clinical and preclinical product development, acquisition and licensing
costs, and general and administrative costs associated with our operations. We have used the
financing proceeds from private equity and debt offerings and other sources of capital to develop
our technologies, to discover and develop therapeutic product candidates and to acquire certain
technologies and assets. We have also built drug development capabilities that have enabled us to
advance product candidates into clinical trials. We have established strategic collaborations that
have provided revenues and capabilities to help further advance our product candidates, and we have
also built a substantial portfolio of intellectual property.
Results of Operations
Since our inception, our revenues have consisted of contract revenues and milestone payments from
our collaborators, and grant proceeds primarily from federal and state grants. We have derived no
revenue from therapeutic products to date. Research and development expenses consist primarily of
external clinical and preclinical study fees, manufacturing costs, salaries and related personnel
costs, legal expenses resulting from intellectual property prosecution processes, facility costs,
and laboratory supply and reagent costs. We expense research and development costs as they are
incurred. We expect to continue to make significant investments in research and development to
enhance our technologies, advance clinical trials of our product candidates, expand our regulatory
affairs and product development capabilities, conduct preclinical studies of our product and
manufacture our product candidates. General and administrative expenses consist primarily of
salaries and related personnel costs, professional fees and other corporate expenses. We expect to
continue to incur substantial losses through at least the next several years.
The following tables set forth our revenues and expenses for the periods indicated. The
following tables are stated in thousands.
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Contract revenue
|
|
$
|
1,601
|
|
|
$
|
167
|
|
|
$
|
4,515
|
|
|
$
|
636
|
|
Grant revenue
|
|
|
395
|
|
|
|
317
|
|
|
|
1,092
|
|
|
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,996
|
|
|
$
|
484
|
|
|
$
|
5,607
|
|
|
$
|
1,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Type of expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
$
|
1,030
|
|
|
$
|
844
|
|
|
$
|
2,996
|
|
|
$
|
2,509
|
|
Research supplies
|
|
|
326
|
|
|
|
198
|
|
|
|
912
|
|
|
|
688
|
|
Facilities
|
|
|
234
|
|
|
|
199
|
|
|
|
656
|
|
|
|
603
|
|
Clinical and
preclinical development
costs
|
|
|
1,729
|
|
|
|
329
|
|
|
|
3,043
|
|
|
|
988
|
|
Sponsored research
|
|
|
316
|
|
|
|
335
|
|
|
|
777
|
|
|
|
668
|
|
Patent legal fees
|
|
|
398
|
|
|
|
395
|
|
|
|
1,011
|
|
|
|
1,055
|
|
Other
|
|
|
226
|
|
|
|
189
|
|
|
|
700
|
|
|
|
729
|
|
Stock-based compensation
|
|
|
83
|
|
|
|
215
|
|
|
|
474
|
|
|
|
628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,342
|
|
|
$
|
2,704
|
|
|
$
|
10,569
|
|
|
$
|
7,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Type of expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
$
|
481
|
|
|
$
|
468
|
|
|
$
|
1,457
|
|
|
$
|
1,453
|
|
Facilities
|
|
|
78
|
|
|
|
70
|
|
|
|
213
|
|
|
|
225
|
|
Legal and professional fees
|
|
|
344
|
|
|
|
160
|
|
|
|
817
|
|
|
|
636
|
|
Other
|
|
|
307
|
|
|
|
191
|
|
|
|
990
|
|
|
|
722
|
|
Stock-based compensation
|
|
|
119
|
|
|
|
300
|
|
|
|
772
|
|
|
|
892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,329
|
|
|
$
|
1,189
|
|
|
$
|
4,249
|
|
|
$
|
3,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010 and 2009
Revenues
. Revenues increased to $2.0 million for the three months ended September 30, 2010 from
$484,000 in the comparable period in 2009. Contract revenue increased $1.4 million for the three
months ended September 30, 2010 compared to the three months ended September 30, 2009 primarily as
a result of our collaboration with Pfizer that we entered into in December 2009 and our
collaboration with RTI that we entered into in September 2010. We expect our contract revenues
related to the Pfizer collaboration in the next few years to reflect the amortization of the $6.0
million up-front license fee over the estimated performance period, research and development
funding, and the performance of manufacturing services, and expect our contract revenues related to
the RTI collaboration to reflect the amortization of the $3.0 million license fee over the next
several quarters. Grant revenue increased $78,000 for the three months ended September 30, 2010
compared to the three months ended September 30, 2009 primarily due to new grants that started in
2010. Our grant revenues could fluctuate from period to period based on the timing of
grant-related activities and the award of new grants.
14
Research and Development Expenses.
Research and development expenses increased to $4.3 million for
the three months ended September 30, 2010 from $2.7 million in the comparable period in 2009. The
increase of approximately $1.6 million for the three months ended September 30, 2010 from the
comparable period in 2009 related primarily to an increase in clinical and preclinical development
costs
of $1.4 million, an increase in personnel costs of $186,000, and an increase in research supplies
of $128,000. These increases were partially offset by a decrease in stock compensation expense of
$132,000. The increase in clinical and preclinical development costs for the three months ended
September 30, 2010 related primarily to increased manufacturing and process development costs. The
increase in personnel costs and research supplies related to the addition of personnel in support
of our preclinical and clinical programs and regulatory affairs. Our clinical costs for the three
months ended September 30, 2010 and 2009 are reflected net of Angiotechs cost-sharing amount of
$132,000 and $183,000, respectively. We expect our research and development expenses for the
remainder of 2010 to continue to be higher than the comparable period in 2009, though this impact
will be largely offset by increased revenues. Other than external expenses for our clinical and
preclinical programs, we do not track our research expenses by project; rather, we track such
expenses by the type of cost incurred.
General and Administrative Expenses.
General and administrative expenses remained relatively
consistent at $1.3 million for the three months ended September 30, 2010 compared to $1.2 million
in the comparable period in 2009. We expect our general and administrative expenses to continue
at similar levels for the remainder of 2010.
Depreciation
. Depreciation expense remained relatively consistent at $71,000 for the three
months ended September 30, 2010 compared to $58,000 in the comparable period in 2009.
Interest Income and Other.
Interest income represents interest income earned on our cash and
available-for-sale securities and other income includes foreign currency gains and losses, if any,
related to our activities in Europe and certain contracts denominated in foreign currencies.
Interest income and other decreased to $58,000 for the three months ended September 30, 2010 from
$87,000 in the comparable period in 2009 due to the decline in our investment balances as they are
used to fund our operations and foreign currency losses. Due to low interest rates and declining
cash balances as a result of our ongoing and planned clinical and preclinical development, we
expect our interest income for the remainder of 2010 to continue to be less than 2009 absent any
new financings or business transactions.
Nine Months Ended September 30, 2010 and 2009
Revenues
. Revenues increased to $5.6 million for the nine months ended September 30, 2010 from
$1.3 million in the comparable period in 2009. Contract revenue increased $3.9 million for the
nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 primarily
as a result of our collaboration with Pfizer that we entered into in December 2009 and our
collaboration with RTI that we entered into in September 2010. We expect our contract revenues
related to the Pfizer collaboration in the next few years to reflect the amortization of the $6
million up-front license fee over the estimated performance period, research and development
funding, and the performance of manufacturing services and expect our contract revenues related to
the RTI collaboration to reflect the amortization of the $3.0 million license fee over the next
several quarters. Grant revenue increased $438,000 for the nine months ended September 30, 2010
compared to the nine months ended September 30, 2009 primarily due to new grants that started late
in 2009 and 2010. Our grant revenues could fluctuate from period to period based on the timing of
grant-related activities and the award of new grants.
Research and Development Expenses.
Research and development expenses increased to $10.6 million
for the nine months ended September 30, 2010 from $7.9 million in the comparable period in 2009.
The increase of approximately $2.7 million related primarily to an increase in clinical and
preclinical development costs of $2.1 million, an increase in personnel costs of $487,000, an
increase in research supply costs of $224,000 and an increase in sponsored research costs of
$109,000 for the nine months ended September 30, 2010 from the comparable period in 2009. These
increases were partially offset by a decrease in stock compensation expense of $154,000. The
increase in clinical and preclinical development costs for the nine months ended September 30, 2010
from the comparable period in 2009 related primarily to increased manufacturing and process
development costs, and costs associated with our MultiStem clinical trials. The increase in
personnel costs and research supplies related to the
addition of personnel in support of our preclinical and clinical programs and regulatory affairs.
Our clinical costs for the nine months ended September 30, 2010 and 2009 are reflected net of
Angiotechs cost-sharing amount of $521,000 and $621,000, respectively. We expect our research and
development expenses for the remainder of 2010 to continue to be higher than the comparable period
in 2009, though this impact will be largely offset by increased revenues. Other than external
expenses for our clinical and preclinical programs, we do not track our research expenses by
project; rather, we track such expenses by the type of cost incurred.
15
General and Administrative Expenses.
General and administrative expenses increased to$4.2 million
for the nine months ended September 30, 2010 from $3.9 million in the comparable period in 2009.
The increase of approximately $321,000 related primarily to increases in legal and professional
costs and other external service costs. We expect our general and administrative expenses to
continue at similar levels for the remainder of 2010.
Depreciation
. Depreciation expense increased to $216,000 for the nine months ended September
30, 2010 from $175,000 in the comparable period in 2009. The increase in depreciation expense was
due to depreciation on capital purchases made in 2009 and 2010.
Interest Income and Other.
Interest income represents interest income earned on our cash and
available-for-sale securities and other income includes foreign currency gains and losses, if any,
related to our activities in Europe and certain contracts denominated in foreign currencies.
Interest income and other decreased to $101,000 for the nine months ended September 30, 2010 from
$329,000 in the comparable period in 2009 due to the decline in our investment balances as they are
used to fund our operations and foreign currency losses. Due to low interest rates and declining
cash balances as a result of our ongoing and planned clinical and preclinical development, we
expect our interest income for the remainder of 2010 to continue to be less than 2009 absent any
new financings or business transactions.
Liquidity and Capital Resources
Our sources of liquidity include our cash balances and available-for-sale securities. At September
30, 2010, we had $2.2 million in cash and cash equivalents and $15.6 million in available-for-sale
securities. We have primarily financed our operations through private equity and debt financings
that have resulted in aggregate cumulative proceeds of approximately $200 million.
In December 2009, we entered into a collaboration agreement with Pfizer to develop and
commercialize MultiStem for the treatment of IBD for the worldwide market. Under the terms of the
agreement, we received an up-front cash payment of $6 million from Pfizer and will also receive
research funding and support. In addition, we are also eligible to receive milestone payments of up
to $105 million upon the successful achievement of certain development, regulatory and commercial
milestones, though there can be no assurance that we will achieve any milestones. Pfizer pays us
for manufacturing product for clinical development and commercialization purposes. Pfizer has
responsibility for development, regulatory and commercialization and will pay us tiered royalties
on worldwide commercial sales of MultiStem IBD products. Alternatively, in lieu of royalties and
certain commercialization milestones, we may elect to co-develop with Pfizer and the parties will
share development and commercialization expenses and profits/losses on an agreed basis beginning at
phase III clinical development.
In connection with our MultiStem collaboration with Angiotech, upon the successful achievement of
specified clinical development and commercialization milestones, we may also receive up to $63.75
million of aggregate cash payments and $3.75 million from an additional equity investment, though
there can be no assurance that we will achieve any milestones. Under the terms of the
collaboration, the parties are jointly funding clinical development activity, whereby preclinical
costs are borne solely by us, costs for phase I and phase II clinical trials are borne 50% by us
and 50% by Angiotech, costs for the first phase III clinical trial will be borne 33% by us and 67%
by Angiotech, and costs for any subsequent phase III clinical trial will be borne 25% by us and 75%
by Angiotech. We have lead responsibility for preclinical and early clinical development and
manufacturing of the MultiStem product, and Angiotech
has lead responsibility for later clinical trials and commercialization. Upon product
commercialization, we will receive nearly half of the net profits from the sale of any jointly
developed, approved products. Angiotech recently announced that it reached an agreement with its
subordinated noteholders to recapitalize the company, which will result in a significant reduction
of its debt. At this time, Angiotech continues to fund its share of clinical costs on a timely
basis and there is no indication that this restructuring will have an effect on our collaboration
with Angiotech. In the event that Angiotech fails to fund its obligations under the terms of our
contract, our net costs for AMI clinical trials would increase or alternative funding would be
required for such clinical trials.
16
In September 2010, we entered into an agreement with RTI to develop and commercialize MAPC
technology-based biologic implants for certain orthopedic applications in the bone graft
substitutes market. Under the terms of the agreement, we will receive a $3.0 million license fee
paid in installments, of which $1.0 million was received at inception and the remaining $2.0
million will be received in $1.0 million installments in December 2010 and March 2011. We are also
eligible to receive an additional $35.5 million in cash payments upon the successful achievement of
certain development and commercial milestones, though there can be no assurance that we will
achieve any milestones. In addition, we will receive tiered royalties on worldwide commercial
sales of implants using our technologies.
Our collaboration agreement with Bristol-Myers Squibb, which was initially established in 2001, is
now in its final phase since the requirement for Bristol-Myers Squibb to nominate new targets ended
in 2009. We intend to continue to prepare and deliver validated drug targets as needed by
Bristol-Myers Squibb for use in its drug discovery efforts though we anticipate demand to be
limited. We will remain entitled to receive license fees for targets that were delivered to
Bristol-Myers Squibb over the course of the collaboration, as well as milestone payments and
royalties on compounds developed by Bristol-Myers Squibb using our technology, though there can be
no assurance that we will achieve any milestones or royalties.
In October 2010, we were awarded grants from the Internal Revenue Service under section 48D of the
Internal Revenue Code aggregating $733,438 for qualifying therapeutic discovery investments
incurred in 2009.
Our available-for-sale securities typically include U.S. government obligations and corporate debt
securities. As of September 30, 2010, approximately 84% of our investments were in U.S. government
obligations, including government-backed agencies. We have been investing conservatively due to
economic conditions and have prioritized liquidity and the preservation of principal in lieu of
potentially higher returns. As a result, we have experienced no losses on the principal of our
investments and have held our investments until maturity. Also, although these unfavorable market
and economic conditions have resulted in a decrease to our market capitalization, there has been no
impairment to the value of our assets. Our fixed assets are used for internal research and
development and, therefore, are not impacted by these external factors.
We will require substantial additional funding in order to continue our research and product
development programs, including preclinical testing and clinical trials of our product candidates.
We expect to have available cash to fund our operations through 2011 based on our current business
and operational plans. Our capital requirements beyond 2011 will depend on a number of factors,
including scientific progress in our research and development programs, additional personnel costs,
progress in preclinical testing and clinical trials, and the costs in filing and prosecuting patent
applications and enforcing patent claims. Further, these requirements may change at any time due to
technological advances or competition from other companies. We will continue to explore and
consider new opportunities for funding our operations and activities through grants and business
partnerships involving our technologies and product candidates, as
well as selling equity securities and possibly borrowings from
financial institutions. We cannot assure you that adequate funding will be
available to us or, if available, that it will be available on acceptable terms. Any shortfall in
funding could result in our having to curtail research and development efforts.
17
We expect to continue to incur substantial losses through at least the next several years and may
incur losses in subsequent periods. The amount and timing of our future losses are highly
uncertain. Our ability to achieve and thereafter sustain profitability will be dependent upon,
among other things, successfully developing, obtaining regulatory approval or clearances for, and
commercializing our technologies and products resulting from these technologies.
Net cash used in operating activities was $8.0 million for the nine months ended September 30, 2010
and $9.0 million for the nine months ended September 30, 2009, and represented the use of cash in
funding preclinical and clinical product development activities.
Net cash used in investing activities was $965,000 for the nine months ended September 30, 2010 and
net cash provided by investing activities was $5.6 million for the nine months ended September 30,
2009. The fluctuations from period to period were due to the timing of purchases and maturity dates
of investments and the purchase of equipment. Cash used for purchases of equipment was $384,000
through the third quarter of 2010 and $54,000 through the third quarter of 2009.
Investors in the equity offering in June 2007 received five-year warrants to purchase an aggregate
of 3,250,000 shares of common stock with an exercise price of $6.00 per share. The exercise of such
warrants could provide us with cash proceeds. No warrants have been exercised as of September 30,
2010.
Our senior loan was repaid in full in June 2008. The senior lenders retain a right to receive a
milestone payment of $2.25 million upon the occurrence of certain events as follows: (1) the entire
amount upon (a) the merger with or into another entity where our stockholders do not hold at least
a majority of the voting power of the surviving entity, (b) the sale of all or substantially all
of our assets, or (c) our liquidation or dissolution; or (2) a portion of the amount from proceeds
of equity financings not tied to specific research and development activities that are part of a
research or development collaboration, in which case, the senior lenders will receive an amount
equal to 10% of proceeds above $5.0 million in cumulative gross proceeds until the milestone amount
is paid in full. The milestone payment is payable in cash, except that if the milestone event is
(2) above, we may elect to pay 75% of the milestone in shares of common stock at the per-share
offering price. No milestone events have occurred as of September 30, 2010. The senior lenders
also received warrants to purchase 149,026 shares of common stock with an exercise price of $5.00
upon the closing of our equity offering in June 2007. The exercise of such warrants could provide
us with cash proceeds. No warrants were exercised at September 30, 2010.
We have no off-balance sheet arrangements.
Critical Accounting Policies and Management Estimates
The SEC defines critical accounting policies as those that are, in managements view, important to
the portrayal of our financial condition and results of operations and demanding of managements
judgment. Our discussion and analysis of financial condition and results of operations are based on
our consolidated financial statements, which have been prepared in accordance with U.S. generally
accepted accounting principles, or GAAP. The preparation of these financial statements requires us
to make estimates on experience and on various assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from those estimates. A description of these accounting policies and estimates is included
in Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
in our Annual Report on Form 10-K for the year ended December 31, 2009. There have been no material
changes in our accounting policies and estimates as described in our Annual Report. For additional
information regarding our accounting policies, see Note B to the Consolidated Financial Statements
in our Annual Report on
Form 10-K
for the year ended December 31, 2009.
18
Recently Issued Accounting Standards
In September 2009, Accounting Standards Codification, or ASC, 605-25,
Multiple-Element
Arrangements
, was updated (Accounting Standards Update, or ASU, No. 2009-13) related to revenue
recognition for arrangements with multiple elements. The revised guidance provides for two
significant changes to the existing guidance, the first relates to the determination of when the
individual deliverables included in a multiple-element arrangement may be treated as separate units
of accounting, which will likely result in the requirement to separate more deliverables within an
arrangement leading to less revenue deferral. The second change modifies the manner in which the
transaction consideration is allocated across the separately identified deliverables. Together,
these changes are likely to result in earlier recognition of revenue for multiple-element
arrangements than under previous guidance. The new guidance also significantly expands the
disclosures required for multiple-element revenue arrangements. The new guidance is effective for
fiscal years beginning on or after June 15, 2010, and early adoption is permitted provided that the
new guidance is retroactively applied to the beginning of the year of adoption. We have not yet
evaluated the potential effect of the future adoption of this new guidance.
In March 2010, ASC 605-28,
Milestone Method of Revenue Recognition
, was amended (ASU No. 2009-13)
related to the ratification of the application of the proportional performance model of revenue
recognition when applied to milestones in research and development arrangements. Accordingly, the
consensus states that an entity can make an accounting policy election to recognize a payment that
is contingent upon the achievement of a substantive milestone in its entirety in the period in
which the milestone is achieved. The new guidance is effective for fiscal years beginning on or
after June 15, 2010, and may be applied prospectively or retrospectively. Early adoption is
permitted provided that the new guidance is retrospectively applied to the beginning of the year of
adoption. We do not expect this new guidance to have a material effect on our financial statements
upon adoption.
Cautionary Note on Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These
forward-looking statements relate to, among other things, the expected timetable for development of
our product candidates, our growth strategy, and our future financial performance, including our
operations, economic performance, financial condition, prospects, and other future events. We have
attempted to identify forward-looking statements by using such words as anticipates, believes,
can, continue, could, estimates, expects, intends, may, plans, potential,
should, will, or other similar expressions. These forward-looking statements are only
predictions and are largely based on our current expectations. These forward-looking statements
appear in a number of places in this quarterly report on Form 10-Q.
In addition, a number of known and unknown risks, uncertainties, and other factors could affect the
accuracy of these statements. Some of the more significant known risks that we face are the risks
and uncertainties inherent in the process of discovering, developing, and commercializing products
that are safe and effective for use as human therapeutics, including the uncertainty regarding
market acceptance of our product candidates and our ability to generate revenues. These risks may
cause our actual results, levels of activity, performance, or achievements to differ materially
from any future results, levels of activity, performance, or achievements expressed or implied by
these forward-looking statements.
19
Other important factors to consider in evaluating our forward-looking statements include:
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the possibility of delays in, adverse results of and excessive costs of the
development process;
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our ability to successfully initiate and complete a phase II study of MultiStem for
AMI;
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changes in external market factors;
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changes in our industrys overall performance;
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changes in our business strategy;
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our ability to protect our intellectual property portfolio;
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our possible inability to realize commercially valuable discoveries in our
collaborations with pharmaceutical and other biotechnology companies;
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our ability to meet milestones under our collaboration agreements;
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our possible inability to execute our strategy due to changes in our industry or the
economy generally;
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changes in productivity and reliability of suppliers; and
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the success of our competitors and the emergence of new competitors.
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Although we currently believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee our future results, levels of activity or performance. We
undertake no obligation to publicly update forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law. You are advised, however, to
consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and
10-K furnished to the SEC. You should understand that it is not possible to predict or identify
all risk factors. Consequently, you should not consider any such list to be a complete set of all
potential risks or uncertainties.
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk.
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Interest Rate Risk
Our exposure to interest rate risk is related to our investment portfolio and our borrowings. Fixed
rate investments and borrowings may have their fair market value adversely impacted from changes in
interest rates. Due in part to these factors, our future investment income may fall short of
expectations. Further, we may suffer losses in investment principal if we are forced to sell
securities that have declined in market value due to changes in interest rates. We invest our
excess cash primarily in debt instruments of the U.S. government and its agencies, commercial paper
and corporate debt securities. As of September 30, 2010, approximately 84% of our investments were
in U.S. government obligations, including government-backed agencies. We have been investing
conservatively due to economic conditions and have prioritized liquidity and the preservation of
principal in lieu of potentially higher returns. As a result, we have experienced no losses on the
principal of our investments.
We enter into loan arrangements with financial institutions when needed and when available to us.
At September 30, 2010, we had no borrowings outstanding.
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Item 4T.
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Controls and Procedures.
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Disclosure controls and procedures
Our management, under the supervision of and with the participation of our Chief Executive Officer
and our Vice President of Finance, has evaluated the effectiveness of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as of the end of the period covered by this quarterly report on Form 10-Q. Based upon this
evaluation, our Chief Executive Officer and Vice President of Finance have concluded that, as of
the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and
procedures were effective.
Changes in internal control over financial reporting
During the third quarter of 2010, there has been no change in our internal control over financial
reporting (as defined in
Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934)
that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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On September 9, 2010, the Company issued 1,345 shares of its common stock to Katholieke
Universiteit Leuven, or KUL, pursuant to a license agreement with KUL. The issuance of these
unregistered shares qualifies as an exempt transaction pursuant to Section 4(2) of the Securities
Act of 1933. These securities qualified for exemption under Section 4(2) of the Securities Act of
1933 since the issuance by the Company did not involve a public offering. The offering was not a
public offering due to the number of persons involved, the manner of the issuance and the number
of securities issued. In addition, KUL had the necessary investment intent since KUL agreed to and
received share certificates bearing a legend stating that such securities are restricted.
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Exhibit No.
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Description
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10.1
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*
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License and Technical Assistance Agreement, dated as of September
10, 2010, between ABT Holding Company and RTI Biologics, Inc.
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31.1
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Certification of Gil Van Bokkelen, Chairman and Chief Executive Officer,
pursuant to SEC Rules 13a-14(a) and 15d-14(a) adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Laura K. Campbell, Vice President of Finance, pursuant to
SEC Rules 13a-14(a) and 15d-14(a) adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Gil Van Bokkelen, Chairman and Chief
Executive Officer, and Laura Campbell, Vice President of Finance, pursuant to 18
U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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*
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Confidential treatment requested as to certain portions, which portions have been filed
separately with the Securities and Exchange Commission.
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21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ATHERSYS, INC.
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Date: November 8, 2010
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/s/ Gil Van Bokkelen
Gil Van Bokkelen
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Chairman and Chief Executive Officer
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(principal executive officer authorized to sign on
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behalf of the registrant)
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/s/ Laura K. Campbell
Laura K. Campbell
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Vice President of Finance
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(principal financial and accounting officer
authorized to sign on behalf of the registrant)
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EXHIBIT INDEX
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Exhibit No.
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Description
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10.1
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*
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License and Technical Assistance Agreement, dated as of September
10, 2010, between ABT Holding Company and RTI Biologics, Inc.
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31.1
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Certification of Gil Van Bokkelen, Chairman and Chief Executive Officer,
pursuant to SEC Rules 13a-14(a) and 15d-14(a) adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Laura K. Campbell, Vice President of Finance, pursuant to
SEC Rules 13a-14(a) and 15d-14(a) adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Gil Van Bokkelen, Chairman and Chief Executive Officer, and
Laura Campbell, Vice President of Finance, pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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*
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Confidential treatment requested as to certain portions, which portions have been filed
separately with the Securities and Exchange Commission.
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EXHIBIT 10.1
EXECUTION COPY
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS EXHIBIT, AND SUCH
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
LICENSE AND TECHNICAL ASSISTANCE AGREEMENT
This License and Technical Assistance Agreement (
Agreement
), effective as of the 10th day of
September, 2010, is by and between ABT Holding, Inc., a Delaware corporation and subsidiary of
Athersys, Inc. having its principal place of business at 3201 Carnegie Avenue, Cleveland, Ohio
44115-2634 (
Athersys
), and RTI Biologics, Inc., a Delaware corporation having its principal place
of business at 11621 Research Circle, Alachua, Florida 32615 (
RTI
). As used herein, RTI and
Athersys may be referred to collectively as the
Parties
or individually as a
Party
WHEREAS
, RTI is a processor of orthopedic and other biologic matrix surgical implants, and has
experience in, and certain proprietary technology related to, the generation and characterization
of efficacious and safe in-vivo applications of biomaterials for the repair and natural healing of
human bone and other human tissues (
RTI Capabilities
);
WHEREAS
, Athersys possesses expertise, know-how, trade secrets, and other valuable
intellectual property related to, among other things, the isolation, culture, expansion and use of
Multipotent Adult Progenitor Cells (
Athersys Capabilities
);
WHEREAS
, RTI and Athersys anticipate that this Agreement will enable them to jointly develop a
commercially viable product combining RTI Technology with Athersys Technology, as defined herein
below, and utilizing RTI Capabilities and Athersys Capabilities as further described in this
Agreement;
WHEREAS
, it is the intent of RTI and Athersys that the work performed as a result of this
Agreement, and any intellectual property derived therefrom, shall be afforded the benefits provided
for by the CREATE Act of 2004, as codified by 35 USC 103(c), if requested by the appropriate Party.
EXECUTION COPY
NOW, THEREFORE,
in view of the foregoing premises, and in consideration of the mutual
covenants, terms and conditions hereinafter set forth, the Parties hereto agree as follows:
Definitions
For purposes of this Agreement, capitalized terms used in this Agreement shall have the meaning
ascribed to them in the preamble and Recitals above, in the listing immediately below, or in the
various Articles that follow.
Affiliate(s)
shall mean, in relation to a Party, any person, corporation or other business entity
presently or in the future controlled by, controlling, or under common control with that Party, but
only for so long as such control shall continue. For purposes hereof, a person, corporation or
other business entity who beneficially owns or controls, directly or indirectly, at least 50% of
the voting, interests, including securities, of another business entity shall be presumed to
control such other business entity. As of the Effective Date of this Agreement, the Parties
respective Affiliates include those listed in
Exhibit C
.
Athersys Technology
shall mean the MAPC Licensed Patents, the MAPC Technology, the Collaboration
Technology, and Collaboration Patents. Athersys Technology excludes RTI Technology.
Collaboration
shall mean any research, experimentation and evaluation performed by RTI and/or
Athersys pursuant to Section 3.1 of this Agreement and the Collaboration Plan attached hereto as
Exhibit B
, as it may be amended from time to time, or pursuant to the MTA.
Collaboration Data
shall mean all data produced in the course of undertaking and performing the
Collaboration, including data generated by either RTI and/or Athersys, or any of their respective
employees, agents or contractors in the course of undertaking and performing the Collaboration, but
in each case to only to the extent that such data does not otherwise constitute Collaboration
Technology.
Collaboration Patent
shall mean any patent application or patent that claims any Collaboration
Invention.
Collaboration Technology
shall mean, whether tangible or intangible, every technology,
biological, chemical or other material, formula, process, routine, subroutine, technique,
specification, instruction, concept, method, algorithm, know-how, use, device, article of
manufacture, work of authorship, invention, discovery and Athersys Confidential Information that
(a) is or was newly discovered, developed, perfected, improved, designed, engineered, devised,
conceived, or first reduced to practice by Athersys and/or RTI or any of their employees, agents or
contractors in the course of undertaking and performing the Collaboration, including all
Collaboration Inventions, regardless of whether any of the foregoing constitutes a
trade secret or copyrightable or patentable subject matter in any foreign or domestic jurisdiction
and (b) is not RTI Technology.
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Cumulative Net Revenue
(also referred to as
CNR
) shall mean gross revenues (i) received by RTI
and its Affiliates from End Users to whom or to which RTI or RTI Affiliates directly transferred or
sold MAPC Technology Products, or (ii) received by Third Parties from End Users to whom or to which
were transferred or sold MAPC Technology Products, in each case, less the following: (a) amounts
refunded, rebated or credited to End Users after their receipt by RTI, the Affiliate or the Third
Party, as applicable, in the ordinary course of RTIs, the Affiliates or the Third Partys
business, as applicable; (b) customary charges for taxes, transportation, shipping and shipping
insurance to the extent separately identified on the invoice to the End User; (c) commissions on
transfers or sales actually paid by RTI, the Affiliate or the Third Party, as applicable, to
distribution or sales agents (whether an employee or independent contractor of RTI, the Affiliate
or the Third Party, as applicable) not to exceed (i) [
*
%] of the gross revenues
(excluding anything that would be permitted to be deducted therefrom under the foregoing clauses
(a) and (b)) of the associated MAPC Technology Products until the cumulative CNR under this
Agreement from the Effective Date reaches [$
*
] and (ii) [
*
%] of such gross
revenues thereafter.
End User
shall mean the health care facility or other health care provider to whom the MAPC
Technology Product is provided for implantation or administration to a patient(s) for treatment in
the Field.
Field
shall mean the repair and/or (re)generation of osseous tissue for use in general
orthopedic, sports medicine, spine, trauma, reconstructive, and maxillo-facial repair applications.
MAPC Licensed Patents
shall mean those patents and patent applications that are, as of the
Effective Date or during the Term, (a) either owned by or licensed to Athersys or any of its
Affiliates with the right to license/sublicense to RTI upon the terms hereof, and (b) necessary for
RTI to make, have made, use, sell, offer for sale or import MAPC Technology Products in accordance
with the terms of this Agreement. MAPC Licensed Patents include those patents and applications
listed on
Exhibit A
, as such exhibit may be updated from time to time by Athersys.
MAPC Technology
shall mean any trade secrets, technology, biological, chemical or other
materials, formulas, processes, routines, subroutines, techniques, specifications, instructions,
concepts, methods, algorithms, know-how, uses, devices, article of manufactures, inventions, or
discoveries that are (a) not patented or subject to a published patent application, (b) either
owned by or licensed to Athersys or any of its Affiliates with the right to license/sublicense to
RTI upon
the terms hereof as of the Effective Date or during the Term, (c) necessary for RTI to research,
develop, make, have made, use, sell or transfer, offer for sale or transfer, distribute, import, or
export in accordance with the terms of this Agreement or are otherwise disclosed to RTI or its
Affiliate by Athersys or its Affiliate in the course of undertaking and performing the
Collaboration, and (d) relate to the use, extraction, isolation, expansion, maintenance, or culture
of MAPCs.
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MAPC Technology Product
shall mean any product resulting in whole or in part from the undertaking
and performance of the Collaboration that (a) contains [
*
]. Culture expanded cell
products, including MultiStem
®
products and related products, are excluded from this definition and
the Collaboration.
MTA
shall mean that Amended Material Transfer Agreement, effective as of 3 April, 2007, between
Athersys, Inc. (predecessor to Athersys) and Regeneration Technologies, Inc. (predecessor to RTI),
as amended thereafter from time to time, including Amendment No. 1 effective as of 17 July, 2008,
Supplement to Exhibit C of such Amendment No. 1, and Amendment No. 2 effective as of 2 April, 2010.
Multipotent Adult Progenitor Cell
(also referred to as a
MAPC)
shall mean any multipotent adult
progenitor cell that (a) is extracted and isolated from human bone marrow, (b) has the potential to
develop into cells of the mesenchymal, endothelial and endodermal lineages, (c) has the potential
to be expanded in culture more than twenty doublings, and (d) is described in any of the patents
and patent applications owned by or licensed to Athersys or any of its Affiliates as of the
Effective Date, including those listed on
Exhibit A
.
Pre-market Approval
means, in the United States, a Premarket Approval Application (PMA),
Investigational New Drug Application (IND), New Drug Application (NDA) or Biologic License
Application (BLA) under the United States Federal Food, Drug and Cosmetic Act and the regulations
promulgated thereunder, all as amended, and in any jurisdiction outside the United States, a
substantial equivalent to any of the foregoing applicable to such jurisdiction. For further
clarification, the definition of Pre-Market Approval shall not include a 510(k) application in the
United States or its foreign equivalent.
Regulatory Authority
means, with respect to a jurisdiction, any governmental authority or agency
or department thereof charged with the responsibility of regulating drugs and/or medical devices,
including, in the United States the United States Food and Drug Administration and in any other
jurisdiction, any foreign equivalent(s) thereto.
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RTI Technology
shall mean the patents, patent applications, technology, biological, chemical
or other materials, formulas, processes, routines, subroutines, techniques, specifications,
instructions, concepts, methods, algorithms, know-how, uses, devices, articles of manufacture,
inventions, discoveries, works of authorship and RTIs Confidential Information that are, as of the
Effective Date or during the Term, either owned by or licensed to RTI or any of its Affiliates with
the right to license/sublicense to Athersys upon the terms hereof. RTI Technology excludes
Athersys Technology, MAPC Technology and Collaboration Technology, but includes all RTI Technology
Inventions and all patent rights claiming RTI Technology Inventions.
Territory
shall mean worldwide.
Third Party
shall mean any person or entity other than a Party to this Agreement and its
respective Affiliates.
Article I: Grants of Rights
1.1
Athersys Technology
. Subject to the terms and conditions of this Agreement, Athersys,
on behalf of itself and its Affiliates, hereby grants to RTI an Exclusive license or sublicense (as
the case may be) to the Athersys Technology solely to research, develop, make, have made, use, sell
or transfer, offer for sale or transfer, distribute, import, and export MAPC Technology Products in
the Field in the Territory. This license includes the right to sublicense solely to Affiliates of
RTI. As used in this Section 1.1, the term
Exclusive
shall mean exclusive of all others,
including Athersys, subject to (a) the rights reserved for Athersys, its Affiliates and their
respective contractors, to develop, make, have made, and use MAPC Technology Products in the Field
in the Territory in connection with the Collaboration and (b) rights granted to Third Parties
before the Effective Date for research purposes, and (c) the right reserved for Athersys and its
Affiliates to grant rights to the Athersys Technology for research purposes.
1.2
Stand-by Licenses
. To ensure continuity of the rights granted herein, upon reasonable
request by RTI, RTI and Athersys will work cooperatively to enter into stand-by license agreements
with Third Parties from whom Athersys has been licensed intellectual property rights within the
Athersys Technology.
1.3
No Use of MultiStem Trademark
. RTI will not, and will cause its Affiliates and its and
their respective direct and indirect distributors not to, use MultiStem
®
or any other word
confusingly similar thereto as or as part of a trademark or service mark in any form, including in
marketing or promotional literature, packaging, labels, presentations, or other tangible materials,
regardless of the media upon which such materials are created, stored, presented or distributed.
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1.4
Limited Use of MAPC and Multipotent Adult Progenitor Cell
. To the extent that RTI, any
of its Affiliates or its sublicensees, or any of their respective direct and indirect distributors
desires to use or uses either or both of the terms MAPC or Multipotent Adult Progenitor Cell,
such uses shall be limited to the following forms: MAPC-based, MAPC Technology Product, MAPC
Technology Implant, MAPC Technology-based, Multipotent Adult Progenitor Cell-based, or other
variations of the terms upon consent of Athersys, such consent not to be unreasonably withheld.
For the sake of clarity, this limitation is intended to reinforce and support the distinctiveness
of the MAPC Technology Product relative to Athersyss culture expanded cell products, including
MultiStem products and related products, and to limit any confusion in the marketplace and with
clinicians and regulators, among others. As reasonably requested by Athersys from time to time,
RTI shall, at its own expense, submit copies, photographs or representative samples of any
materials used by RTI or its sublicensees to promote MAPC Technology Products.
1.5
Other Opportunities
. Athersys, on behalf of itself and its Affiliates, hereby grants
to RTI a right of first negotiation with respect to the use of MAPC Technology and MAPC Licensed
Patents in other product development and marketing opportunities for HCT/Ps not in the Field but
involving cartilage, tendons and ligaments applications (
Other Opportunities
). Should the
Parties fail to reach an agreement within a prescribed reasonable time frame for negotiation to be
established by the Parties at the beginning of negotiations with respect to the Other
Opportunities, Athersys and its Affiliates may negotiate with Third Parties. In the event the
foregoing negotiations between the Parties are unsuccessful, Athersys will nevertheless agree to
further discussions in good faith related to such Other Opportunities for so long as it is not
prohibited by any contractual or other legal obligation. Furthermore, Athersys agrees to notify
RTI within fifteen (15) business days of the receipt of a written proposal with defined terms from
a Third Party to research, develop, or commercialize a cell-based product constituting Other
Opportunities.
1.6
RTI Technology
. Subject to the terms and conditions of this Agreement, RTI, on behalf
of itself and its Affiliates, hereby grants to Athersys and its Affiliates a non- exclusive license
and or sublicense (as the case may be) to the RTI Technology solely to research, develop, make,
have made, and use MAPC Technology Products in connection with the Collaboration. This license
includes the right to sublicense solely to Affiliates of Athersys.
1.7
Reservation of Rights
. Except as expressly stated in this Article I, no rights or
licenses are granted under this Agreement by either Party or its Affiliates under any intellectual
property of such Party or its Affiliates to the other Party or its Affiliates, whether by
implication, estoppel or otherwise, and all such rights not expressly stated are hereby reserved by
each Party and its Affiliates.
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Article II: Consideration, Reports and Records
2.1
License Fee
. In consideration of the rights and benefits granted to RTI herein, RTI
shall pay to Athersys a one-time license fee of Five Million Dollars ($5,000,000) (hereinafter the
License Fee
) payable in installments upon the dates indicated below (there being no penalty for
pre-payment in RTIs sole discretion) or upon satisfaction of the following conditions precedent:
2.1.1 One Million Dollars ($1,000,000) concurrently with the execution of this Agreement;
2.1.2
One Million Dollars ($1,000,000) on or before December 31, 2010;
2.1.3
One Million Dollars ($1,000,000) on or before March 31, 2011;
2.1.4
One Million Dollars ($1,000,000) [
*
];
2.1.5
One Million Dollars ($1,000,000) [
*
].
2.2
Royalties
.
2.2.1 Subject to Section 2.2.2, RTI shall pay royalties to Athersys as follows based on CNR,
as CNR is accumulated during the Term:
2.2.1.1 For CNR in the range of [$
*
], RTI shall pay Athersys [
*
%] of said CNR.
2.2.1.2 For CNR in the range of [$
*
], RTI will pay Athersys [
*
%] of said CNR.
2.2.1.3 For CNR in excess of [$
*
], RTI will pay Athersys [
*
%] of said CNR.
2.2.2 In the event of a change in market conditions beyond RTIs control, such as that arising
from, for example purposes only, a force majeure event or disruptive technology, that results in a
[
*
], then RTIs royalty rate will be [
*
].
2.2.3 Payments to be made in accordance with Section 2.2 shall be calculated quarterly by RTI
and made to Athersys within sixty (60) days following the end of the given calendar quarter for
which said payments were calculated. The Parties will work in good faith to resolve any questions
or disputes related to the payments.
2.3
Milestone Payments
. Upon first achieving specific CNR milestones, as defined herein
below, RTI shall make milestone payments to Athersys as follows:
2.3.1 If CNR greater than [$
*
] is achieved [
*
], RTI shall pay Athersys
a one-time milestone payment of [$
*
].
2.3.2 If CNR greater than [$
*
] is achieved [
*
], RTI shall pay Athersys
a one-time milestone payment of [$
*
].
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2.3.3 If CNR greater than [$
*
] is achieved [
*
], RTI shall pay Athersys
a one-time milestone payment of [$
*
].
2.3.4 If CNR greater than [$
*
] is achieved [
*
], RTI shall pay Athersys
a one-time milestone payment of [$
*
].
2.3.5 If CNR greater than [$
*
] is achieved [
*
], RTI shall pay Athersys
a one-time milestone payment of [$
*
].
2.3.6 Nothing in this Agreement shall be interpreted so as to create any obligation for RTI to
pay more than a cumulative total of $35,500,000.00 in milestone payments under this Section 2.3.
2.3.7 For the purposes of this Section 2.3, the total amount of CNR shall be measured as [
*
].
2.3.8 Payments to be made in accordance with Section 2.3 shall be made to Athersys within
sixty (60) days following achievement of the milestone.
2.4 [
*
].
2.5
Inter-Company Sales or Transfers
. Sales or transfers between or among RTI and its
Affiliates and their respective direct and indirect distributors shall not by subject to, nor used
for calculating, CNR or payments due under Section 2.2 or 2.3 unless RTI, the Affiliate or the
distributor is an End User. Instead, only the first sale or transfer for fee to an End User or
Third Party shall be used to calculate CNR and said payments.
2.6
Payment Instructions
. Payments pursuant to this Article II shall be made via bank wire
transfer to:
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Cleveland, Ohio
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[
*
]
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Athersys, Inc.
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[
*
]
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With respect to any payments to be made pursuant to this Agreement, and where said payment would
otherwise become due and owing on a weekend, an RTI recognized holiday, or a holiday recognized by
the United States government, said payment shall become due and owing on the next following
business day.
2.7
Reports
. Within thirty (30) business days following the end of each calendar quarter,
RTI will provide Athersys with a written report listing, on a country by country basis, the number
of MAPC Technology Products transferred or sold by RTI and its Affiliates in the quarter, the
gross revenues of transfers or sales of MAPC Technology Products to End Users in the quarter, the
CNR achieved for the quarter, the amount of royalties due for such transfers or sales pursuant to
Section 2.2, any milestones that were achieved in such quarter under Section 2.3, and any offsets
or reductions in royalties being applied pursuant to Section 2.2.2 or 2.4 and the basis therefor.
2.8
Records and Inspection Rights
. During the Term and for at least three (3) years
thereafter, RTI shall keep complete and accurate business records with respect to the MAPC
Technology, MAPC Technology Products, all gross revenues derived from sales or transfers to End
Users thereof, the calculation of CNR and all payments due to Athersys hereunder; such records
shall include all documentation required to adequately demonstrate the accuracy of RTIs
calculations of the amounts due to Athersys hereunder. With no greater frequency than twice per
calendar year, and with at least thirty (30) days advance written notice by Athersys to RTI, RTI
shall allow Athersys or its representatives to inspect such business records to ensure compliance
with this Agreement. Said records will be made available for inspection Monday through Friday
(excluding holidays observed by RTI) during the hours of 9:00 a.m. to 5:00 p.m. Eastern Standard
Time. If such inspection reveals that RTI has underpaid any amount due hereunder for any reporting
period by more than [
*
], then, in addition to prompt payment of the amount due, RTI
shall reimburse Athersys for its actual, reasonable out of pocket costs and expenses for such
inspection.
2.9
Currency
. All payments due under this Agreement are stated in, and shall be computed
and paid in, United States Dollars. For the purposes of determining the amount of any CNR received
in any foreign currency, such CNR shall be converted into United States Dollars in a manner
consistent with the selling entitys normal practices used to prepare its audited financial
statements; provided that such practices use a widely accepted source of published exchange rates.
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2.10
Taxes
. If any payments made by RTI pursuant to this Agreement become subject to
withholding taxes under the laws or regulation of any jurisdiction, RTI shall deduct and withhold
the amount of such taxes for the account of Athersys to the extent required by applicable Law or
regulations; such amounts payable to Athersys shall be reduced by the amount of taxes deducted and
withheld; and RTI shall pay the amounts of such taxes to the proper governmental authority in a
timely manner and promptly transmit to Athersys an official tax certificate or other evidence of
such tax obligations together with proof of payment from the relevant governmental authority of all
amounts deducted and withheld sufficient to enable Athersys to claim such payment of taxes. RTI
will provide Athersys with reasonable assistance to enable Athersys to recover such taxes as
permitted by applicable Law or regulations.
2.11
Interest
. Any payment received after the date due hereunder shall bear interest at
the [
*
], compounded monthly, from the date due until the full amount including any
interest thereon is paid.
Article III Collaboration and Technical Assistance
3.1
Collaboration Plan
. With technical assistance from Athersys (as described in Section
3.4), RTI shall use commercially reasonable efforts to develop for commercialization in the Field a
MAPC Technology Product utilizing RTI Technology and Athersys Technology. To the extent not
otherwise provided in this Agreement, details of the Collaboration between the Parties shall be as
set forth in the Collaboration Plan attached to this Agreement as
Exhibit B
.
(
Collaboration Plan
).
3.2
Costs
. Except as may be otherwise expressly provided for in this Agreement, including
the Collaboration Plan, both Parties shall bear their own expenses related to the performance of
this Agreement. If after [
*
] Athersys and its Affiliates incur costs greater than
[$
*
] related to tasks performed under the Collaboration Plan, RTI will reimburse
Athersys for said costs provided (1) Athersys notifies RTI in advance of incurring such excess
costs and RTI approves the expenditures, and (2) such excess costs are not attributable to
negligence on the part of Athersys.
3.3
Technical Assistance
. In addition to the responsibilities and obligations of the
Parties as set forth in the Collaboration Plan, Athersys agrees to make its employees reasonably
available to consult with RTI regarding issues related to the extraction, isolation, maintenance
and preparation of cells using the MAPC Technology, including requests from any regulatory agency
with respect to regulatory, scientific, technical and clinical testing issues, and shall permit its
contractors knowledgeable in the extraction, isolation, maintenance and preparation of cells using
the MAPC Technology to consult with RTI in the presence of (but not without any) such
Athersys employees. In addition to the foregoing, representatives of RTI and Athersys may, upon
reasonable notice and at times reasonably acceptable to the other Party (i) visit the facilities
where the Collaboration is being conducted, and (ii) consult informally with personnel of the other
Party performing work on the Collaboration during such visits, by telephone, by facsimile or
electronic transmission, or in any other such manner as the Parties may agree. If so requested by
one Party, the other Party shall cause appropriate individuals working on the Collaboration to be
available for meetings at the location of the facilities where such individuals are employed at
times reasonably convenient to the Party responding to such request.
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3.4
Collaboration Data
. Collaboration Data shall be shared and disclosed between the
Parties on a regular basis through the Term of the Collaboration. Collaboration Data that relate
specifically and exclusively to RTI Technology shall be considered the Confidential Information of
RTI owned by RTI, notwithstanding which Party first disclosed such data to the other Party.
Collaboration Data that relate to Athersys Technology, including data regarding cell media, cell
potency, cell differentiation and cell performance characteristics, shall be considered the
Confidential Information of Athersys owned by Athersys, notwithstanding which Party first disclosed
such data to the other Party. Collaboration Data that would be used ordinarily for regulatory,
business development, or commercialization purposes, including the MAPC Technology Products
identity, application and performance, or any other Collaboration Data that are not specified as
the Confidential Information of RTI or Confidential Information of Athersys shall be considered the
Confidential Information of both Parties and owned jointly by both Parties (
Jointly Owned
Collaboration Data
), notwithstanding which Party first disclosed such data or information to the
other Party.
3.5
Use of Contractors
. RTI shall not use contractors to perform any activities under the
Collaboration Plan related to the use, extraction, isolation, expansion, maintenance, or culture of
MAPCs without the prior written consent of Athersys, which consent shall not be unreasonably
withheld. If RTI seeks to use a contractor for any such activities, it shall provide to Athersys a
copy of the proposed contract between RTI and the contractor before entering into any such
agreement so that Athersys can ensure it contains provisions consistent with the requirements of
this Agreement.
Article IV: Confidentiality
4.1
Athersys Confidential Information
. With respect to Athersys, the term
Confidential
Information
refers to the Collaboration Data solely or jointly owned by Athersys pursuant to
Section 3.4, Athersys and its Affiliates specialized and proprietary trade secrets, formulas,
processes, methods, technology, know-how, customer and vendor information and lists, financial
data, undisclosed and unreleased products, and other items or information related to or that
constitutes the Athersys Technology and any manufacturing, laboratory and clinical testing and
research methodologies or models; in each case that when furnished, shown, or disclosed to RTI or
its Affiliate is designated, whether in writing or orally (followed by a written confirmation and
summary), as Confidential, or which is of such nature and character that a reasonable person in
the trade would understand it to be confidential without the necessity of it being so designated.
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4.2
RTI Confidential Information
. With respect to RTI, the term
Confidential Information
refers to the Collaboration Data solely or jointly owned by RTI pursuant to Section 3.4, RTIs and
its Affiliates specialized and proprietary trade secrets, formulas, processes, methods,
technology, know-how, customer and vendor information and lists, financial data, undisclosed and
unreleased tissue lines or products, and other items or information related to its allograft
tissue, xenograft tissue, surgical implants, devices, associated processing and sterilization
technologies for each, instrumentation, and any manufacturing, laboratory and clinical testing and
research methodologies or models; in each case that when furnished, shown, or disclosed to Athersys
is designated, whether in writing or orally (followed by a written confirmation and summary), as
Confidential, or which is of such nature and character that a reasonable person in the trade
would understand it to be confidential without the necessity of it being so designated.
4.3
Confidential
ad infinitum
. The Parties recognize and agree that each Party may possess
certain trade secrets that will likely continue to have commercial and competitive value for an
indeterminate period of time, and perhaps in perpetuity. Therefore, a Party may in its sole
discretion designate as Confidential
ad infinitum
those certain trade secrets it reasonably
believes fit such criteria. Any provision of this Agreement to the contrary not withstanding,
trade secrets must be designated in writing as Confidential
ad infinitum
within one (1) month of
disclosure to the receiving Party, unless a later designation is otherwise consented to by the
receiving Party, such consent not to be unreasonably withheld. Trade secrets that are Confidential
ad infinitum
shall at a minimum be given all the same protections as Confidential Information, with
certain added or heightened requirements as further described below. Election not to designate a
trade secret as Confidential
ad infinitum
, or failure to so designate, shall not be deemed to erode
or abrogate a trade secrets underlying status as Confidential Information.
4.4
Joint Confidential Information
. The Jointly Owned Collaboration Data and content of
the negotiations between the Parties concerning this Agreement shall be the Confidential
Information of both Parties. A Party wishing to disclose any part of this joint Confidential
Information must first obtain written permission from the other Party by contacting the designated
corporate representative for such purpose as set forth in Section 4.7. Such written permission
will not be unreasonably denied or delayed. The foregoing notwithstanding, either Party may
disclose the Jointly Owned Collaboration Data in connection with any of its activities permitted
under Article V or as otherwise specified in this Article IV.
4.5
Survival
. The obligations and rights of the Parties under this Article 4 shall survive
any expiration or termination of this Agreement for any reason whatsoever (including, without
limitation, termination by either party for a material breach by the other Party of its obligations
hereunder) for, in the case of Confidential Information, a period of seven (7) years, or, in the
case of trade secrets that are Confidential
ad infinitum
, for an initial period of ten (10) years
with options to renew the Confidential
ad infinitum
designation for additional terms of five (5)
years for as long as the disclosing Party reasonably and in good faith believes such continuing
status is competitively advantageous. The disclosing Party must submit thirty (30) days advance
written notice of its intent to renew the Confidential
ad infinitum
designation. Because of the
unique and proprietary nature of the information that is Confidential and/or Confidential
ad
infinitum
, it is understood and agreed that either Partys remedies at law for a breach by the
other Party of its obligations under Article 4 will be inadequate and that the non-breaching Party
shall, in the event of any such breach, be entitled to seek equitable relief (including, without
limitation, injunctive relief and specific performance), in addition to all other remedies provided
under this Agreement or available at law. A Party seeking relief pursuant this Section 4.5 shall
not be required to post a bond as a condition for obtaining and/or exercising such relief.
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4.6
Restrictions on Use and Disclosure
. Each Party agrees not to use the Confidential
Information of the other Party, excluding Jointly Owned Collaboration Data, for any purpose except
for the purposes of the Collaboration and as necessary to carry out the terms of any business
relationship between the Parties hereto. Each Party further agrees that it will not disclose the
Confidential Information of the other Party, including the Jointly Owned Collaboration Data, to any
Third Party other than such Partys employees, agents or contractors who are directly involved in
the business relationship between the Parties hereto, and then only on a need-to-know basis and
under an obligation of confidentiality that restricts further disclosure consistent with the
obligations of non-use and non-disclosure provided herein. Each Party agrees that it will take
reasonable security measures and use reasonable care to preserve and protect the secrecy of the
other Partys Confidential Information, including the Jointly Owned Collaboration Data.
4.7
Return of Information
. Upon request after termination of this Agreement by a Party for
return of the Confidential Information of such Party, excluding Jointly Owned Collaboration Data,
the other Party shall, within fifteen (15) business days of the request, either return or destroy
all written or tangible material containing or reflecting Confidential Information of the
requesting Party (whether prepared by the requesting Party or otherwise), without retaining any
copies, summaries, analyses, or abstracts thereof except that each Partys independent outside
counsel may retain one copy for attorneys eyes only. An authorized officer of the recipient shall
confirm in writing recipients compliance with this Section 4.7 with twenty (20) business days
after the disclosing Partys request for the return of Confidential Information.
4.8
Permitted Disclosures
. When Confidential Information of the other Party or Jointly
Owned Collaboration Data is required to be disclosed by a Party to comply with (i) applicable
laws and regulations, (ii) the rules of a national securities exchange on which the shares of such
Party are listed, or (iii) the order of a court or administrative law judge or tribunal of
competent jurisdiction, such Party shall (a) provide to the other Party, to the extent reasonably
practicable, prior written notice of such required disclosure and, (b) upon request by the other
Party, provide such Party assistance with taking all reasonable and lawful actions to obtain
confidential treatment for the Confidential Information, and (c) take all reasonable and
practicable steps to minimize the extent of such disclosure. A Party may disclose the Confidential
Information of the other Party and the Jointly Owned Collaboration Data to any actual or bona fide
potential lender, private investor, licensee/sublicensee, acquiror or successor under an obligation
of confidentiality that restricts further disclosure consistent with the obligations of non-use and
non-disclosure provided herein. A Party may disclose the Jointly Owned Collaboration Data to an
regulatory authority as reasonably required in connection with seeking or obtaining any approvals
for any of its products.
EXECUTION COPY
4.9
Exceptions
. The obligations of a Party under this Article 4 will not apply to
information which such Party can affirmatively show:
(a) was independently developed or discovered by such Party without use or benefit of
the other Partys Confidential Information, as demonstrated by written records;
(b) is already available to the public;
(c) becomes available to the public through no fault of such Party; or
(d) was independently developed by an employee or consultant of such Party who had no
previous direct or indirect knowledge or benefit of the disclosures made under this
Agreement.
4.10
Press Releases
. Except as may be deemed to be required by applicable laws or
regulations by counsel to a Party, neither Party shall issue any press releases about the
relationship of the Parties under this Agreement other than in a form or with content as mutually
agreed. Each Party may issue the press release attached hereto at
Exhibit D
upon or
promptly after this Agreement becomes effective.
Article V: Ownership and Use of Inventions
5.1
Inventions and Inventorship
. Inventorship of inventions or discoveries that are
conceived during the performance of the Collaboration (
Invention
s), whether or not patentable,
shall be determined in accordance with U.S. patent laws. To facilitate proper
determination of inventorship and ownership of Inventions in accordance with this Article V,
the Parties shall fully and promptly disclose, in confidence, any and all Inventions conceived by
such Party, its Affiliate or its or their respective employees and contractors in writing to the
other Party. A subsequent invention or discovery shall be deemed an
improvement
of an earlier
invention or discovery if the practice of the subsequent invention would infringe upon or
constitute misappropriation of any intellectual property rights in the earlier invention or
discovery (in the absence of a license to such intellectual property rights).
EXECUTION COPY
5.2
RTI Technology Inventions
. [
*
].
5.3
Other Inventions
. [
*
].
5.4
Patent Prosecution for Inventions
. [
*
]. Each Party agrees to cooperate
in timely completion and execution of all documents or other items necessary to further the
domestic and/or international intellectual property protection available to the Inventions.
5.5
Prior Inventions
. Nothing contained in this Agreement shall be deemed to grant either
Party, directly or by implication, estoppel, or otherwise, any right, title, interest or license to
any patents, patent applications, copyrights, trademarks, trade dress, trade secrets or other
intellectual property owned or developed by the other Party before the Effective Date.
Article VI: Term
6.1
Term
. Unless terminated sooner pursuant to Sections 6.1.1 6.1.4, the term of this
Agreement shall be for the longer of (i) five (5) years from the Effective Date of this Agreement,
(ii) two (2) years after the last sale or distribution of a MAPC Technology Product by RTI or any
of its Affiliates, (iii) the active life of any past, present, or future issued patents within the
Athersys Technology, wherein said claims would be infringed by the MAPC Technology Products but for
the licenses granted pursuant to this Agreement, or (iv) the life of trade secrets within the
Athersys Technology applicable to RTIs manufacture of MAPC Technology Products. The period from
the Effective Date until expiration or termination of this Agreement is the
Term
.
6.1.1
Bankruptcy
. Athersys may, in its sole discretion, choose to terminate this
Agreement in the event RTI is subject to a bankruptcy event. RTI may, in its sole discretion,
choose to terminate this Agreement in the event Athersys is subject to a bankruptcy event. For
purposes hereof, a
bankruptcy event
means, with respect to a Party, if the Party shall have
become insolvent or bankrupt, or shall have an assignment for the benefit of its creditors, or
there
shall have been appointed a trustee or receiver of the Party or for all or a substantial part of
its property or any case or proceeding shall have been commenced or other action taken by or
against the Party in bankruptcy or seeking reorganization, liquidation, dissolution, winding up,
arrangement or readjustment of its debts or any other relief under any bankruptcy, insolvency,
reorganization or other similar act or law of any jurisdiction now or hereafter in effect, or there
shall have been issued a warrant of attachment, execution, restraint or similar process against any
substantial part of the property of the Party, and any such event shall have continued for sixty
(60) days undismissed, unbonded and undischarged.
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6.1.2
Abrogation of Rights
. In the event any of Athersys or, where applicable, its
Affiliates rights to the Athersys Technology expire or are otherwise terminated, diminished,
revoked, rescinded, repealed, or invalidated such that there is a material effect on the
development and commercialization of the MAPC Technology Products, RTI may, in its sole discretion,
choose to terminate this Agreement.
6.1.3
Diligence
. Athersys may, in its sole discretion, choose to terminate this
Agreement, upon notice to RTI, if (i) RTI and its Affiliates have not made their first commercial
sale or distribution of a MAPC Technology Product after the passage of [
*
] from the
Effective Date and no longer continue to make commercially reasonable efforts to develop a MAPC
Technology Product, (ii) RTI and its Affiliates have not had more than [$
*
] of CNR after
the passage of [
*
] from the Effective Date, or (iii) after the passage of [
*
] from the Effective Date, RTI and its Affiliates have not had more than
[$
*
] of CNR during any calendar year.
6.1.4
Breach
. If either Party materially breaches any of its respective obligations
under this Agreement, and such breach is not cured within sixty (60) days after the giving of
written notice by the other Party specifying such breach, then such other Party shall have the
right to terminate this Agreement by providing the breaching Party written notice within ten (10)
days following the expiration of such sixty (60)-day period (such termination to be effective upon
receipt of such termination notice). For the purpose of this Section, a material breach shall
include a material inaccuracy in any warranty or representation contained herein.
6.2
Survival of Obligations
. The termination or expiration of this Agreement shall not
relieve the Parties of any obligations accruing prior to such expiration or termination, and any
such expiration or termination shall be without prejudice to the rights of any Party against
another Party. Upon termination of this Agreement for any reason other than by RTI pursuant to
Section 6.1.4, any unpaid portion of the License Fee due under Sections 2.1.1, 2.1.2, and 2.1.3
shall become due and payable within thirty (30) days after termination, whether or not the time or
other condition for any portion of such payment has been satisfied. In addition, the following
provisions shall survive any expiration or termination of this Agreement for any reason:
Definitions section; section 1.7; sections 2.5 2.11 (with respect to any payments accrued
prior to or upon termination); section 3.4; article IV (for the period specified in section 4.5);
article V; this section 6.2; article VII; and sections 8.2, 8.3, 8.5- 8.11.
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Article VII: Insurance and Indemnification
7.1
Insurance
. Each Party hereby represents and warrants that it now maintains, and will
continue to maintain, primary commercial general liability insurance, including products liability
coverage, in a minimum amount of [$
*
] per occurrence and [$
*
] in the
aggregate. At a minimum, each Party shall maintain the policy(ies) required hereunder for the
entire term of this Agreement and, if any such policy(ies) shall provide coverage on a claims made
basis, the Party holding such policy will be required to maintain a claims made policy(ies)
providing such coverage for an additional period of not less than [
*
] following the
end of the term of this Agreement.
7.2
Indemnification by Athersys
. Athersys shall indemnify, defend, and hold RTI and, as
applicable, its Affiliates, and its and their respective employees, officers and directors (
RTI
Indemnitees
) harmless from and against any and all claims, suits, and demands of Third Parties and
any and all associated losses, damages or costs (including attorneys fees) arising out of or
incurred in connection with (i) Athersys Indemnitees gross negligence or willful misconduct in the
performance of Athersys obligations under the Agreement, (ii) a breach by any Athersys Indemnitee
of the covenants, warranties and/or representations made by Athersys in this Agreement or an act or
failure to act by a sublicensee of Athersys that if done or not done by Athersys would constitute a
breach of any of the covenants, warranties and/or representations made by Athersys in this
Agreement, or (iii) the use of Athersys Technology, RTI Technology, Collaboration Technology by any
of the Athersys Indemnitees;
provided, however
, all of the foregoing is only to the extent that
such claims, suits, or demands (a) do not result from a breach of any of the provisions of the
Agreement by any of the RTI Indemnitees, or (b) do not result from the gross negligence or willful
misconduct of any of the RTI Indemnitees.
7.3
Indemnification by RTI
. RTI shall indemnify, defend, and hold Athersys and, as
applicable, its Affiliates, and its and their respective employees, officers and directors
(
Athersys Indemnitees
) harmless from and against any and all claims, suits, and demands of Third
Parties and any and all associated losses, damages or costs (including attorneys fees) arising out
of or incurred in connection with (i) RTI Indemnitees gross negligence or willful misconduct in
the performance of RTIs obligations under the Agreement, (ii) a breach by any RTI Indemnitee of
the covenants, warranties and/or representations made by RTI in this Agreement or an act or failure
to act by a sublicensee of RTI that if done or not done by RTI would constitute a breach of any of
the covenants, warranties and/or representations made by RTI in this Agreement, or (iii) the use of
Athersys Technology, RTI Technology, or
Collaboration Technology by any of the RTI Indemnitees and/or the development, manufacture, use,
storage, handling, distribution or sale of a MAPC Technology Product on, by or on behalf of any RTI
Indemnitee or sublicensee;
provided, however
, all of the foregoing is only to the extent that such
claims, suits, or demands (a) do not result from a breach of any of the provisions of the
Agreement by any of the Athersys Indemnitees, (b) do not result from the gross negligence or
willful misconduct of any of the Athersys Indemnitees, or (c) [
*
].
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redacted portions of this exhibit, and such confidential portions have been
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7.4
Notice and Cooperation
. To receive the benefit of the foregoing indemnities, the Party
seeking indemnification must promptly notify the other Party in writing of a claim, suit or demand,
and provide reasonable cooperation (at the indemnifying Partys expense) and full authority to
defend or settle that portion of a claim, demand or suit indemnified by the indemnifying Party;
provided, however, the indemnifying Party shall not be entitled to defend or settle any claim,
demand or suit on behalf of the indemnified Party in any manner that admits liability, requires any
action, or involves and restriction from action of the indemnified Party, without first obtaining
written permission from the indemnified Party. Failure of the Party seeking indemnification to
provide prompt notice shall not relieve the indemnifying Party of any of its obligations under this
Article VII, except to the extent the indemnifying Party is prejudiced by such failure. The
indemnifying Party shall have no obligation to indemnify the indemnified Party with respect to any
settlement made without the indemnifying Partys written consent, or with respect to any portion of
a claim, demand or suit that is not covered by the indemnification provision of Section 7.2 or 7.3,
whichever is applicable. In the event a claim, demand or suit contains both indemnified and
non-indemnified elements, each Party shall be responsible for its own costs and expenses related to
the portion of the claim, demand or suit for which it is responsible. Costs and expenses that are
attributable to both indemnified and non-indemnified elements of a claim (i.e. the costs and
expenses cannot reasonably be disaggregated and assigned to distinct elements), demand or suit
shall be borne equally by the Parties.
Article VIII: Miscellaneous Provisions
8.1
Representations, Covenants and Warranties
. In addition to any other covenant,
representation and/or warranty provided for elsewhere in this Agreement, the Parties represent,
covenant and warrant as follows.
8.1.1 Athersys represents, covenants and warrants that: (i) Athersys has the right (both in
law and equity) to grant the licenses, covenants and warranties set forth in this Agreement; (ii)
neither Athersys nor its Affiliates have any outstanding encumbrances or agreements, including any
agreements with any Third Parties, which would be inconsistent with the licenses, covenants and
warranties set forth in this Agreement; (iii) as of the Effective Date, neither Athersys nor its
Affiliates are aware of any pending or threatened claims of infringement related to the
Athersys Technology; (iv) as of the Effective Date, to Athersys knowledge, no issued or granted
patent rights licensed to RTI pursuant to this Agreement are presently invalid or unenforceable;
(v) Athersys and its Affiliates have
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taken,
and will continue to take, commercially reasonable measures that Athersys deems appropriate under the circumstances to attempt to maintain the
confidentiality and trade secret status of all trade secrets within the Athersys Technology
material to the success of the MAPC Technology Products; (vi) as of the Effective Date, to
Athersys knowledge, the research, development, manufacture, use, sale, or distribution of a MAPC
Technology Product as contemplated hereby will not infringe any United States patents owned by a
Third Party and issued or granted as of the Effective Date and, to Athersys knowledge, there are
no material facts that are in the possession of Athersys as of the Effective Date, that Athersys
has not disclosed to RTI, and that would lead a reasonable person to conclude that the research,
development, manufacture, use, sale, or distribution of a MAPC Technology Product as contemplated
hereby will infringe any United States patents owned by a Third Party and issued or granted as of
the Effective Date; (vi) no employee or agent of Athersys or any of its Affiliates will make an
untrue statement of a material fact to any governmental authority with respect to the MAPC
Technology Products, Athersys Technology, or RTI Technology; and (vii) Athersys and its Affiliates
will comply materially with all applicable laws, rules, regulations, permits, governmental
licenses, registrations, approvals, concessions, franchises, authorizations, orders, injunctions
and decrees, including the Federal Food, Drug and Cosmetic Act, in the research, development,
manufacture, and use of the MAPC Technology Products, and will promptly inform RTI in writing if
either Athersys or any of its Affiliates receive any written notice from any regulatory authority
claiming that any such activities as conducted by them are not in such compliance.
8.1.2 RTI represents, covenants and warrants that: (i) RTI has the right (both in law and
equity) to grant the licenses, covenants and warranties set forth in this Agreement and to use the
RTI Technology to develop and commercialize any MAPC Technology Product contemplated by this
Agreement; (ii) neither RTI nor its Affiliates have any outstanding encumbrances or agreements,
including any agreements with any Third Parties, which would be inconsistent with the licenses,
representations, covenants and warrants set forth in this Agreement; (iii) as of the Effective
Date, neither RTI nor its Affiliates are aware of any pending or anticipated claims of infringement
related to the RTI Technology or its anticipated use in the development and commercialization of a
MAPC Technology Product; (iv) RTI and its Affiliates have taken, and will continue to take,
commercially reasonable measures that RTI deems appropriate under the circumstances to attempt to
maintain the confidentiality and trade secret status of all trade secrets within the RTI Technology
material to the commercial success of the MAPC Technology Products; (v) as of the Effective Date,
to RTIs knowledge, the research, development, manufacture, use, sale, or distribution of a MAPC
Technology Product as contemplated by this Agreement will not infringe any United States patents
owned by a Third Party and issued or
granted as of the Effective Date; (vi) no employee or agent of RTI or any of its Affiliates
will make an untrue statement of a material fact to any governmental authority with respect to the
MAPC Technology Products, Athersys Technology, or RTI Technology; and (vii) RTI and its Affiliates
will comply materially with all applicable laws, rules, regulations, permits, governmental
licenses, registrations, approvals, concessions, franchises, authorizations, orders, injunctions
and decrees, including the Federal Food, Drug and Cosmetic Act, in the research, development,
manufacture, use, offer for sale or transfer, sale or transfer, distribution, marketing and other
activities in connection with the MAPC Technology Products and Athersys Technology, and will
promptly inform Athersys in writing if either RTI or any of its Affiliates receive any written
notice from any regulatory authority claiming that any such activities as conducted by them are not
in such compliance.
EXECUTION COPY
8.2
Remedies Cumulative
. Except as specifically provided herein, no remedy made available
to either Party hereunder is intended to be exclusive of any other remedy, and each and every
remedy shall be cumulative and shall be in addition to every other remedy provided hereunder or
available at law or in equity.
8.3
Notices
. Any notice, report, or consent required or permitted by this Agreement to be
given or delivered, shall be in writing and shall be deemed given or delivered if delivered in
person, sent by courier, expedited delivery service, registered or certified mail(postage prepaid,
return receipt requested), or by telecopy (if confirmed), as follows:
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RTI:
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ATHERSYS:
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Robert P. Jordheim
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William Lehmann
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Executive VP and CFO
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President and COO
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RTI Biologics, Inc.
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ABT Holding, Inc.
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11621 Research Circle
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3201 Carnegie Avenue
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Alachua, Florida 32615
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Cleveland, OH 44115-2634
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Fax: (386) 462-3821
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Fax: (216) 361-9495
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With a copy to:
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With a copy to:
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Legal Department
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Thomas A. Briggs
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RTI Biologics, Inc.
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Jones Day
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11621 Research Circle
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12265 El Camino Real, Ste 200
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Alachua, Florida 32615
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San Diego, CA 92130
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Fax: (386) 462-3821
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Fax: (858) 314-1150
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8.4
Counterparts
. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the same
agreement.
EXECUTION COPY
8.5
Waivers
. Performance of any obligations required of a Party hereunder may be waived
only by a written waiver signed by the other Party, which waiver shall be effective only with
respect to the specific obligations described therein. Anything contained herein to the contrary
notwithstanding, the Parties shall be excused from performing their obligations under this
Agreement if performance is delayed or prevented by any event beyond such Partys reasonable
control and without the fault or negligence of the Party seeking to excuse performance, including,
but not limited to, acts of God, fire, terrorism, explosion, weather, plague, war, insurrection,
civil strife or riots, provided, however, such performance shall be excused only to the extent of
and during such disability and such Party makes commercially reasonable efforts to remove the
disability. Any Party seeking to excuse or delay performance under this section shall provide
detailed written notice to the other Party of the nature and anticipated duration of the delay.
8.6
Assignment
. Neither Party may assign this Agreement or any of its rights or
obligations hereunder (including, without limitation, its rights and duties of performance) to any
Third Party without the prior written consent of the other Party hereto. Notwithstanding the
foregoing, this Agreement and the rights, interests and obligations hereunder may be assigned by
RTI or Athersys to (i) any entity that is an Affiliate as of the Effective Date of this Agreement
and remains an Affiliate as of the proposed date of Assignment, or (ii) any entity that is not a
competitor of the non-assigning Party (or its Affiliates) and that either becomes an Affiliate or
successor in interest after the Effective Date by operation of a merger, acquisition,
change-in-control, or reorganization or that purchases all or substantially all of the assets of
the assigning Party to which this Agreement relates. Assignees to whom this Agreement is assigned
pursuant to the foregoing Sections 8.6(i) and (ii) shall receive all of the Assignors rights,
benefits, interest, and obligations provided for in this Agreement. In the event of assignment,
the assigning Party shall remain bound to all provisions of this Agreement under Article IV.
8.7
Entire Agreement; Amendments
. This Agreement constitutes the entire agreement between
the Parties with respect to the subject matter hereof, and supersedes and cancels all prior
agreements, communications and understandings, whether written or oral. This Agreement may not be
modified or amended except by an instrument in writing signed by both of the Parties hereto.
8.8
Severability
. Should any part or provision of this Agreement be found invalid or held
unenforceable, the remainder shall remain valid and in full force. The Parties agree to negotiate
in good faith an amendment of such part or provision in a manner consistent with the intention of
the Parties as expressed in this Agreement.
EXECUTION COPY
8.9
Independent Contractors
. Nothing contained in this Agreement shall be construed as
creating a joint venture, partnership or employment relationship between the Parties hereto. Except
as specified herein, neither Party shall have the right, power or implied authority to create any
obligation or duty, express or implied, on behalf of the other Party hereto.
8.10
Governing Law
. This Agreement shall be construed and enforced in accordance with the
laws of the State of New York, without application of its conflicts of laws principles.
8.11
Drafting and Interpretation of Agreement
. This Agreement shall be treated as having
been drafted through the equal participation of both Parties, and no provision shall be interpreted
against any Party on the basis that the Party is deemed to be the sole or primary drafter of the
provision. The following rules of interpretation apply to this Agreement: (i) include, includes
and including are not limiting and mean include, includes and including, without limitation; (ii)
definitions contained in this Agreement are applicable to the singular as well as the plural forms
of such terms; (iii) references to an agreement, statute or instrument mean such agreement, statute
or instrument as from time to time amended, modified or supplemented; (iv) references to a person
or entity are also to its permitted successors and assigns; (v) references to an Article,
Section, Exhibit or Schedule refer to an Article or Section of, or any Exhibit or Schedule
to, this Agreement unless otherwise indicated; (vi) the word will shall be construed to have the
same meaning and effect as the word shall; and (vii) the word any shall mean any and all
unless otherwise indicated by context. All money in this Agreement is stated in and shall be
reported and paid in United States Dollars.
<signatures follow on next page>
EXECUTION COPY
IN WITNESS WHEREOF, this Agreement has been executed by the Parties hereto as of the last date
written below.
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RTI Biologics, Inc.
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ABT Holding, Inc.
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By:
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/s/ Robert P. Jordheim
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By:
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/s/ William Lehmann
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Robert P. Jordheim
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William Lehmann
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Executive VP and CFO.
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President and COO.
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Date: September 10, 2010
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Date: September 10, 2010
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EXHIBIT A
[
*
]
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EXHIBIT B
[
*
]
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redacted portions of this exhibit, and such confidential portions have been
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EXHIBIT C
Affiliates
RTI Affiliates:
Tutogen Medical, Inc.
Tutogen Medical (US), Inc.
Tutogen Medical, GmbH
Tutogen Medical, SARL
RTI Donor Services, Inc.
RTI Services, Inc.
Athersys Affiliates:
Athersys, Inc.
ABT Holding Company
ReGenesys BVBA
Advanced Biotherapeutics, Inc.
Athersys Limited
ReGenesys LLC
EXECUTION COPY
EXHIBIT D
Initial Press Release
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FOR RELEASE AT 7:00 AM ET
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For more information, contact:
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SEPT. 13, 2010
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RTI BIOLOGICS:
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Robert Jordheim
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Chief Financial Officer
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rjordheim@rtix.com
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Wendy Crites Wacker, APR
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Corporate Communications
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wwacker@rtix.com
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Phone (386) 418-8888
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ATHERSYS:
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William (B.J.) Lehmann, J.D.
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President and Chief Operating Officer
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bjlehmann@athersys.com
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(216) 431-9900
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Investor Relations:
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Lisa M. Wilson
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In-Site Communications
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lwilson@insitecony.com
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(917) 543-9932
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Media Relations:
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Dan Budwick
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Pure Communications, Inc.
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EXECUTION COPY
RTI BIOLOGICS AND ATHERSYS ANNOUNCE COLLABORATION IN THE ORTHOPEDIC MARKET
Applying Complementary Stem Cell and Regenerative Medicine Technologies
ALACHUA
,
Fla. and CLEVELAND (Sept. 13, 2010)
RTI Biologics Inc. (RTI)
(Nasdaq: RTIX), a
leading provider of orthopedic and other biologic implants, and Athersys Inc. (Athersys) (Nasdaq:
ATHX), a leader in regenerative medicine and cell therapy research and development, announced today
an agreement under which Athersys will provide RTI access to its Multipotent Adult Progenitor Cell
(MAPC) technologies.
Under the agreement, RTI has licensed Athersys technology to isolate and preserve cells from organ
and tissue donors. This will enable RTI to develop and commercialize MAPC technology-based biologic
implants exclusively for certain orthopedic applications. With this license, RTI expands its
capabilities for accessing the fastest growing segment of the bone graft substitutes market, while
Athersys extends the application of its robust stem cell technology platform to an important
segment of the orthopedic market.
We are very excited about our collaboration with Athersys and the potential to apply its MAPC and
related technologies in the orthobiologics market, said Brian K. Hutchison, RTIs chairman and
CEO. After significant research into stem cells and the evaluation of multiple technologies, we
have determined that the MAPC technology offers the greatest potential to create high quality,
innovative implants for our surgeons and their patients. Licensing this technology is an important
step in enhancing and further differentiating RTIs orthobiologics offering, an area of strategic
focus for the company.
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We are enthusiastic about our relationship with RTI and this application of our proprietary stem
cell technologies to the orthopedic market, said William Lehmann, Jr., president and COO of
Athersys. Our primary focus is the development and commercialization of expanded, off-the-shelf
cell products, such as MultiStem
®
, for the treatment of certain cardiovascular, central
nervous system-related, inflammatory and immune system disorders, diseases and conditions. This
collaboration allows for the utilization of our already developed stem cell technologies in an
additional area. Further, it provides potential near term revenues from the orthopedic market.
Under the agreement, Athersys will receive a $3 million license fee and is also eligible to receive
payments up to a cumulative total of $37.5M as follows: $2 million contingent upon successful
achievement of certain development and commercialization milestones, and an additional maximum
total of $35.5 million contingent upon achievement of certain cumulative revenue milestones, which
will reflect the ultimate commercial success of the product in this fast growing market. In
addition, Athersys will receive tiered royalties from the distribution of implants using Athersys
technologies.
RTI plans to make MAPC technology-based biologic implants available to its customers for use in
orthopedic surgeries in the first half of 2012.
About RTI Biologics Inc.
RTI Biologics Inc
. is a leading provider of sterile
biological implants
for surgeries
around the world with a commitment to advancing science, safety and innovation. RTI prepares human
donated tissue and bovine tissue for transplantation through extensive
testing and
screening
, precision shaping and using proprietary, validated processes. These allograft and
xenograft implants are used in orthopedic, dental, hernia and other specialty surgeries.
RTIs innovations continuously raise the bar of science and safety for biologics from being the
first company to offer precision-tooled bone implants and assembled technology to maximize each
gift of donation, to inventing validated sterilization processes that include viral inactivation
steps. Two such processes the
BioCleanse
®
Tissue Sterilization Process
and the
Tutoplast
®
Tissue Sterilization Process
have a combined record of more than two million
implants distributed with zero incidence of allograft-associated infection. These processes have
been
validated by tissue type to inactivate or remove viruses, bacteria, fungi and spores from the
tissue while maintaining biocompatibility and functionality.
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RTIs worldwide corporate headquarters are located in Alachua, Fla., with international locations
in Germany and France. The company is accredited by the American Association of Tissue Banks in the
United States.
RTI Forward Looking Statement
This communication contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are based on managements current
expectations, estimates and projections about our industry, our managements beliefs and certain
assumptions made by our management. Words such as anticipates, expects, intends, plans,
believes, seeks, estimates, variations of such words and similar expressions are intended to
identify such forward-looking statements. In addition, except for historical information, any
statements made in this communication about anticipated financial results, growth rates, new
product introductions, future operational improvements and results or regulatory approvals or
changes to agreements with distributors also are forward-looking statements. These statements are
not guarantees of future performance and are subject to risks and uncertainties, including the
risks described in public filings with the U.S. Securities and Exchange Commission (SEC). Our
actual results may differ materially from the anticipated results reflected in these
forward-looking statements. Copies of the companys SEC filings may be obtained by contacting the
company or the SEC or by visiting RTIs website at
www.rtix.com
or the SECs website at
www.sec.gov
.
EXECUTION COPY
About Athersys Inc.
Athersys is a clinical stage biopharmaceutical company engaged in the discovery and development of
therapeutic product candidates designed to extend and enhance the quality of human life. The
company is developing MultiStem
®
, a patented, adult-derived off-the-shelf stem cell
product platform for multiple disease indications, including damage caused by myocardial
infarction, bone marrow transplantation and oncology treatment support, ischemic stroke, and
inflammatory bowel disease. The company is also developing a portfolio of other
therapeutic programs, including orally active pharmaceutical product candidates for the treatment
of metabolic and central nervous system disorders, utilizing proprietary technologies, including
Radom Activation of Gene Expression (RAGE
®
). Athersys has forged strategic alliances and
collaborations with leading pharmaceutical and biotechnology companies, as well as world-renowned
research institutions in the United States and Europe to further develop its platform and products.
More information is available at
www.athersys.com
.
Athersys Forward Looking Statement
This press release contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. We have attempted to identify
forward-looking statements by using such words as anticipates, believes, can, continue,
could, estimates, expects, intends, may, plans, potential, should, will, or other
similar expressions. These forward-looking statements are only predictions and are largely based on
our current expectations. A number of known and unknown risks, uncertainties, and other factors
could affect the accuracy of these statements. Some of the more significant known risks that we
face are the risks and uncertainties inherent in the process of discovering, developing, and
commercializing products that are safe and effective for use as human therapeutics, the uncertainty
regarding market acceptance of any MAPC technology-based biologic implants in orthopedic
applications under the agreement with RTI and our ability to reach milestones and realize any
additional payments under such agreement. These risks may cause our actual results, levels of
activity, performance, or achievements to differ materially from any future results, levels of
activity, performance, or achievements expressed or implied by these forward-looking statements.
You should not place undue reliance on forward-looking statements contained in this press release,
and we undertake no obligation to publicly update forward-looking statements, whether as a result
of new information, future events or otherwise.
###