ATHERSYS, INC / NEW (Form: 10-Q, Received: 08/09/2018 15:57:32)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 001-33876

Athersys, Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-4864095

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


3201 Carnegie Avenue, Cleveland, Ohio		44115-2634
(Address of principal executive offices)		(Zip Code)

Registrant’s 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 ☒ No ☐

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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of outstanding shares of the registrant’s common stock, $0.001 par value, as of August 1, 2018 was 138,583,673.

ATHERSYS, INC.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements	3

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	28

ITEM 4.	Controls and Procedures	28

PART II. OTHER INFORMATION

ITEM 6.	Exhibits	29

SIGNATURES		30

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

Athersys, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)


	June 30, 2018			December 31, 2017
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	53,353		$	29,316
Accounts receivable		545			586
Accounts receivable from Healios		552			153
Unbilled accounts receivable from Healios		8,280
Prepaid expenses and other		2,480			1,135
Contractual right to consideration from Healios		34			—
Other asset related to Healios		4,220

Total current assets		69,464			31,190
Equipment, net		2,578			2,206
Deposits and other		866			197

Total assets	$	72,908		$	33,593

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	10,918		$	4,469
Accrued compensation and related benefits		946			1,065
Accrued clinical trial costs		1,674			1,453
Accrued expenses		640			425
Accrued license fee expense		500			1,900
Deferred revenue		—			771

Total current liabilities		14,678			10,083
Advances from Healios		1,981			134
Stockholders’ equity:
Preferred stock, at stated value; 10,000,000 shares authorized, and no shares issued and outstanding at June 30, 2018 and December 31, 2017		—			—
Common stock, $0.001 par value; 300,000,000 shares authorized, and 138,583,673 and 122,077,453 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively		139			122
Additional paid-in capital		408,091			373,884
Accumulated deficit		(351,981	)		(350,630	)

Total stockholders’ equity		56,249			23,376

Total liabilities and stockholders’ equity	$	72,908		$	33,593

See accompanying notes to unaudited condensed consolidated financial statements.

Athersys, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except per share data)

(Unaudited)


	Three months ended June 30,					Six months ended June 30,
	2018		2017			2018			2017
Revenues
Contract revenue from Healios	$	18,755	$	239		$	19,103		$	267
Royalty and other contract revenue		591		210			992			1,442
Grant revenue		45		220			362			430

Total revenues		19,391		669			20,457			2,139
Costs and expenses
Research and development		10,093		4,633			18,943			10,266
General and administrative		2,382		2,207			5,038			4,278
Depreciation		191		167			376			331

Total costs and expenses		12,666		7,007			24,357			14,875
Gain from insurance proceeds		20		—			383			—

Income (loss) from operations		6,745		(6,338	)		(3,517	)		(12,736	)
Income from change in fair value of warrants		—		—			—			728
Other income, net		188		71			295			110

Net income (loss) and comprehensive income (loss)	$	6,933	$	(6,267	)	$	(3,222	)	$	(11,898	)

Net income (loss) per share, basic	$	0.05	$	(0.06	)	$	(0.02	)	$	(0.11	)
Weighted average shares outstanding, basic		138,225		111,820			132,592			106,960
Net income (loss) per share, diluted	$	0.05	$	(0.06	)	$	(0.02	)	$	(0.11	)
Weighted average shares outstanding, diluted		139,375		111,820			132,592			106,960

See accompanying notes to unaudited condensed consolidated financial statements.

Athersys, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six months ended June 30,
	2018			2017
Operating activities
Net loss	$	(3,222	)	$	(11,898	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		376			331
Stock-based patent license and settlement expense		315			—
Stock-based compensation		1,637			1,418
Discount on revenue from issuance of warrant		1,080
Deferred revenue from prior period		(250	)
Change in fair value of warrant liabilities		—			(728	)
Changes in operating assets and liabilities:
Accounts receivable		41			68
Accounts receivable from Healios - billed and unbilled		(8,649	)		(78	)
Prepaid expenses, deposits and other		(2,014	)		(7	)
Contractual right to consideration from Healios		1,402			—
Accounts payable and accrued expenses		6,267			(670	)
Deferred revenue		—			503
Advances from Healios		1,731			—

Net cash used in operating activities		(1,286	)		(11,061	)
Investing activities
Purchases of equipment		(749	)		(136	)

Net cash used in investing activities		(749	)		(136	)
Financing activities
Proceeds from issuance of common stock, net		26,263			23,270
Shares retained for withholding tax payments on stock-based awards		(191	)		(93	)
Proceeds from exercise of warrants		—			1,861

Net cash provided by financing activities		26,072			25,038

Increase in cash and cash equivalents		24,037			13,841
Cash and cash equivalents at beginning of the period		29,316			14,753

Cash and cash equivalents at end of the period	$	53,353		$	28,594

See accompanying notes to unaudited condensed consolidated financial statements.

Athersys, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Three- and Six-Month Periods Ended June 30, 2018 and 2017

1. Background and Basis of Presentation

Background: We are an international biotechnology company that is focused primarily in the field of regenerative medicine and operate in one business segment. Our operations consist of research and clinical-stage product development activities.

We have incurred losses since our inception in 1995 and had an accumulated deficit of $352 million at June 30, 2018. We will require additional capital to continue our research and development programs, including progressing our clinical product candidates to commercialization and preparing for commercial-scale manufacturing. At June 30, 2018, we had available cash and cash equivalents of $53.4 million. We believe that these funds, used to execute our existing operating plans, are sufficient to meet our obligations as they come due at least for a period of twelve months from the date of the issuance of these unaudited condensed consolidated financial statements. In the longer term, we will make use of available cash, but will have to continue to generate additional capital to meet our needs through new and existing collaborations and related license fees and milestones, the sale of equity securities from time to time, including through our equity purchase agreement, grant-funding opportunities, deferring certain discretionary costs and staging certain development costs, as needed.

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, 2017. 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.

Use of Estimates: 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included below in this Quarterly Report on Form 10-Q.

Reclassifications: Certain reclassifications have been made to the 2017 condensed consolidated financial statements to separately disclose revenue and certain balance sheet accounts related to HEALIOS K.K., (“Healios”), to conform to the presentation in the current year.

2. Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting practice. Under the guidance, lessees initially recognize a lease liability for the obligation to make lease

payments and a right-of-use (“ROU”) asset for the right to use the underlying asset for the lease term. The lease liability is measured at the present value of the lease payments over the lease term. The ROU asset is measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs. The guidance is effective for the annual and interim periods beginning after December 15, 2018, with early adoption permitted. We plan to adopt Topic 842 effective January 1, 2019 and are in the process of evaluating the impact the new guidance will have on our consolidated financial statements upon adoption. We currently have operating leases for two facilities that are being evaluated under this new guidance.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The ASU is effective for the annual periods beginning after December 15, 2017 and interim periods within those annual periods. Effective January 1, 2018, we adopted this standard, and its adoption did not have a material impact on our consolidated financial statements.

3. Revenue Recognition and Adoption of New Accounting Pronouncement

Our license and collaboration agreements may contain multiple elements, including license and technology access fees, research and development funding, product supply revenue, cost-sharing, milestones and royalties. The deliverables under such an arrangement are evaluated under ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Topic 606 requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

We adopted this guidance as of January 1, 2018, utilizing the modified retrospective transition method applied to contracts that were not complete as of January 1, 2018. We evaluated all of our arrangements on a contract-by-contract basis, identifying all of the performance obligations, including those that are contingent. For our contracts with customers that contain multiple performance obligations, we account for the individual performance obligations separately when they are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. Under the new standard, we assessed whether licenses granted under our collaboration and license agreements were distinct in the context of the agreement from other performance obligations and functional when granted. After considering the relative selling prices of the contract elements and the allocation of revenue thereto, we recognized a cumulative effect adjustment of $1.9 million as an adjustment to the opening balance of our accumulated deficit primarily related to a contract asset since the revenue permitted to be recognized at inception was not limited to the cash proceeds received as of that time, which was a requirement of the previous guidance. We concluded that the new guidance resulted in revisions to accounting for our arrangement with Healios, only, since our other collaborations had no remaining performance obligations and potential contingent receipts would be constrained.

Our performance obligations and methods used for determining the relative selling prices and transaction prices of the Healios contract elements is further discussed in Note 6.

Milestone Payments

Topic 606 does not contain guidance specific to milestone payments, but rather requires potential milestone payments to be considered in accordance with the overall model of Topic 606. As a result, revenues from contingent milestone payments are recognized based on an assessment of the probability of milestone achievement and the likelihood of a significant reversal of such milestone revenue at each reporting date. This assessment may result in recognizing milestone revenue before the milestone event has been achieved. Since the milestones in the Healios arrangement are generally related to development and commercial milestone achievement by Healios, we have not included any of the Healios milestones in the estimated transaction price of the Healios arrangement, since they would be constrained, as a significant reversal of revenue could result in future periods.

Other than for our collaboration with Healios that has remaining deliverables, as of the date of adoption of Topic 606 on January 1, 2018, we had recognized the full amount of license fees under our collaboration agreements as contract revenue under the prior guidance associated with multiple-element arrangements, since the performance periods for our multiple element arrangements have concluded. The events triggering any future contingent milestone payments from these arrangements were determined to be non-substantive and revenue is recognized in the period that the triggering event occurs, and the remaining potential commercial milestones will be recognized when earned.

Grant Revenue

Grant revenue, which is not within the scope of Topic 606, consists of funding under cost reimbursement programs primarily from federal and non-profit foundation 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 and recorded as revenue as grant-funded activities are performed.

Royalty Revenue

We recognize royalty revenue relating to the sale by a licensee of our licensed products. Royalty revenue is recognized upon the later to occur of (i) achievement of the collaborator’s underlying sales and (ii) satisfaction of any performance obligation(s) related to these sales, in each case assuming the license to our intellectual property is deemed to be the predominant item to which the sales-based royalties relate.

Unbilled Accounts Receivable

We record amounts that are due to us under contractual arrangements for which invoicing has not yet occurred if our performance has concluded for the billable activity, and we have the unconditional right to the consideration, but such amounts are not yet billable. At June 30, 2018, the unbilled accounts receivable from Healios was $8.3 million, which includes $7.5 million of license fees that are being paid to us by Healios in $2.5 million installments over the next several quarters related to the expansion described in Note 6.

Contractual Right to Consideration and Deferred Revenue

Amounts included in deferred revenue or contract assets are determined at the contract level, and for our Healios arrangement, such amounts are included in a contract asset. Amounts received from customers or collaborators in advance of our performance of services or other deliverables are included in deferred revenue, while amounts for performance of services or other deliverables before customer payment is received or due are included in contract assets, with those amounts that are unconditional being included in either accounts receivable or unbilled accounts receivable. Grant proceeds received in advance of our performance under the grant is included in deferred revenue. Generally, deferred revenue is classified as a current obligation, as opposed to non-current. During the three- and six-month periods ended June 30, 2018, we recognized $250,000 of revenue that was deferred as of January 1, 2018 since the associated agreement concluded in the second quarter of 2018.

Advances from Healios

The clinical trial supply agreement with Healios was amended in July 2017 to clarify a cost-sharing arrangement associated with our supply of clinical product for their ischemic stroke trial. The proceeds from Healios that relate specifically to the cost-sharing arrangement may result in a decrease in the amount of proceeds we receive from Healios upon the achievement of two future milestones, and an increase to a late-stage commercial milestone, if the cost-share amounts are not repaid at our election. While the amendment to the supply agreement resulted in a revision to the terms associated with the product supply, namely the cost of product supply, the revision did not affect any of the performance obligations under the overall arrangement. The proceeds from Healios that relate specifically to the cost-sharing arrangement for Healios’ stroke study in Japan are recognized as non-current advances from Healios until the related milestones are achieved or such amounts are repaid to Healios at our election. During the three- and six-month periods ended June 30, 2018, no revenue was recognized related to these advances.

Effect of Adoption of Topic 606

Our arrangement with Healios was the only collaboration that was impacted by the adoption of Topic 606. Notes 6 and 8 further describe our arrangement with Healios, including subsequent modifications to the collaboration. For contracts that were modified prior to January 1, 2018, we aggregated the effect of those modifications when identifying the satisfied and unsatisfied performance obligations and determining the transaction price to be allocated. We have applied the practical expedient under Topic 606 and have reflected the aggregate effect of all modifications at January 1, 2018. The components of the cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of Topic 606 were as follows (in thousands):


	Balance at December 31, 2017			Adjustments Due to Topic 606			Balance at January 1, 2018
Assets
Accounts receivable—Healios	$	153		$	30		$	183
Contractual right to consideration from Healios	$	—		$	1,436		$	1,436
Liabilities
Deferred revenue—Healios	$	(521	)	$	521		$	—
Advance from Healios	$	(134	)	$	(116	)	$	(250	)
Equity
Accumulated deficit	$	350,630		$	(1,871	)	$	348,759

In accordance with the new revenue recognition requirements, the disclosure of the impact of adoption on our condensed consolidated balance sheet as of June 30, 2018 and statement of operations for the three- and six-month periods ended June 30, 2018 was as follows (in thousands, except per share data):


	As of June 30, 2018
	As Reported		Balances without Adoption of Topic 606			Effect of Change
Assets
Unbilled accounts receivable from Healios	$	8,280	$	780		$	7,500
Contractual right to consideration from Healios	$	34	$	—		$	34
Liabilities
Deferred revenue	$	—	$	(2,308	)	$	2,308
Equity
Accumulated deficit	$	351,981	$	361,823		$	(9,842	)


	Three Months ended June 30, 2018								Six months ended June 30, 2018
	As Reported		Balances without Adoption of Topic 606			Effect of Change			As Reported			Balances without Adoption of Topic 606			Effect of Change
Revenues
Contract revenues from Healios	$	18,755	$	10,710		$	8,045		$	19,103		$	11,132		$	7,971
Net income (loss)	$	6,933	$	(1,112	)	$	(8,045	)	$	(3,222	)	$	(11,193	)	$	(7,971	)
Net income (loss) per common share
Basic	$	0.05	$	(0.01	)	$	(0.06	)	$	(0.02	)	$	(0.08	)	$	(0.06	)
Diluted	$	0.05	$	(0.01	)	$	(0.06	)	$	(0.02	)	$	(0.08	)	$	(0.06	)

The adoption of Topic 606 had no impact on our total cash flows from operations.

Disaggregation of Revenues

We recognize license-related amounts, including upfront payments, exclusivity fees, additional disease indication fees, and development, regulatory and sales-based milestones, at a point in time when earned. Similarly, product supply revenue is recognized at a point in time, while service revenue is recognized when earned over time. See Note 6 for the discussion of the elements to Healios revenue and the accounting treatment of a related warrant. The following table presents our contract revenues disaggregated by timing of revenue recognition and excludes royalty revenue (in thousands):


	Three months ended June 30, 2018				Six months ended June 30, 2018
	Point in Time		Over Time		Point in Time		Over Time
Contract revenue from Healios
License fee revenue	$	17,530			$	17,530
Product supply revenue		223				450
Service revenue			$	1,002			$	1,123
Other contract revenue		250				250

Total disaggregated revenues	$	18,003	$	1,002	$	18,230	$	1,123

4. Net Income (Loss) per Share

Basic and diluted net income (loss) per share have been computed using the weighted-average number of shares of common stock outstanding during the period.

The table below reconciles the net income (loss) and the number of shares used to calculate basic and diluted net income (loss) per share for the three-month and six-month periods ended June 30, 2018 and 2017, in thousands, except per share data.


	Three months ended June 30,					Six months ended June 30,
	2018		2017			2018			2017
Numerator:
Net income (loss) attributable to common stockholders – Basic and Diluted	$	6,933	$	(6,267	)	$	(3,222	)	$	(11,898	)

Denominator:
Weighted-average shares outstanding—Basic		138,225		111,820			132,592			106,960
Potentially dilutive common shares outstanding:
Stock-based awards		1,150		—			—			—

Weighted-average shares used to calculate diluted net income (loss) per share		139,375		111,820			132,592			106,960

Basic and Diluted earnings (loss) per share	$	0.05	$	(0.06	)	$	(0.02	)	$	(0.11	)

We have outstanding stock-based awards that are not used in the calculation of diluted net income (loss) per share because to do so would be antidilutive. In connection with purchase of shares of our common stock by Healios in March 2018, a warrant was issued to Healios (the “Healios Warrant”) to purchase up to an additional 20,000,000 shares of common stock (the “Warrant Shares”). Refer to Note 8 for additional details. Since Healios is currently permitted to exercise only a portion of the Warrant Shares and the exercise price for the portion of the Warrant Shares that is currently exercisable is contractually above market price, the entire Healios Warrant is anti-dilutive as of June 30, 2018. The following instruments (in thousands) were excluded from the calculation of diluted net loss per share because their effects would be antidilutive:

Three months ended
June 30,

Six months ended
June 30,

2018

2017

2018

2017

Stock-based awards

5,939

11,031

12,847

11,031

Healios Warrant – see Note 8

20,000

—

20,000

—

Total

25,939

11,031

32,847

11,031

5. Proceeds from Insurance

In 2016, our facility sustained flood damage representing both an unusual and infrequent event. Insurance proceeds are recorded to the extent of the losses and then, only if recovery is realized or probable. Any gains in excess of losses are recognized only when the contingencies regarding the recovery are resolved, and the amount is fixed or determinable. We recognized an insurance recovery gain of $0.4 million in the first quarter of 2018 as additional insurance proceeds were received.

6. Collaborative Arrangements and Revenue Recognition

Healios

Collaboration

In 2016, we entered into a license agreement (“First License Agreement”) with Healios to develop and commercialize MultiStem cell therapy for ischemic stroke in Japan and to provide Healios with access to our proprietary MAPC technology for use in its “organ bud” program, initially for transplantation to treat liver disease or dysfunction. Under the terms of the First License Agreement, we received a nonrefundable, up-front cash payment of $15 million in 2016. Under the First License Agreement, Healios obtained a right to expand the scope of the collaboration to include the exclusive rights to develop and commercialize MultiStem for the treatment of certain additional indications in Japan, which include acute respiratory distress syndrome (“ARDS”), for $10 million. For the ischemic stroke indication, we may receive payments for success-based development, regulatory approval and sales milestones, which are non-refundable and non-creditable towards future royalties or any other payment due from Healios.

In June 2018, Healios exercised its option to expand the collaboration to include ARDS and organ bud as contemplated by the First License Agreement and entered into the Collaboration Expansion Agreement (“CEA”) that included new license agreements and rights that broadened the collaboration beyond that contemplated in the First License Agreement. Under the CEA, Healios (i) expanded its license to include ARDS in Japan, expanded the organ bud license to include all transplantation indications, and terminated Healios’ right to include a designated orthopedic indication to the First License Agreement; (ii) obtained a worldwide exclusive license for use of MultiStem product to treat certain ophthalmological indications; (iii) obtained an exclusive license in Japan for use of the MultiStem product to treat diseases of the liver, kidney, pancreas and intestinal tissue through local administration of MultiStem products in combination with iPSC-derived cells; (iv) obtained an exclusive, time-limited right of first negotiation to enter into an option for a license to develop and commercialize MultiStem products for ischemic stroke, ARDS and trauma in China; and (v) received certain

other rights. For all indications, Healios is responsible for the costs of clinical development in its licensed territories. We provide manufacturing services to Healios, currently comprising the supply of product for its clinical trials and preparations for commercial manufacturing, and we receive payments for product supplied to Healios. We also receive financial support from Healios for technology transfer services we provide to a contract manufacturer in Japan to produce product for Healios. The costs of the services are reimbursed by Healios at our cost.

For the rights granted to Healios under the CEA, Healios paid to Athersys a nonrefundable, up-front cash payment of $10 million to exercise its option to license ARDS and expand its license for organ bud, as contemplated by the First License Agreement, and began making installment payments of $2.5 million in connection with its agreement to pay another nonrefundable $10 million in four equal quarterly installments starting in June 2018. Healios may elect to credit up to $10 million against milestone payments that may become due under the First License Agreement, with limitations on amounts that may be credited to earlier milestone payments versus later milestone payments.

Revenue Recognition

At the inception of the Healios arrangement and again each time that the arrangement has been modified, all material performance obligations were identified, which include (i) licenses to our technology, (ii) product supply services, and (iii) services to transfer technology to a contract manufacturer on Healios’ behalf. It was determined that these performance obligations were both capable of being distinct and distinct within the context of the contract. We develop assumptions that require judgment to determine the standalone selling price in order to account for our collaborative agreements, as these assumptions typically include probabilities of obtaining marketing approval for the product candidates, estimated timing of commercialization, estimated future cash flows from potential product sales of our product candidates, estimating the cost and markup of providing product supply and technical services, and appropriate discount rates.

In order to determine the transaction price, in addition to the fixed payments, we estimate the amount of variable consideration utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract, and the estimates for variable consideration are reassessed each reporting period. We constrain, or reduce, the estimates of variable consideration if it is probable that a significant reversal of previously recognized revenue could occur throughout the life of the contract, and both the likelihood and magnitude of a potential reversal of revenue are taken into consideration.

Once the estimated transaction price was established, amounts were allocated to each separate performance obligation on a relative standalone selling price basis. These performance obligations included any remaining, undelivered elements at the time of modifications and any new elements from a modification to the arrangement if the conditions are not met for being treated as a separate agreement. Following the June 2018 modification, the specific performance obligations that have been delivered include the licenses, and the performance obligations that are not yet fully delivered include manufacturing services to Healios, currently comprising the supply of product for its clinical trials and technology transfer services we provide to a contract manufacturer in Japan. The remaining transaction price for the performance obligations that have not been delivered amounted to $3.5 million at June 30, 2018, which is expected to be recognized within one year as the goods and services are delivered.

We included as a reduction of the transaction price of the licenses granted in the June 2018 expansion, the value of a portion of the Healios Warrant that was issued in March 2018 in connection with the then-proposed expansion under a letter of intent. Under the agreements in the June 2018 expansion that included an amendment to the Healios Warrant, a specific portion (4,000,000 Warrant Shares) became exercisable, while the remainder (16,000,000 Warrant Shares) become exercisable upon Healios’ agreement to execute an option for a license for an expansion into China in September 2018 (refer to Note 8). As a result, $1.1 million was recorded in June 2018 as a reduction of license fee revenue.

For performance obligations satisfied over time, we apply an appropriate method of measuring progress each reporting period and, if necessary, adjust the estimates of performance and the related revenue recognition. For our technology transfer services provided for Healios that are satisfied over time, we recognize revenue in proportion to the contractual services provided. At June 30, 2018, the contract asset is properly classified as a current asset since the conditional rights to consideration are expected to be satisfied, in all material respects, within one year.

Also see Note 3 regarding our revenue recognition policies and Note 8 regarding the equity investment made by Healios in the first quarter of 2018 and the issuance of the Healios Warrant in connection with the expansion of the collaboration.

Other

Under our agreement with RTI Surgical, Inc. (“RTI”) to develop and commercialize biologic implants using our technology for certain orthopedic applications in the bone graft substitutes market, we are eligible to receive cash payments upon the successful achievement of certain commercial milestones. No milestone revenues were received in the first half of 2018. In addition, we receive tiered royalties on worldwide commercial sales of implants using our technologies. Any royalties may be subject to a reduction if third-party payments for intellectual property rights are necessary or commercially desirable to permit the manufacture or sale of the product, and to date no such reductions have been incurred.

In January 2017, we received an option fee related to an agreement with a global leader in the animal health business segment to evaluate our cell therapy technology for application in an animal health area. Under the terms of the agreement, we received the payment in exchange for an exclusive period to evaluate our cell therapy technology with an option to negotiate for a license for the development and commercialization of the technology for the animal health area. The nonrefundable option fee, which was initially recorded as deferred revenue, was recognized in the second quarter of 2018 as the agreement had expired. The evaluation of our technology for animal health applications continues.

7. Stock-based Compensation

We have an incentive plan that authorized an aggregate of 20,035,000 shares of common stock for awards to employees, directors and consultants. The equity incentive plan authorizes 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. In the three-month period ended June 30, 2018, we granted 2,078,340 stock options and 787,968 restricted stock units to our employees and directors primarily pursuant to our annual incentive programs. As of June 30, 2018, a total of 4,671,812 shares (including 243,940 shares related to an expired incentive plan) of common stock have been issued under our equity incentive plans.

As of June 30, 2018, a total of 3,696,351 shares were available for issuance under our equity incentive plan, and stock-based awards to purchase 12,846,533 shares (including 935,756 shares related to an expired incentive plan) of common stock were outstanding. For the three-month periods ended June 30, 2018 and 2017, stock-based compensation expense was approximately $0.8 million and $0.7 million, respectively. At June 30, 2018, total unrecognized estimated compensation cost related to unvested stock-based awards was approximately $10.4 million, which is expected to be recognized by the end of 2022 using the straight-line method.

8. Stockholders’ Equity

Equity Issuance—Healios

In March 2018, Healios purchased 12,000,000 shares of our common stock (the “Shares”) for $21.1 million, or approximately $1.76 per share, and the Healios Warrant to purchase up to an additional 20,000,000 Warrant Shares of common stock. In connection with the issuance of the Shares, we and Healios entered into an Investor Rights Agreement, which governs certain rights of Healios and us relating to Healios’ ownership of our common stock, including the Shares and the Warrant Shares. The Investor Rights Agreement provides for customary standstill and voting obligations, transfer restrictions and registration rights for Healios. Additionally, we agree to provide notice to Healios of certain equity issuances and to allow Healios to participate in certain issuances in order maintain its proportionate ownership of our common stock as of the time of such issuance. We further agreed under the Investor Rights Agreement that during such time as Healios beneficially owns more than 5.0% but less than 15.0% of our outstanding common stock, our Board of Directors (the “Board”) will nominate a Healios nominee suitable to us to become a member of the Board, and during such time as Healios beneficially owns 15.0% or more of our outstanding common stock, our Board will nominate two suitable Healios nominees to become members of the Board, at each annual election of directors. Healios nominated an individual to the Board, who was elected at the 2018 annual stockholders’ meeting. As a result of Healios’ investment, Healios became a related party, and the transactions with Healios are separately identified within these financial statements as they are related party transactions.

The value of the Healios Warrant was considered as an element of compensation in the transaction price of the Healios expansion, as discussed in Note 6. The Healios Warrant originally did not become effective until the CEA became effective in June 2018 and the first payment was made under the expansion. Upon such effectiveness, the Healios Warrant became exercisable with respect to 4,000,000 Warrant Shares and the remaining 16,000,000 Warrant Shares will become exercisable if Healios agrees to execute the option for a license in China in September 2018. Other important Healios Warrant terms include expiration in September 2020 (subject to a potential extension), fixed and floating exercise price mechanisms, and an exercise cap triggered at Healios’ ownership of 19.9% of our common stock. The Healios Warrant may be terminated by us under certain conditions.

We evaluated the various terms of the Healios Warrant and concluded that it was appropriately accounted for as equity at inception and $5.3 million was computed as the best estimate of the fair value of the Healios Warrant at the time of issuance. The fair value was computed using a Monte Carlo simulation model that included probability-weighted estimates of potential milestone points in time that could impact the value of the Healios Warrant during its term. The fair value was recorded as additional paid-in capital in the first quarter of 2018, with the offset included in other asset related to Healios. Upon its modification in June 2018 in connection with the Healios expansion, we reassessed the fair value of the Healios Warrant immediately before and after the modification using the same valuation methodology providing for no incremental fair value to be recorded. The value of the 4,000,000 tranche of shares underlying the Healios Warrant that was related to the June 2018 expansion of $1.1 million was recorded as a reduction to the revenue recognized for the delivered licenses in June 2018. The other asset related to the remaining 16,000,000 Healios Warrant Shares was $4.2 million at June 30, 2018 and will be included as an element of compensation in the transaction price if Healios executes an option for a license for an expansion into China in September 2018.

Equity Purchase Agreement

We have in place an equity purchase arrangement with Aspire Capital Fund LLC (“Aspire Capital”), which provides us the ability to sell shares to Aspire Capital from time-to-time, as appropriate. Our current arrangement with Aspire Capital that was entered into in February 2018 includes Aspire Capital’s commitment to purchase up to an aggregate of $100 million of shares of common stock over a three-year period and 450,000 shares of common stock were issued as a commitment fee. We filed a registration statement for the resale of 24,700,000 shares of common stock in connection with the new equity facility. Furthermore, the prior facility that was entered into in December 2015 with Aspire Capital has approximately 2,000,000 shares that remain available to us for issuance. We sold 3,300,000 shares to Aspire Capital at an average price of $1.67 per share during the first quarter of 2018. We sold no shares to Aspire Capital in the second quarter of 2018. During the second quarter of 2017, we generated net proceeds of $2.4 million from sales of our common stock to Aspire Capital at an average price per share of $1.45 per share.

License Agreement and Settlement

In October 2017, we entered into an agreement to settle longstanding intellectual property disagreements with a third party. As part of the agreement, we were granted a worldwide, non-exclusive license, with the right to sublicense, to the other party’s patents and applications that were at the core of the intellectual property dispute, for use related to the treatment or prevention of disease or conditions using cells. In return, we agreed not to enforce our intellectual property rights against the party with respect to certain patent claims, nor to further challenge the patentability or validity of certain applications or patents. In connection with the license and settlement agreement, we paid $0.5 million and issued 1,000,000 shares of our common stock with a fair value of $2.3 million upon execution of the agreement in 2017, and we are paying an additional $0.25 million per quarter for four quarters. Additionally, in May 2018, upon the issuance of a patent from the party’s patent applications at the core of the dispute, we issued 500,000 additional shares of our common stock. This contingent obligation to issue 500,000 shares of common stock was recorded in accrued license fee expense on the condensed consolidated balance sheet at December 31, 2017 at a fair value $0.9 million. The actual issuance of the shares in May 2018 was recorded at a fair value of $1.2 million as additional paid-in-capital on the condensed consolidated balance sheet at June 30, 2018 and additional research and development expense of $0.3 million. Our final quarterly installment payment of $0.25 million will be made in the fourth quarter of 2018, and then our payment obligations will be completed.

9. Financial Instruments

Fair Value Measurements

We classify the inputs used to measure fair value into the following hierarchy:


Level 1		Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2		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.

Level 3		Unobservable inputs for the asset or liability.

At June 30, 2018, we had no financial assets or liabilities measured at fair value on a recurring basis. Upon its issuance in March 2018, the Healios Warrant was measured at fair value on a nonrecurring basis that represented a Level 3 equity instrument under the hierarchy. Refer to Note 8.

10. Income Taxes

We have U.S. federal net operating loss and research and development tax credit carryforwards, as well as state and city net operating loss carryforwards, which may be used to reduce future taxable income and tax liabilities. We also have foreign net operating loss and tax credit carryforwards, and the foreign net operating loss carryforwards do not expire. All of our deferred tax assets have been fully offset by a valuation allowance due to our cumulative losses.

The utilization of net operating loss and tax credit carryforwards generated prior to October 2012 is substantially limited under Section 382 of the Internal Revenue Code (“IRC”) of 1986, as amended. We generated U.S. federal net operating loss carryforwards, research and development tax credits, and state and local net operating loss carryforwards since 2012 which may be limited under Section 382 of the IRC. We will update our analysis under Section 382 of the IRC prior to using these attributes.

In December 2017, the U.S. federal government enacted legislation commonly referred to as the “Tax Cuts and Jobs Act” (the “TCJA”). The TCJA makes widespread changes to the IRC, including, among other items, a reduction in the federal corporate tax rate from 35% to 21%, effective January 1, 2018. The carrying value of our deferred tax assets and liabilities is also determined by the enacted U.S. corporate income tax rate. Consequently, any changes in the U.S. corporate income tax rate will impact the carrying value of our deferred tax assets and liabilities. Our deferred income tax assets, net, have provisionally decreased based on the reduction of the U.S. corporate tax rate and the valuation allowance has had a corresponding decrease. The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profit (“E&P”) of certain of our foreign subsidiaries. To determine the amount of Transition Tax, a company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant foreign subsidiaries as well as the amount of non-U.S. income tax paid on such earnings. We believe we have an overall foreign E&P deficit and, accordingly, have not recorded any provisional Transition Tax obligation. However, we are continuing to gather additional information to finalize our Transition Tax liability.

We determined that the provisional calculations will be finalized after the underlying timing differences and foreign earnings and profits are finalized with our 2017 federal tax return filing. Furthermore, we are still analyzing certain aspects of the TCJA and refining our calculations which could potentially affect the measurement of these balances or potentially give rise to new or additional deferred tax amounts. We will consider additional guidance from the U.S. Treasury Department, IRS or other standard-setting bodies. Further adjustments, if any, will be recorded by us during the measurement period in 2018, as permitted by SEC Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act. No amounts were recorded as of June 30, 2018 for these potential adjustments.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion and analysis should be read in conjunction with our unaudited financial statements and notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017. Operating results are not necessarily indicative of results that may occur in future periods.

Overview and Recent Developments

We are an international biotechnology company that is focused primarily in the field of regenerative medicine. Our MultiStem ^® cell therapy, a patented and proprietary allogeneic stem cell product, is our lead platform product and is currently in clinical development in several areas, the most advanced of which is a Phase 3 clinical trial. Our current clinical development programs are focused on treating neurological conditions, cardiovascular disease, inflammatory and immune disorders, certain pulmonary conditions and other conditions where the current standard of care is limited or inadequate for many patients, particularly in the critical care segment.

Current Programs

By applying our proprietary MultiStem cell therapy product, we established therapeutic product development programs treating neurological conditions, cardiovascular disease, inflammatory and immune disorders, certain pulmonary conditions and other conditions. Our programs in the clinical development stage include the following:

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Ischemic Stroke: We have recently launched our pivotal Phase 3 clinical trial of MultiStem cell therapy for the treatment of ischemic stroke, referred to as MASTERS-2, and enrollment has commenced. We are starting the study with a small number of high-enrolling sites and plan to bring on additional sites over time and as clinical product supply is available. The MASTERS-2 study has received several regulatory distinctions including Special Protocol Assessment, or SPA, Fast Track designation and the Regenerative Medicine Advanced Therapy designation, which was established under the 21st Century Cures Legislation, from the U.S. Food and Drug Administration, or FDA, as well as a Final Scientific Advice positive opinion from European Medicines Agency, or EMA.

In addition, HEALIOS K.K.’s, or Healios, confirmatory clinical trial, TREASURE, evaluating the safety and efficacy of administration of MultiStem cell therapy for the treatment of ischemic stroke in Japan, is ongoing and continuing its enrollment. TREASURE will be evaluated under the recently established regulatory framework for regenerative medicine therapies in Japan.

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Acute Respiratory Distress Syndrome, or ARDS: We have an ongoing Phase 1/2 clinical study for the treatment of ARDS in the United Kingdom and in the United States. The study is intended to evaluate the safety and feasibility of treating certain ARDS subjects, and our objective is to complete this study in 2018. We were awarded a grant from Innovate UK as partial support of this clinical study, and such grant funding was concluded in the first quarter of 2018, according to its terms.

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Acute Myocardial Infarction, or AMI: We are conducting an ongoing Phase 2 clinical study in the United States for the administration of MultiStem cell therapy to patients that have suffered an AMI. We continue to enroll below expectations despite numerous efforts to improve the enrollment rates. The study had been supported by a grant from the National Institutes of Health, which has now concluded. We will provide updates regarding the conduct and completion of the study, as appropriate.

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Hematopoietic Stem Cell Transplant / Graft-vs-Host Disease, or GvHD: Currently, this program is staged for future registration-directed development, which depends on the success and impact of the development of alternative therapies for treating the underlying conditions leading to transplant and other business and financial considerations. Following our completed Phase 1 clinical study of the administration of MultiStem cell therapy to patients suffering from leukemia or certain other blood-borne cancers, in which patients undergo radiation therapy and then receive a hematopoietic stem cell transplant, we were granted orphan drug designation by the FDA and the EMA for MultiStem treatment in the prevention of GvHD, and the MultiStem product was granted Fast Track designation by the FDA for prophylaxis therapy against GvHD following hematopoietic cell transplantation. Subsequently, our registration study design received a positive Scientific Advice opinion from EMA and a SPA designation from the FDA.

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Trauma: We recently announced with the University of Texas Health Science Center at Houston our plans to conduct a Phase 2 clinical trial evaluating MultiStem cell therapy for early treatment and prevention of complications after severe traumatic injury. This first-ever study of a cell therapy for treatment of a wide range of traumatic injuries will be conducted at Memorial Hermann-Texas Medical Center, one of the busiest Level 1 trauma centers in the United States. The study will receive grant support from the Medical Technology Enterprise Consortium and the Memorial Hermann Foundation. We will provide the clinical product for the conduct of the trial, as well as regulatory and operational support. We are in the planning and preparation stage for this study and will provide further updates as preparations for the trial progress.

While development of our clinical programs for human health indications remains our priority, based on our research to date and work performed at our wholly-owned subsidiary, ReGenesys, we are also evaluating our cell therapy for use in treating diseases and conditions in the animal health area. We have demonstrated in preclinical animal health models that our cell therapy can promote tissue repair and healing that could provide meaningful benefits to animal patients, including those suffering from conditions with unmet medical need. In January 2017, we entered into an evaluation and option agreement with a global leader in the animal health business segment to evaluate our cell therapy technology for application in an undisclosed animal health area, and while the agreement has expired, the evaluation is ongoing.

We are engaged in preclinical development and evaluation of MultiStem therapy in other indications, focusing on the neurological, cardiovascular and inflammatory and immune disease areas, certain pulmonary conditions and other conditions, and we conduct such work both through our own internal research efforts and through a broad global network of collaborators. We also engage in discussions with third parties about collaborating in the development of MultiStem therapy for various programs and may enter into one or more business partnerships to advance these programs over time.

We have a collaboration with Healios covering MultiStem cell therapy for ischemic stroke in Japan and the use of our technology for Healios’ organ bud program initially targeted to liver disease. In June 2018, we received a nonrefundable payment of $10 million related to Healios’ exercise of its option to license our technologies for ARDS treatment and for additional indications for its organ bud technology as contemplated by the original stroke agreement. Furthermore, Healios is paying us another nonrefundable $10 million in four quarterly installments for certain other rights, including the addition of a license for the use of our MultiStem product to treat certain ophthalmological indications and a license to treat diseases of the liver, kidney, pancreas and intestinal tissue through administration of our products in combination with iPSC-derived cells, of which the first installment of $2.5 million was received in June 2018. Healios may elect to credit up to $10 million against milestone payments that may become due under the stroke and ARDS licenses, with limitations on amounts that may be credited to earlier milestone payments versus later milestone payments. The licenses may also include milestone payments and royalties, as defined in each license agreement. Healios also has a right of first negotiation that expires in September 2018 for an option to a license for designated applications in China. Regarding clinical product supply under the Healios arrangement, in the event that we fail to perform our responsibilities to supply clinical trial product to Healios, then under certain circumstances, we may be required to grant Healios a license to make the product solely for use in its licensed fields and territories.

We also have a collaboration with RTI Surgical, Inc., or RTI, for the development of products for certain orthopedic applications using our stem cell technologies in the bone graft substitutes market, and we continue to receive royalty revenue from product sales and may receive other payments from time to time upon the successful achievement of certain commercial milestones. No milestones were achieved in the first half of 2018.

We have also developed other earlier stage programs targeted at indications with significant unmet needs. We may elect to enter into partnerships to advance the development of these programs or pursue independent development.

Financial

As addressed herein, upon the expansion of our collaboration with Healios that was completed in June 2018, we received $10 million of license fees for the ARDS and organ bud expansion. Additionally, we are receiving four quarterly installments of $2.5 million that began in June 2018 related to the license of certain ophthalmology and combination product rights. We are also entitled to receive potential milestones payments and royalties from Healios, as well as potential additional fees upon further expansion that may include an option to license our technologies for development in China, for which Healios has a right of first negotiation that expires in September 2018. Furthermore, we receive payments from Healios for clinical product supply and other manufacturing services. Certain proceeds from Healios may be used by Healios to offset milestone payments that may be due in the future.

In connection with the expansion, in March 2018, Healios purchased 12,000,000 shares of our common stock for $21.1 million, or approximately $1.76 per share, and received a warrant, or the Healios Warrant, to purchase up to an additional 20,000,000 shares of common stock. The Healios Warrant is currently exercisable with respect to 4,000,000 shares underlying the Healios Warrant, with the remainder becoming exercisable in the event that Healios and Athersys enter into an option agreement in September 2018 for the license of certain development and commercialization rights in China. The Healios Warrant may be terminated by us under certain conditions. As of June 30, 2018, no shares have been issued pursuant to an exercise of the Healios Warrant.

We have in place an equity purchase arrangement with Aspire Capital Fund LLC, or Aspire Capital, which provides us the ability to sell shares to Aspire Capital from time-to-time, as appropriate. Our current arrangement with Aspire Capital that was entered into in February 2018 includes Aspire Capital’s commitment to purchase up to an aggregate of $100 million of shares of common stock over a three-year period and 450,000 shares of common stock were issued as a commitment fee. We filed a registration statement for the resale of 24,700,000 shares of common stock in connection with the new equity facility. Furthermore, the prior facility that was entered into in December 2015 with Aspire Capital has approximately 2,000,000 shares that remain available to us for issuance. During the quarter ended June 30, 2018, we did not sell any shares to Aspire Capital. We sold 3,300,000 shares to Aspire Capital at an average price of $1.67 per share in the first quarter of 2018.

During the year ended December 31, 2017, we received proceeds of approximately $1.9 million from the exercise of warrants. All of our previously outstanding warrants were either exercised prior to expiration or expired in March 2017, and we had only the Healios Warrant outstanding at June 30, 2018.

In 2016, a flood caused damage to our primary facilities that required the reconstruction of certain laboratory space and was covered by insurance at replacement cost. In 2018, we received an additional $0.4 million in insurance proceeds.

Results of Operations

Since our inception, our revenues have consisted of license fees, contract revenues and milestone payments from our collaborators, and grant proceeds primarily from federal, state and foundation grants. We have derived no revenue from the commercial sale of therapeutic products to date, but we receive royalties on commercial sales by a licensee of products using our technologies. 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.

Three Months Ended June 30, 2018 and 2017

Revenues increased by $18.7 million to $19.4 million for the three months ended June 30, 2018 compared to $0.7 million for the three months ended June 30, 2017. Our revenues are derived from license fees, manufacturing-related activities for Healios, royalty and related contract revenue from our collaborations and grant revenue. Our revenue from Healios increased during the second quarter of 2018 compared to the prior year second quarter by approximately $18.5 million due to the collaboration expansion in June 2018 which includes several additional licensed indications, among other things. Grant revenue decreased approximately $0.2 million in the second quarter of 2018 compared to the prior year second quarter.

Research and Development Expenses. Research and development expenses increased to $10.1 million for the three months ended June 30, 2018 from $4.6 million for the comparable period in 2017. The $5.5 million increase is primarily associated with increased clinical and preclinical development costs of $4.4 million, increased license fees of $0.6 million, increased internal research supplies of $0.2 million and increased personnel costs of $0.2 million. The increase in our clinical and preclinical costs during the period is primarily a result of increased clinical product manufacturing costs, a portion of which are invoiced to Healios, technology transfer services on Healios’ behalf in Japan that are reimbursed to us by Healios, process development activities to support large-scale manufacturing, and start-up contractual costs related to our MASTERS-2 clinical trial. Our clinical development, clinical manufacturing and manufacturing process development costs vary over time based on the timing and stage of clinical trials underway, manufacturing campaigns for trials and manufacturing process development projects, and we expect our annual 2018 clinical development costs to increase as compared to 2017. 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 increased to $2.4 million for the three months ended June 30, 2018 compared to $2.2 million in the comparable period in 2017. The $0.2 million increase was primarily due to increased legal and professional fees and consulting services. We expect our annual 2018 general and administrative expenses to increase as compared to 2017 with the implementation of a new enterprise resource planning system, increased professional fees and additional personnel costs.

Depreciation . Depreciation expense was consistent at $0.2 million for the three months ended June 30, 2018 and June 30, 2017, respectively. We expect that our annual depreciation will increase somewhat for 2018 compared to 2017 due to new equipment requirements, primarily for process development activities.

Other Income, net. Other income, net, generally includes net foreign currency gains and losses, and net interest income and expense.

Six Months Ended June 30, 2018 and 2017

Revenues . Revenues increased to $20.5 million for the six months ended June 30, 2018 from $2.1 million in the comparable period in 2017. Contract revenues from our collaboration with Healios increased $18.8 million period over period, reflecting the expansion of our collaboration in June 2018 to include several additional licensed indications, among other things.

Research and Development Expenses. Research and development expenses increased to $18.9 million for the six months ended June 30, 2018 from $10.3 million in the comparable period in 2017. The increase of $8.6 million related primarily to an increase in clinical and preclinical costs of $7.0 million, an increase in personnel costs of $0.6 million, an increase in license fees of $0.6 million and an increase in research supplies of $0.2 million. The increase in our clinical and preclinical costs during the period is primarily a result of increased clinical product manufacturing costs, a portion of which are invoiced to Healios, technology transfer services on Healios’ behalf in Japan that are reimbursed to us by Healios, and process development activities to support large-scale manufacturing. 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 increased to $5.0 million for the six months ended June 30, 2018 from $4.3 million in the comparable period in 2017. The $0.7 million increase was due primarily to an increase in legal and professional fees, personnel costs and consulting services compared to the same period in 2017.

Depreciation . Depreciation expense of $0.4 million for the six months ended June 30, 2018 was slightly higher compared to $0.3 million for the comparable period in 2017 due to new equipment requirements, primarily for process development activities.

Income from Change in Fair Value of Warrants, net . We did not recognize a change in fair value of warrants during the six months ended June 30, 2018. As of June 30, 2018, other than the Healios Warrant, all of our prior warrants were either exercised or expired. For the comparable period of 2017, we had $0.7 million of income primarily reflecting changes in our stock price for warrants that have now expired.

Gain from Insurance Proceeds . In 2016, a flood caused damage to our primary facilities that required the reconstruction of certain laboratory space and was covered by insurance at replacement cost. In 2018, we received an additional $0.4 million in insurance proceeds.

Other Income, net. Other income, net, was $0.3 million for the six month period ended June 30, 2018 and $0.1 million for the comparable 2017 period, and is typically comprised of interest income and expense, and foreign currency gains and losses.

Liquidity and Capital Resources

Our sources of liquidity include our cash balances. At June 30, 2018, we had $53.4 million in cash and cash equivalents. We have primarily financed our operations through business collaborations, grant funding and equity financings. We conduct all of our operations through our subsidiary, ABT Holding Company. Consequently, our ability to fund our operations depends on ABT Holding Company’s financial condition and its ability to make dividend payments or other cash distributions to us. There are no restrictions such as government regulations or material contractual arrangements that restrict the ability of ABT Holding Company to make dividend and other payments to us.

We incurred losses since inception of operations in 1995 and had an accumulated deficit of $352 million at June 30, 2018. 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 use all of our sources of capital to develop our technologies, to discover and develop therapeutic product candidates, develop business collaborations and to acquire certain technologies and assets.

As addressed herein, we received $10 million of license fees and will receive four quarterly installments of $2.5 million that began in June 2018 from the expansion of our collaboration with Healios that was completed in June 2018. We are also entitled to receive potential milestones payments, subject to certain credits, and royalties from Healios, as well as potential additional fees upon further expansion that may include an option to license our technologies for development in China, for which Healios has a right of first negotiation that expires in September 2018. Furthermore, we receive payments from Healios for clinical product supply and other manufacturing services. Certain proceeds from Healios may be used by Healios to offset milestone payments that may be due in the future.

In connection with the June 2018 expansion, Healios purchased 12,000,000 shares of our common stock for $21.1 million and received the Healios Warrant to purchase up to 20,000,000 shares of common stock in March 2018. The Healios Warrant is currently exercisable with respect to 4,000,000 shares underlying the Healios Warrant, with the remainder becoming exercisable in the event that Healios executes an option to expand into the China territory for certain indications in September 2018. The Healios Warrant has a term that expires in September 2020 (subject to a potential extension), includes both fixed and floating exercise price mechanisms, and is capped such that in no event will Healios own more than 19.9% of our common stock. We may receive additional proceeds from the exercise of the Healios Warrant over its term, although there can be no assurances that Healios will exercise the Healios Warrant in whole or in part. As of June 30, 2018, no shares have been issued pursuant to an exercise of the Healios Warrant.

We have had an equity purchase arrangement in place with Aspire Capital since 2011 that has provided us the ability to sell shares to Aspire Capital from time-to-time, as appropriate, through two-to-three-year equity facilities, each with similar terms. Our current arrangement with Aspire Capital that was entered into in February 2018 includes Aspire Capital’s commitment to purchase up to an aggregate of $100 million of shares of common stock over a three-year period and 450,000 shares of common stock were issued as a commitment fee. We filed a registration statement for the resale of 24,700,000 shares of common stock in connection with the new equity facility. Furthermore, the prior facility that was entered into in December 2015 with Aspire Capital has approximately 2,000,000 shares that remain available to us for issuance. During the quarter ended June 30, 2018, we did not sell any shares to Aspire Capital, and we sold 3,300,000 shares to Aspire Capital at an average price of $1.67 per share in the first quarter of 2018. During the three-month period ended June 30, 2017, we generated net proceeds of $2.4 million from sales of our common stock to Aspire Capital at an average price per share of $1.45 per share, and we did not sell shares to Aspire Capital in the first quarter of 2017.

Under the terms of our collaboration agreement with RTI, we are eligible to receive cash payments upon the successful achievement of certain commercial milestones. In addition, we receive tiered royalties on worldwide commercial sales of implants using our technologies. We began receiving royalties from RTI in 2014 and received a commercial milestone payment of $1.0 million in 2017. There can be no assurances about the nature and levels of RTI product sales in the future and, therefore, the related royalty and milestone payments by RTI to us.

We are obligated to pay the University of Minnesota a sublicense fee or a royalty based on worldwide commercial sales of licensed products if covered by a valid licensed patent. The low single-digit royalty rate may be reduced if third-party payments for intellectual property rights are necessary or commercially desirable to permit the manufacture or sale of the product. As of June 30, 2018, we have paid no royalties to the University of Minnesota and have paid sublicense fees from time-to-time in connection with our collaborations, including our Healios collaboration.

We will require additional funding in order to continue our research and product development programs, including preclinical evaluation and clinical trials of our product candidates and manufacturing process development. At June 30, 2018, we had available cash and cash equivalents of $53.4 million, and we intend to meet our short-term liquidity needs with available cash. Over the longer term, we will make use of available cash, but will have to continue to generate additional funding to meet our needs, through business development, achievement of milestones under our collaborations, and grant-funding opportunities. Additionally, we may raise capital through our equity purchase agreement, subject to its volume and price limitations, and Healios may exercise the Healios Warrant from time to time. We also manage our cash by deferring certain discretionary costs and staging certain development costs to extend our operational runway, as needed. Over time, we may consider the sale of additional equity securities, or possibly borrow from financing institutions.

Our capital requirements over time depend on a number of factors, including progress in our clinical development programs, our clinical and preclinical pipeline of additional opportunities and their stage of development, additional external costs such as payments to contract research organizations and contract manufacturing organizations, additional personnel costs and the costs in filing and prosecuting patent applications and enforcing patent claims. The availability of funds impacts our ability to advance multiple clinical programs concurrently, and any shortfall in funding could result in our having to delay or curtail research and development efforts. Further, these requirements may change at any time due to technological advances, business development activity or competition from other companies. We cannot assure you that adequate funding will be available to us or, if available, that it will be available on acceptable terms.

We expect to continue to incur substantial losses through at least the next several years and may incur losses in subsequent periods. The amount and timing of our future losses are highly uncertain. Our ability to achieve and thereafter sustain profitability will be dependent upon, among other things, successfully developing, commercializing and obtaining regulatory approval or clearances for our technologies and products resulting from these technologies.

Cash Flow Analysis

Net cash used in operating activities was $1.3 million for the six months ended June 30, 2018 compared to cash used of $11.1 million for the six months ended June 30, 2017, reflecting, among other things, the receipt of $12.5 million of license fees from our expansion with Healios in June 2018, partially offset by an increase in the use of cash to fund preclinical and clinical development activities. Net cash used in operating activities may fluctuate significantly on a quarter-to-quarter basis, as it has over the past several years, primarily due to the receipt of fees from our collaborators and payment of specific clinical trial costs, such as clinical manufacturing campaigns, contract research organization costs and manufacturing process development projects.

Net cash used by investing activities was $0.7 million and $0.1 million for the six months ended June 30, 2018 and 2017, respectively. The fluctuations over the periods were due to the purchase of equipment primarily for our manufacturing process development activities. We expect that our capital equipment expenditures will increase in 2018 compared to 2017.

Financing activities provided cash of $26.1 million for the six-months ended June 30, 2018, which constituted primarily the $21.1 million investment in us by Healios and proceeds from the issuance of common stock to Aspire Capital under our equity purchase agreement in the first half of 2018, net of offering costs. Financing activities provided cash of $25.0 million for the six months ended June 30, 2017, including $20.9 million of net proceeds from a February 2017 common stock offering, equity sales to Aspire Capital and the exercise of common stock warrants, net of shares retained for withholding tax payments on stock-based awards.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Management Estimates

The Securities and Exchange Commission, or SEC, defines critical accounting policies as those that are, in management’s view, important to the portrayal of our financial condition and results of operations and demanding of management’s judgment. Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2017. There have been no material changes in our accounting policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2017, except as it relates to the adoption of ASC 606 on January 1, 2018, for which our accounting policy is included in Note 3 to the financial statements.

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, 2017.

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,” “suggest,” “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.

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 therapeutics, including the uncertainty regarding market acceptance of our product candidates and our ability to generate revenues. The following risks and uncertainties 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:

•

our ability to raise capital to fund our operations;

•

the timing and nature of results from our MultiStem clinical trials, including the MASTERS-2 Phase 3 clinical trial and the Healios TREASURE clinical trial in Japan;

•

the possibility of delays in, adverse results of, and excessive costs of the development process;

•

our ability to successfully initiate and complete clinical trials of our product candidates;

•

the possibility of delays, work stoppages or interruptions in manufacturing by third parties or us, such as due to material supply constraints, contaminations, or regulatory issues;

•

uncertainty regarding market acceptance of our product candidates and our ability to generate revenues, including MultiStem cell therapy for the treatment of stroke, ARDS, AMI and trauma, and the prevention of GvHD and other disease indications;

•

changes in external market factors;

•

changes in our industry’s overall performance;

•

changes in our business strategy;

•

our ability to protect and defend our intellectual property and related business operations, including the successful prosecution of our patent applications and enforcement of our patent rights, and operate our business in an environment of rapid technology and intellectual property development;

•

our possible inability to realize commercially valuable discoveries in our collaborations with pharmaceutical and other biotechnology companies;

•

our ability to work with Healios to reach an agreement for an option in China;

•

our ability to meet milestones and earn royalties under our collaboration agreements, including the success of our collaboration with Healios;

•

our collaborators’ ability to continue to fulfill their obligations under the terms of our collaboration agreements and generate sales related to our technologies;

•

the success of our efforts to enter into new strategic partnerships and advance our programs, including, without limitation, in North America, Europe and Japan;

•

our possible inability to execute our strategy due to changes in our industry or the economy generally;

•

changes in productivity and reliability of suppliers;

•

the success of our competitors and the emergence of new competitors; and

•

the risks mentioned elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2017 under Item 1A, “Risk Factors.”

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 otherwise 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.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

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. When appropriate based on interest rates, we invest our excess cash primarily in debt instruments of the United States government and its agencies and corporate debt securities, and as of June 30, 2018, we had no investments.

We have entered into loan arrangements with financial institutions when needed and when available to us. At June 30, 2018, we had no borrowings outstanding.

Item 4.

Controls and Procedures.

Disclosure controls and procedures

Our management, under the supervision of and with the participation of our Chief Executive Officer and our Senior Vice President of Finance, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(f) and 15d-15(f) 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 Senior 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 last fiscal quarter covered by this Quarterly Report on Form 10-Q, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) 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

Item 6.

Exhibits.


Exhibit No.		Description

4.1		Amendment No.1 to Common Stock Purchase Warrant issued to HEALIOS K.K. by Athersys, Inc., dated as of June 6, 2018.

10.1*		Collaboration Expansion Agreement, by and between Athersys, Inc. and HEALIOS K.K., dated as of June 6, 2018.

31.1		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.

31.2		Certification of Laura K. Campbell, Senior 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.

32.1		Certification of Gil Van Bokkelen, Chairman and Chief Executive Officer, and Laura Campbell, Senior Vice President of Finance, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	Confidential treatment requested as to certain portions, which portions have been filed separately with the SEC.

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.


						ATHERSYS, INC.

Date: August 9, 2018						/s/ Gil Van Bokkelen
						Gil Van Bokkelen
						Chairman and Chief Executive Officer
						(principal executive officer authorized to sign on behalf of the registrant)

						/s/ Laura K. Campbell
						Laura K. Campbell
						Senior Vice President of Finance
						(principal financial and accounting officer authorized to sign on behalf of the registrant)

Exhibit 4.1

AMENDMENT NO. 1 TO COMMON STOCK PURCHASE WARRANT

This Amendment No. 1 to the Common Stock Purchase Warrant is made on June 6, 2018, by and between Athersys, Inc., a Delaware corporation (the “ Company ”), and HEALIOS K.K. (the “ Holder ”).

WHEREAS, on March 14, 2018, the Company issued and sold the Holder a warrant (the “ Warrant ”) to purchase up to 20,000,000 shares of the Company’s common stock, $0.001 par value per share (the “ Common Stock ”);

WHEREAS, pursuant to Section 5(j) of the Warrant, the Warrant may be modified or amended with the written consent of the Company and the Holder; and

WHEREAS, the Company and the Holder hereby agree to modify and amend the Warrant as described below.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein and for other valuable consideration, the Company and the Holder, pursuant to Section 5(j) of the Warrant, agree as follows:

1. Section 1(a) of the Warrant is hereby amended and restated in its entirety as follows:

“(a) Except as set forth below in Section 1(b)(ii), this Warrant will become exercisable if and only if (i) Healios has satisfied the $2.5 million payment obligation set forth in Section 6.2(a) of the Collaboration Agreement and (ii) during the China ROFN Period (as defined in the Collaboration Agreement), the Company and the Holder have entered into either (A) a license under intellectual property rights of the Company or its affiliates for MultiStem products in China or (B) an option agreement for such license (such license or option, a “ China Agreement ”).”

2. Section 1(b)(ii) of the Warrant is hereby amended and restated in its entirety as follows:

“(ii) this Warrant may be exercised at an Exercise Price per Warrant Share equal to the greater of $1.76 and the Reference Price with respect to no more than 4,000,000 Warrant Shares if and only if (A) the Collaboration Agreement has been entered into and Healios has satisfied the $2.5 million payment obligation set forth in Section 6.2(a) thereunder and (B) the $10.0 million held in escrow as contemplated by the LOI is released to the Company, and if the conditions set forth in the preceding clauses (A) and (B) have been satisfied, this Warrant may be exercised pursuant to this Section 1(b)(ii) during the period beginning on the latest of (A) the date that the Collaboration Agreement has been entered into, (B) the date that the $10.0 million held in escrow as contemplated by the LOI is released to the Company and (C) the date that Healios has satisfied the $2.5 million payment obligation set forth in Section 6.2(a) of the Collaboration Agreement, through September 1, 2020; and”

3. The last sentence of Section 5(k) of the Warrant is hereby deleted in its entirety and Section 5(k) of the Warrant is amended to add to the following sentences at the end of Section 5(k):

“Upon termination of this Warrant pursuant to the preceding sentence, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Business Days after the relevant termination event shall have occurred. In the event that a China Agreement is not entered into during the China ROFN Period, Athersys shall have right to terminate this Warrant with respect to Section 1(b)(i) and Section 1(b)(iii) immediately upon written notice to Healios delivered at any time after the expiration of the China ROFN Period.”

4. Each reference in the Warrant to “Section 7.2(a) of the Collaboration Agreement” is hereby amended to read “Section 6.2(a) of the Collaboration Agreement”.

5. The reference in the Warrant to “Section 8.2 thereof” in Section 5(k) of the Warrant is hereby amended to read “Section 7.2 thereof”.

6. The reference in the Warrant to “Section 6.2 of the form of Collaboration Agreement attached to the LOI” in Section 5(l) of the Warrant is hereby amended to read “Exhibit 4 to the Collaboration Agreement”.

[Signature Page to Follow.]

IN WITNESS WHEREOF, Company and the Holder have caused this Amendment No. 1 to Common Stock Purchase Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.


ATHERSYS, INC.

By:		/s/ Gil Van Bokkelen
		Name: Gil Van Bokkelen
		Title: Chairman & CEO

HEALIOS K.K.

By:		/s/ Hardy TS Kagimoto
		Name: Hardy TS Kagimoto
		Title: CEO

Exhibit 10.1

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.

COLLABORATION EXPANSION AGREEMENT

This Collaboration Expansion Agreement (this “ Agreement ”), dated as of 6 June 2018 (the “ Effective Date ”), is made and entered into between ABT Holding Company (“ ATHX ”), a Delaware corporation having its principal place of business at 3201 Carnegie Avenue, Cleveland, OH 44115 and wholly-owned subsidiary of Athersys, Inc. (“ Athersys ”), and HEALIOS K.K. (“ Healios ”), a Japanese company having its principal place of business at World Trade Center Bldg. 15F, 2-4-1 Hamamatsucho, Minato-ku, Tokyo 105-6115 Japan, and solely with respect to the guarantee set forth herein, Athersys. ATHX and Healios may be referred to individually as a “ Party ” and collectively as the “ Parties ”.

Background

A. The Parties entered into that License Agreement effective as of January 8, 2016, which was subsequently amended pursuant to that First Amendment to License Agreement dated July 21, 2017 and pursuant to that Second Amendment to License Agreement dated September 19, 2017 (such agreement, as amended as of the Effective Date or hereafter, the “ Initial License Agreement ”), as well as certain quality, clinical supply and technology transfer agreements ancillary to such license agreement.

B. The Parties entered into that Letter of Intent for Collaboration Expansion as of March 13, 2018, which was amended on April 30, 2018, May 31, 2018 and June 4, 2018 (“ LOI ”), pursuant to which the Parties agreed to enter into this Agreement and release to ATHX certain amounts held in escrow upon the execution of this Agreement in accordance with the terms set forth in the LOI.

C. The Parties desire to expand the relationship between them through a combination of, among other things, (i) entering a third amendment to the Initial License Agreement to expand the Primary Field and expand the Organ Bud Field (as each such capitalized term is defined in the Initial License Agreement), (ii) granting to Healios an exclusive worldwide license under Athersys’ proprietary MultiStem stem cell technology to use the technology either alone or in combination together with iPSC-derived or embryonic stem cell-derived RPE cells for the treatment of macular degeneration and certain other ophthalmological indications pursuant to the OPHTH License Agreement (as defined below), (iii) granting to Healios an exclusive license under Athersys’ proprietary MultiStem stem cell technology to use such technology in combination with iPSC-derived cells developed by or for Healios for the treatment of certain diseases, pursuant to the Combination Product License Agreement (as defined below), (iv) granting an exclusive right of first negotiation to expand the territory and field of the license granted under the Combination Product License Agreement, (v) [*] (vi) granting an exclusive right of first negotiation to license Athersys’ proprietary MultiStem stem cell technology in China and in connection with use of [*] and (vii) payment from Healios to ATHX of $20 million, comprising $10 million released from escrow upon or after the Effective Date, and $10 million paid in 4 equal installments every three months starting June 7, 2018, with the second $10 million paid in installments being creditable against future

*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.

milestone payments due from Healios in connection with the Initial License Agreement; all upon the terms and subject to the conditions set forth in this Agreement.

Agreement

ATHX and Healios hereby agree as follows:

SECTION 1 DEFINITIONS.

Capitalized terms used in this Agreement shall have the meaning ascribed to them in the preamble or Background above, this Section 1, or the following Sections of this Agreement.

1.1

The term “ Affiliate ” shall mean, with respect to a Party, a corporation or other legal entity, directly or indirectly, controlling, controlled by or under common control with such Party. For purpose of this definition, the term “ control ” and, with correlative meanings, the terms “ controlled by ” and “ under common control with ”, as used with respect to any corporation or other entity, means (a) direct or indirect ownership of fifty percent (50%) or more of the securities or other ownership interests representing the equity voting stock or general partnership or membership interest of such corporation or other entity or (b) the power to direct or cause the direction of the management or policies of such corporation or other entity, whether through the ownership of voting securities by contract or otherwise.

1.2	The term “ *Laws* ” shall mean all applicable laws, statutes, regulations, rules, ordinance, order, decree, ruling or binding position or guideline of any governmental authority having jurisdiction over the subject act(s) or matter(s).

SECTION 2 THIRD AMENDMENT TO THE INITIAL LICENSE AGREEMENT.

2.1	The Initial License Agreement is amended as of the Effective Date in accordance with that Third Amendment to License Agreement attached as Exhibit 1 ( the “ *Third Amendment to License Agreement* ”) . The Third Amendment to License Agreement is effective as of the Effective Date.

2.2	Each Party will execute and deliver, or will have executed and delivered, the signature page to such amendment on or before the Effective Date to further document the amendment to the Initial License Agreement made hereby.

SECTION 3 OPHTH LICENSE AGREEMENT.

3.1	As of the Effective Date, the Parties hereby enter into the License Agreement attached as Exhibit 2 (the “ *OPHTH License Agreement* ”). The OPHTH License Agreement is effective as of the Effective Date.

3.2	Each Party will execute and deliver, or will have executed and delivered, the signature page to the OPHTH License Agreement on or before the Effective Date to further document the effectiveness of the OPHTH License Agreement made hereby.

SECTION 4 COMBINATION PRODUCT LICENSE AGREEMENT

4.1	As of the Effective Date, the Parties hereby enter into the Combination Product License Agreement attached as Exhibit 3 (the “ *Combination Product License Agreement* ”). The Combination Product License Agreement is effective as of the Effective Date.

4.2	Each Party will execute and deliver, or will have executed and delivered, the signature page to the Combination Product License Agreement on or before the Effective Date to further document the effectiveness of the Combination Product License Agreement made hereby.

SECTION 5 NEGOTIATION RIGHTS

5.1

During the period that begins on the Effective Date and ends [*] or earlier as described in clause (b) below (“ Exclusive Negotiation Period ”), ATHX hereby grants to Healios the exclusive right of first negotiation to expand the “Territory” and the diseases or conditions within the “Licensed Field”, as such terms are defined in the Combination Product License Agreement, as follows. During the Exclusive Negotiation Period, ATHX will not, and will cause its Affiliates not to, negotiate with any other person or entity the terms or conditions of any license under any intellectual property rights of ATHX or its Affiliates to research, develop, manufacture, have manufactured, use, distribute, promote, sell, offer for sale, market, distribute, import, export or otherwise commercialize, anywhere in the world, any MultiStem product that is used in treatment of any disease or condition in combination with iPSC-derived cells by either (i) non-systemic, localized administration of the MultiStem product at the same time and immediate vicinity as the iPSC-derived cell transplantation or (ii) as a combination formulation containing both the MultiStem product and iPSC-derived cells, provided that the foregoing shall not preclude ATHX from negotiating with any other person or entity the terms or conditions of any license to manufacture or have manufactured any standalone MultiStem products ( i.e. , MultiStem products that are not combined with iPSC-derived cells) or the MultiStem portions of any “Licensed Products”, as such term is defined in the Combination Product License Agreement.

(a) During the period that begins on the Effective Date and ends six (6) months thereafter unless extended by mutual agreement, the Parties will negotiate in good faith with respect to (i) the potential expansion of the “Territory” in the Combination Product License Agreement to be worldwide and (ii) the potential expansion of the diseases or conditions that constitute the “Licensed Field” in the Combination Product License Agreement to include additional diseases or conditions, and other corresponding terms and conditions.

(b) Moreover, during such 6-months (or longer period as agreed), if the Parties do not amend the Combination Product License Agreement in a manner that expands the “Territory” and/or the “Licensed Field” therein, then ATHX will also negotiate in good faith with respect to an amendment to the Initial License Agreement to add another disease or condition in Japan to the fields licensed thereunder upon such terms as may be

mutually agreed, including potentially different milestone and royalties than those for the existing indications/fields; provided, however, that it is understood (i) no upfront license fee would be due with respect to such additional indication/field and (ii) milestones and royalties for such additional indication/field would be consistent with the market opportunity as reasonably determined and mutually agreed by the Parties. ATHX shall, promptly after the Effective Date, disclose to Healios such additional indication/field in Japan contemplated by ATHX, and shall thereafter cooperate with Healios in good faith to assess the feasibility and market opportunities for such additional indication/field. If the Parties mutually agree to such an amendment, then the Exclusive Negotiation Period terminates upon the effective date of such amendment. If the Parties do not mutually agree to such an amendment, then the Exclusive Negotiation Period remains in effect.

5.2

[*]

5.3

During the period that begins on the Effective Date and ends September 1, 2018 (“ China ROFN Period ”), ATHX hereby grants to Healios the exclusive right of first negotiation with respect to Athersys’ proprietary MultiStem stem cell technology, as follows. During the China ROFN Period, ATHX will not, and will cause its Affiliates not to, negotiate with any other person or entity the terms or conditions of any license under any intellectual property rights of ATHX or its Affiliates to research, develop, manufacture, have manufactured, use, distribute, promote, sell, offer for sale, market, distribute, import, export or otherwise commercialize any MultiStem products in China.

(a) During the China ROFN Period, the Parties will negotiate in good faith, and use commercially reasonable efforts to enter into agreement(s) for, (i) an exclusive option for Healios to license Athersys’ MultiStem technology for the treatment of ischemic stroke, acute respiratory distress syndrome (including idiopathic pulmonary fibrosis), and either trauma or an alternative indication mutually agreed to by the Parties, or some combination of the foregoing, in China (“ China Option ”) and (ii) [*], in each case reflecting the following terms and conditions:

(i) The commercial terms for the China Option, including initial license fees, milestone payments, royalties and other key terms, would be no less favorable to Healios than such terms set forth in Exhibit 4.

(ii) [*].

(iii) As consideration for ATHX’s grant of the China Option and [*] in accordance with clause (a) above (as well as any additional warrants exercisable under any separate agreements between the Parties), Healios would pay to ATHX a maximum amount equal to Fifteen Million US Dollars ($15,000,000.00), [*]. Such Fifteen Million US Dollar ($15,000,000.00), or any portion thereof, would, at the election of Healios by notice to ATHX, be capable of being applied as a credit towards any milestone payment that becomes due under the Initial License Agreement in accordance with Section 6.4 below.

(b) Notwithstanding anything to the contrary set forth herein, during the China ROFN Period, if Healios agrees to pay the amounts set forth in Section 5.3(a)(iii) in accordance with the terms therein, the Parties shall enter into written agreements for the China Option and [*] reflecting the terms set forth in Exhibit 4 and Exhibit 5, respectively, as such terms may be more specifically reflected together with additional terms in such written agreements if and as mutually agreed.

SECTION 6 PAYMENTS.

6.1	Healios will pay to ATHX the sum of Ten Million US Dollars ($10,000,000.00) on or within five business days after the Effective Date. Healios may satisfy such payment obligation through the release and payment of the Escrow Amount (as defined in the LOI) to ATHX pursuant to the terms of the LOI.

6.2	Healios will pay to ATHX the sum of Two Million Five Hundred Thousand US Dollars ($2,500,000.00) on or before each of the following dates (for a total of Ten Million US Dollars ($10,000,000.00)):

(a) June 7, 2018.

(b) September 1, 2018.

(d) March 1, 2019.

6.3

Each of such payments in Sections 6.1 and 6.2 is due on or before 11:59 pm Eastern (New York)Time on the date specified. If Healios so requests, ATHX will issue an invoice for any of the above payments, provided however, the date of each such payment is due on the date specified in Sections 6.1 and 6.2 above, as applicable, regardless of whether or not Healios requests an invoice or the date upon which any of such invoices requested is issued or received.

6.4

Each of such payments is not contingent on any factor (other than the passage of time) and once it is received by ATHX, it is non-refundable, provided however, the total amount of such payments received by ATHX pursuant to Section 6.2 at any point in time, or any portion thereof, may, at the election of Healios by notice to ATHX, be applied as a credit towards any milestone payment that becomes due under the Initial License Agreement, as follows:

(a) Healios may apply any of such amounts paid under Section 6.2 above as a credit against the remaining amount due in excess of [*] under Sections 7.3(a) or 7.5(a) of the Initial License Agreement (after application of any credits against such milestone that have been applied or are or might become available through other agreements between the Parties) ( i.e. , a maximum deduction of [*] each for Sections 7.3(a) and 7.5(a) of the Initial License Agreement), and

CONFIDENTIAL

(b) Healios may apply any of such amounts paid under Section 6.2 above as a credit against up to [*] of the amount stated to be due under Sections 7.3(b), Section 7.4, Section 7.5(b) and Section 7.6 of the Initial License Agreement (as amended by the Third Amendment to License Agreement).

For the avoidance of doubt, the payment made under Section 6.1 may not be used as a credit for any purpose.

6.5

Any payments made by a Party pursuant to this Agreement shall not be reduced on account of any taxes unless required by applicable law. ATHX shall be responsible for paying any and all taxes (other than withholding taxes required to be paid by Healios under applicable law, except to the extent that ATHX does not provide any requested IRS documentation) levied on account of, or measured in whole or in part by reference to, any payments it receives hereunder. Healios shall deduct or withhold from any such payments to ATHX any taxes that Healios is required to deduct or withhold under applicable law. Notwithstanding the foregoing, if ATHX is entitled under any applicable tax treaty to a reduction in the rate of, or the elimination of, applicable withholding tax, it may deliver to Healios or the appropriate governmental authority (with the assistance of Healios to the extent that such assistance is reasonably required and is requested in writing) the prescribed forms necessary to reduce the applicable rate of withholding or to relieve Healios of its obligation to withhold tax, and Healios shall apply the reduced rate of withholding, or dispense with withholding, as the case may be, provided that Healios has received evidence, in a form reasonably satisfactory to Healios, of ATHX’s delivery of all applicable forms (and, if necessary, its receipt of appropriate governmental authorization) at least 10 days prior to the time that the payments are due. If, in accordance with the foregoing, Healios withholds any amount, it shall (a) timely remit to ATHX the balance of such payment excluding the withheld tax; (b) timely remit the full amount withheld to the proper governmental authority; and (c) send to ATHX written proof of remittance of the full amount withheld within 30 days following remittance.

SECTION 7 TERM AND TERMINATION.

7.1

This Agreement is effective on the Effective Date and remains in full force and effect until the first to occur of: (a) each of the Initial License Agreement, OPHTH License Agreement, and Combination Product License Agreement is terminated, (b) Healios has paid to ATHX a total of Twenty Million US Dollars ($20,000,000.00) under Sections 6.1 and 6.2 of this Agreement and applied a total of Ten Million US Dollars ($10,000,000.00) in credits pursuant to Section 6.4, and the periods for the negotiation contemplated in Sections 5.1, 5.2 and 5.3 have expired pursuant to the terms set forth therein, and (c) this Agreement is terminated pursuant to Section 7.2.

7.2

If Healios does not pay any of the amounts due under Section 6.1 or Section 6.2 on or before the corresponding date due, then ATHX may notify Healios of such missed payment. If Healios does not pay the amount due within 15 days after such notice of late payment from ATHX, ATHX may terminate this Agreement with immediate effect by notice to Healios.

7.3	Upon termination of this Agreement for any reason:

(a) the provisions in Sections 1, 6.5, 7.3, 7.4, 7.5, 8 and 10 shall survive termination of this Agreement if and as applicable, and solely with respect to termination by ATHX pursuant to Section 7.2, the provisions in Sections 6.1, 6.2 and 6.3 shall additionally survive such termination; and

(b) all obligations accruing prior to termination of this Agreement shall remain due and owed in accordance with their respective terms.

7.4	Termination of this Agreement pursuant to Section 7.2 automatically terminates the OPHTH License Agreement and the Combination Product License Agreement without further action by either Party.

7.5	Termination of this Agreement pursuant to Section 7.2 also terminates the effects of the Third Amendment to the Initial License Agreement, so that the Initial Agreement reverts to its terms and conditions that were in effect as of the Effective Date.

SECTION 8 CONFIDENTIALITY.

8.1

“ Confidential Information ” means (a) terms of this Agreement (but not its mere existence) and (b) any and all proprietary information disclosed by one Party (“ Discloser ”) to the other Party (“ Recipient ”) under this Agreement or in connection with the administration of the Parties’ rights and obligations under this Agreement, whether orally, visually, electronically such as by email or in an electric file, or in writing, which (i) if disclosed in writing or other tangible form, is clearly designated as being confidential by a mark with the word “Confidential” or a similar warning, or (ii) if disclosed orally, visually or in other non-tangible form, is disclosed as confidential at the time of disclosure, reduced to a written document describing such information and the place and date of such disclosure and provided to Recipient with a mark with the word “Confidential” or a similar warning within 30 days from the date of disclosure; provided, however, that the Confidential Information does not include information that falls under any of the following categories, which shall be proved by Recipient:

(a) Information which is publicly known at the time of disclosure by Discloser or information which becomes publicly known with no fault of Recipient after disclosure by Discloser;

(b) Information which is already in the possession of Recipient on or before disclosure by Discloser;

(c) Information which Recipient duly obtains from a third party who is not under any obligation to maintain the confidentiality of such information;

(d) Information which Recipient has independently developed or obtained without the benefit of information disclosed by Disclosure; or

(e) Information for which the Recipient obtains from the Discloser a prior written approval for disclosure.

8.2

Except as otherwise provided in this SECTION 8, Recipient shall hold and maintain Confidential Information of Discloser in strict confidence, and shall not disclose to any third party such Confidential Information without a prior written approval of Discloser, and Recipient shall use Confidential Information solely for the purpose of exercising its rights and fulfilling its obligations under this Agreement (“ Purpose ”). Notwithstanding the foregoing, Recipient may disclose Confidential Information to its directors, statutory auditors, officers, employees and agents and those of its Affiliate (collectively referred to as “ Staff ”) when its Staff needs to know the Confidential Information for the Purpose. Recipient shall make its Staff comply with the obligations as set forth in this SECTION 8, whether during the period in which the Staff has positions in Recipient or after the Staffs leave Recipient and shall be fully liable to Discloser for their breach of such terms as if such breach was by Recipient.

8.3

Recipient may disclose Confidential Information of Discloser to its and its Affiliates’ sublicensees, as applicable, and its and their respective bankers, accountants, counsels, consultants and independent contractors (the “ Outside Staff ”) who need to know the Confidential Information for the Purpose or their professional duties in connection with the rights or obligations of Recipient under this Agreement, provided that Recipient shall cause the Outside Staff to be bound by no less stringent terms than those set forth in this SECTION 8 (applied mutatis mutandis) and shall be fully liable to Discloser for their breach of such terms as if such breach was by Recipient.

8.4	Recipient shall manage Confidential Information of Discloser with the same degree of care as it would manage its own confidential information but always with no less stringent degree of care than a reasonable care.

8.5

In the case where Recipient is required to disclose Confidential Information by any administrative or judicial organization (including the ICC for mediation or arbitration under this Agreement) or under any Law, including without limitation regulations and rules of stock exchange and, in response to the request, discloses the Confidential Information of Discloser, such disclosure is not a breach of the obligations as set forth in this SECTION 8. In such case, Recipient shall notify Discloser of such disclosure in advance, if an advance notice is impossible or difficult, promptly after such disclosure, and make reasonable efforts to minimize the scope of such disclosure.

8.6	The obligations set forth in this SECTION 8 shall be effective for 20years from Termination of this Agreement.

8.7	The Parties will issue a press release (in the form mutually agreed by the Parties) promptly after this Agreement becomes effective.

SECTION 9 REPRESENTATION AND WARRANTIES; DISCLAIMER.

9.1	Each of ATHX and Healios represents and warrants that it is duly organized and exists in good standing under the Laws of the jurisdiction in which it is organized, has the power to own its property and to carry on its business as now being conducted.

9.2

Each of ATHX and Healios represents and warrants that it has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder, including, without limitation, to grant the license as set forth in this Agreement, without consent of any third party and without breach of any agreements with or obligations to any third party.

9.3	Each of ATHX and Healios represents and warrants that it is not currently a party to and will not enter into agreement with an obligation to a third party inconsistent, incompatible, or conflicting with its obligations under this Agreement.

9.4	Each of ATHX and Healios represents and warrants that, to its knowledge as of the Effective Date, the information disclosed to the other Party in the course of discussion and negotiations in relation to this Agreement is true in all material respects.

9.5

EXCEPT AS PROVIDED EXPRESSLY IN THIS SECTION 9, NEITHER ATHX NOR HEALIOS MAKES ANY REPRESENTATIONS OR WARRANTIES UNDER THIS AGREEMENT WHATSOEVER, AND EACH OF ATHX AND HEALIOS HEREBY DISCLAIMS ALL OTHER SUCH POTENTIAL WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, AGAINST INFRINGEMENT, AND THOSE ARISING THROUGH COURSE OF DEALING OR TRADE OR OTHERWISE.

SECTION 10 MISCELLANEOUS.

10.1	This Agreement shall be governed by and construed under the Laws of State of New York without regard to its choice of law principles.

10.2

All disputes arising out of or relating to this Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by 3 arbitrators appointed in accordance with the said Rules. The Emergency Arbitrator Provisions shall not apply. The seat of the arbitration shall be Tokyo. The language to be used in the arbitration shall be English. The award rendered by arbitration shall be final and binding upon both Parties and judgment upon the award may be entered into in any court having jurisdiction for enforcement thereof. The Parties shall treat all matters relating to the arbitration, including, but not limited to, the existence of the arbitration, all documents produced by one Party in the arbitration, or the award rendered by the arbitration as Confidential Information.

10.3	NEITHER ATHX NOR HEALIOS WILL BE LIABLE UNDER THIS AGREEMENT FOR ANY SPECIAL, PUNITIVE, CONSEQUENTIAL, INCIDENTAL OR OTHER

INDIRECT DAMAGES OF ANY TYPE OR NATURE, WHETHER BASED IN CONTRACT, TORT, STRICT LIABILITY, NEGLIGENCE OR OTHERWISE, INCLUDING LOSS OF PROFITS OR REVENUES, EXCEPT (A) FOR WILLFUL BREACH OR BREACH RESULTED FROM BAD FAITH OF ANY PROVISION OF THIS AGREEMENT OR (B) BREACH OF THE CONFIDENTIALITY PROVISIONS IN SECTION 8.

10.4

Neither this Agreement nor any rights or obligations of any Party to this Agreement may be assigned or otherwise transferred by such Party without the consent of the other Party, except that a Party may assign this Agreement, without such consent, to an Affiliate or to a purchaser of or successor in interest to substantially all of that Party’s business or assets, through merger, sale of assets and/or sale of stock or ownership interest, consolidation or name change. Any permitted assignee shall assume all obligations of its assignor under this Agreement and provide notice of such assignment to the other Party promptly after such assignment. Any purported assignment in violation of this Section is void.

10.5	This Agreement may be executed in counterparts, each of which, when executed, are deemed to be an original and all of which together constitute one and the same document.

10.6

This Agreement together with its Exhibit(s) sets forth the entire agreement and understanding between the Parties as to the subject matter hereof and supersedes all agreements or understandings, verbal or written, made between ATHX, Healios and their respective Affiliates with respect to the subject matter hereof. None of the terms of this Agreement may be amended, supplemented or modified except in writing signed by the Parties.

10.7	Headings in this Agreement are included herein for reference only and shall not affect in any way the meaning or interpretation of this Agreement.

10.8

All notices, consents, approvals, requests or other communications required hereunder given by one Party to the other Party shall be in writing and made by (i) registered or certified air mail, postage prepaid and return receipt requested, (ii) facsimile, (iii) internationally recognized express overnight courier or (iv) delivered personally to the following addresses of the respective Parties:


If to ATHX:		ABT Holding Company
		3201 Carnegie Avenue
		Cleveland, OH 44115
		Attention: President
		Facsimile: +1.216.361.9495

with a copy to:		Jones Day
		4655 Executive Drive, Suite 1500
		San Diego, CA 92121
		Attention: Thomas A. Briggs


		Facsimile: +1.844.345.3178

If to Healios:		HEALIOS K.K.
		World Trade Center Bldg. 15F
		2-4-1 Hamamatsucho,
		Minato-ku, Tokyo, 135-6115 Japan
		Attention: Chairman & CEO,
		Tadahisa “Hardy” Kagimoto
		Facsimile: +81.3.3434.7231

with a copy to:		HEALIOS K.K.
		Attention: General Manager of Business Development,
		Hiromu Ozaki
		World Trade Center Bldg. 15F
		2-4-1 Hamamatsucho,
		Minato-ku, Tokyo, 135-6115 Japan
		Facsimile: +81.3.3434.7231

Notices hereunder are deemed to be effective (i) upon receipt when made by registered or certified air mail, (ii) upon receipt when sent by facsimile, provided that the sender retains a written confirmation of the successful transmittal, (iii) upon receipt when made by internationally recognized express overnight courier, or (iv) upon delivery if personally delivered. A Party may change its address listed above by sending notice to the other Party.

10.9	The relationship between ATHX and Healios is that of independent contractors. Nothing in this Agreement shall be constructed to create a relationship of employer and employee, partner, joint venture, or principal and agent.

10.10

The invalidity or unenforceability of any term or provision in this Agreement shall not affect the validity or enforceability of any other term or provision hereof. If any of the terms or provisions of this Agreement are in conflict with any applicable law or regulation, such term(s) or provision(s) shall be deemed inoperative to the extent they may conflict therewith and shall be deemed to be modified to confirm with such law and regulation.

10.11

Any right of one Party hereto to the other Party may not be or is not deemed waived except by an instrument in writing signed by the party having such right. All rights, remedies, undertakings, obligations and agreements contained in this Agreement are cumulative and none of them are a limitation of any other remedy, right, undertaking, obligation or agreement.

[Remainder of page intentionally blank]

IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be executed by their duly authorized officers upon the date set out below.


ABT Holding Company		HEALIOS K.K.

By:	/s/ Gil Van Bokkelen	By:	/s/ Tadahisa “Hardy” Kagimoto
Name:	Gil Van Bokkelen	Name:	Tadahisa “Hardy” Kagimoto
Title:	Chairman & CEO	Title:	Chairman & CEO

GUARANTEE BY ATHERSYS, INC.

Athersys, Inc. hereby irrevocably guarantees the performance of all of ATHX’s obligations under this Agreement.

Athersys, Inc.


By:		/s/ Gil Van Bokkelen
Name:		Gil Van Bokkelen
Title:		Chairman & CEO

Exhibit 1

Third Amendment to License Agreement

(See attached.)

Exhibit 1 to Collaboration Expansion Agreement

THIRD AMENDMENT TO LICENSE AGREEMENT

This Third Amendment to License Agreement (this “ Third Amendment ”) is made and entered into as of 6 June 2018 (“ Amendment Effective Date ”) between ABT Holding Company (“ ATHX ”), a Delaware corporation having its principal place of business at 3201 Carnegie Avenue, Cleveland, OH 44115 and wholly-owned subsidiary of Athersys, Inc. (“ Athersys ”), and HEALIOS K.K. (“ Healios ”), a Japanese company having its principal place of business at World Trade Center Bldg. 15F, 2-4-1 Hamamatsucho, Minato-ku, Tokyo 105-6115 Japan, and solely with respect to the guarantee set forth herein, Athersys. ATHX and Healios may be referred to individually as a “ Party ” and collectively as the “ Parties ”.

Background

A. The Parties entered into that License Agreement effective as of January 8, 2016, which was subsequently amended pursuant to that First Amendment to License Agreement dated July 21, 2017 and pursuant to that Second Amendment to License Agreement dated September 19, 2017 (such agreement, as amended as of the Amendment Effective Date or hereafter, the “ Initial License Agreement ”).

B. The Parties entered into that Letter of Intent for Collaboration Expansion as of March 13, 2018 (as amended, “ LOI ”), and as contemplated therein, subsequently entered into that Collaboration Expansion Agreement dated as of 6 June 2018 (“ CEA ”), pursuant to which the Parties agreed to enter into this Third Amendment.

C. In connection therewith, the Parties hereby desire for Healios to exercise its right to expand the “Primary Field” and the “Organ Bud Field” (as each such term is defined in the Initial License Agreement) and amend the terms of the Initial License Agreement relating thereto, in accordance with the terms set forth herein.

Agreement

ATHX and Healios hereby agree as follows:

SECTION 1 AMENDMENTS.

1.1	The definitions of “ARDS/[] Field” and “ARDS/[] Product” in Sections 1.2 and 1.3 of the Initial License Agreement are deleted and replaced with the following:

1.2 The term “ ARDS Field ” shall mean treatment, through intravenous administration, of acute respiratory distress syndrome, including idiopathic pulmonary fibrosis (“ ARDS ”) in humans.

1.3 The term “ ARDS Product ” shall mean any product for intravenous administration or administration by direct pulmonary

delivery, such as bronchoscopic delivery or bronchial administration, within the ARDS Field in the Territory.

1.2	Each use of the term “ARDS/[*] Field” throughout the Initial License Agreement is deleted and replaced with the term “ARDS Field”.

1.3	Each use of the term “ARDS/[*] Product” throughout the Initial License Agreement is deleted and replaced with the term “ARDS Product”.

1.4	Each use of the term “ARDS/[*]” throughout the Initial License Agreement (that is otherwise not addressed by Sections 1.2 and 1.3 above) is deleted and replaced with the term “ARDS”.

1.5	The definitions of Primary Field and Product in Sections 1.23 and 1.24 of the Initial License Agreement are deleted and replaced with the following:

1.23 The term “ Primary Field ” shall mean the Ischemic Stroke Field and the ARDS Field.

1.24 The term “ Product ” shall mean any Ischemic Stroke Product and any ARDS Product.

1.6	The definition of “Organ Bud Field” in Section 1.19 of the Initial License Agreement is deleted and replaced with the following:

1.19 The term “ Organ Bud Field ” shall mean the treatment of any organ diseases and/or dysfunctions in humans by implant of certain multicellular organ tissue precursors (such organ tissue precursors known as “organ buds”).

1.7	Section 2.4 of the Initial License Agreement is deleted in its entirety and replaced with the following:

2.4 Subject to the terms and conditions of this Agreement, ATHX grants to Healios, under the ATHX MAPC Background Patents, an exclusive, worldwide, non-transferable and non-assignable (except as provided pursuant to Section 19.6) license, with the right to grant sublicenses, to use MAPC provided by ATHX or its Affiliate to Healios, to research, develop, distribute, promote, market, make, have made, use, import, offer for sale, and sell Organ Bud Products in the Organ Bud Field, including to use in conjunction with both IPS and ES cell originated cell types, with or without endothelial cell types, in the process of manufacturing as part of the organ bud culture system. Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem products, then Healios may grant such sublicense only with the advance, written consent of ATHX, which will not be unreasonably

withheld, delayed or conditioned (including through any separate financial consideration). For clarity, the Parties hereby acknowledge that Healios may grant a sublicense to (i) Yokohama City University under the foregoing right to research and develop Organ Bud Products in the Organ Bud Field [*].

1.8	The content of Section 4 of the Initial License Agreement is deleted in its entirety and replaced with “[Section no longer used]”.

1.9	Schedule 1 (ATHX MAPC Background Patents) and Schedule 2 (ATHX MultiStem Background Patents) of the Initial License Agreement are deleted and replaced by Attachment 1 and Attachment 2, respectively, as attached hereto.

1.10	The following phrase at the start of Sections 7.5 and 7.6 of the Initial License Agreement is deleted: “After expansion of the Primary Field to include the ARDS/[*] Field in accordance with SECTION 4,”.

1.11	The following phrase is deleted from the first sentence of Section 14.4 of the Initial License Agreement: “, and, upon exercise of the option to expand such Primary Field in accordance with SECTION 4”.

1.12	A new sentence is added to the end of Section 7.8 of the Initial License Agreement: “Upon and after such time as the [*].”

SECTION 2 OTHER.

2.1	All terms and conditions of the Initial License Agreement not amended hereby remain in full force and effect.

2.2	This Third Amendment is effective as of the Amendment Effective Date.

2.3

The Parties acknowledge and agree that (a) receipt by Athersys of payment of the Escrow Amount (as defined in the LOI) to be paid to Athersys pursuant to the terms of the LOI shall, in addition to constituting the payment by Healios of the amounts set forth in Section 7.1 of the CEA, satisfy Healios’ payment of the Expansion Fee (as defined in the Initial License Agreement, prior to the amendments set forth herein) for Healios’ exercise of its right to expand the field of the licenses granted under the Initial License Agreement and (b) the release of such Escrow Amount and receipt of it by Athersys shall constitute full and sufficient consideration for the amendments contemplated herein.

Exhibit 1 to Collaboration Expansion Agreement

IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be executed by their duly authorized officers to be effective as of the Amendment Effective Date.


ABT Holding Company		HEALIOS K.K.

By:	/s/ Gil Van Bokkelen	By:	/s/ Tadahisa “Hardy” Kagimoto
Name:	Gil Van Bokkelen	Name:	Tadahisa “Hardy” Kagimoto
Title:	Chairman & CEO	Title:	Chairman & CEO

GUARANTEE BY ATHERSYS, INC.

Athersys, Inc. hereby irrevocably guarantees the performance of all of ATHX’s obligations under this Agreement.

Athersys, Inc.


By:		/s/ Gil Van Bokkelen
Name:		Gil Van Bokkelen
Title:		Chairman & CEO

Exhibit 1 to Collaboration Expansion Agreement

Attachment 1

ATHX MAPC Background Patents

(see attached.)

SCHEDULE 1

STEM CELL PATENTS AND APPLICATIONS

CONFIDENTIAL

[*]

Exhibit 1 to Collaboration Expansion Agreement

Attachment 2

ATHX MultiStem Background Patents

(see attached.)

SCHEDULE 2

STEM CELL PATENTS AND APPLICATIONS IN JAPAN

CONFIDENTIAL

[*]

Exhibit 1 to Collaboration Expansion Agreement

Attachment 3

[*]

Exhibit 2

OPHTH License Agreement

(See attached.)

Exhibit 2 to Collaboration Expansion Agreement

OPHTH LICENSE AGREEMENT

This OPHTH License Agreement (this “ Agreement ”), dated as of 6 June 2018 (the “ Effective Date ”), is made and entered into between ABT Holding Company (“ ATHX ”), a Delaware corporation having its principal place of business at 3201 Carnegie Avenue, Cleveland, OH 44115 and wholly-owned subsidiary of Athersys, Inc. (“ Athersys ”), and HEALIOS K.K. (“ Healios ”), a Japanese company having its principal place of business at World Trade Center Bldg. 15F, 2-4-1 Hamamatsucho, Minato-ku, Tokyo 105-6115 Japan, and solely with respect to the guarantee set forth herein, Athersys. ATHX and Healios may be referred to individually as a “ Party ” and collectively as the “ Parties ”.

Background

ATHX owns or otherwise controls certain patents, patent applications, know-how and trademarks potentially useful for the treatment of certain ophthalmological diseases when used alone or in combination with retinal pigment epithelium (“ RPE ”) cells derived from either induced pluripotent stem cells (“ iPSC ”) or embryonic stem cells (“ ESC ”).

Pursuant to the transactions contemplated by the Collaboration Expansion Agreement between the Parties effective as of the Effective Date to which this Agreement is attached as Exhibit 2 (“ Collaboration Expansion Agreement ”), and in partial consideration of the amounts payable thereunder, Healios would like to be granted a license under the intellectual property rights of ATHX, and ATHX is willing to grant such license, in accordance with the terms and conditions set forth below.

Agreement

ATHX and Healios hereby agree as follows:

SECTION 1 DEFINITIONS.

Capitalized terms used in this Agreement shall have the meaning ascribed to them in the preamble or recitals above, this Section 1, or the following Sections of this Agreement.

1.1 The term “ Affiliate ” shall mean, with respect to a Party, a corporation or other legal entity, directly or indirectly, controlling, controlled by or under common control with such Party. For purpose of this definition, the term “ control ” and, with correlative meanings, the terms “ controlled by ” and “ under common control with ”, as used with respect to any corporation or other entity, means (a) direct or indirect ownership of fifty percent (50%) or more of the securities or other ownership interests representing the equity voting stock or general partnership or membership interest of such corporation or other entity or (b) the power to direct or cause the direction of the management or policies of such corporation or other entity, whether through the ownership of voting securities by contract or otherwise.

1.2 The term “ Acceptance for Filing ” shall mean that an application for Approval (or Conditional Approval in the case of Japan) of a Licensed Product for use with humans in the

applicable portion of the Territory has been submitted to the Regulatory Authority for preliminary administrative review or an equivalent regulatory process to ensure that the dossier submitted is properly formatted and such application either has been expressly accepted or has been deemed accepted because it was not rejected within the time permitted by Law.

1.3 The term “ Approval ” shall mean approval by the Regulatory Authority or other duly authorized governmental authority(ies) in an applicable portion of the Territory necessary for sale and distribution of an approved Licensed Product in such portion of the Territory.

1.4 The term “ ATHX Foreground Patents ” shall mean any (a) patents and patent applications that are first owned or controlled by ATHX or any of its Affiliates after the Effective Date, excluding any such patents or patent applications that are jointly owned with Healios, (b) pre-grant forms claiming priority to any of the foregoing, including provisionals, converted provisionals, divisionals, continuations (in whole or in part), (c) all patents issuing from any of the foregoing, and (d) all post-grant forms of any of the foregoing, including extensions, reissues or renewals, in each case, that (if issued) would be infringed, but for the license granted under Sections 3.1, 3.2 and 3.3, by the manufacture, research, development, distribution, promotion, marketing, use, import, offer for sale or sale of Licensed Products in the Licensed Field.

1.5 The term “ ATHX MultiStem Background Know-How ” shall mean Know-How that is owned or controlled by ATHX or its Affiliates as of the Effective Date, in each case, that is specifically related to Licensed Products in the Licensed Field or to research, development, distribution, promotion, marketing, manufacture, use, import, offer for sale, or sale of Licensed Products in the Licensed Field.

1.6 The term “ ATHX MultiStem Background Patents ” shall mean any (a) patents and patent applications that are owned or controlled by ATHX or any of its Affiliates as of the Effective Date and are pending or issued anywhere in the Territory, (b) pre-grant forms claiming priority to any of the foregoing, including provisionals, converted provisionals, divisionals, continuations (in whole or in part), (c) all patents issuing from any of the foregoing, and (d) all post-grant forms of any of the foregoing, including extensions, reissues or renewals, in each case, that (if issued) would be infringed, but for the license granted under Sections 2.1, 2.2 and 2.3, by the manufacture, research, development, distribution, promotion, marketing, use, import, offer for sale or sale of Licensed Products in the Licensed Field. ATHX MultiStem Background Patents owned or controlled by ATHX as of the Effective Date include the patents as listed in Schedule 1 .

1.7 The term “ Conditional Approval ” shall mean, with respect to Approvals in Japan, approval under the Japanese Pharmaceuticals and Medical Devices Act (PMDA) enacted November 2014 for a Licensed Product that allows time-limited marketing approach for use of such Licensed Product.

1.8 The term “ Cost of Supply ” shall mean [*].

1.9 The term “ Foreground IP ” shall mean, with respect to a Party, (a) any and all non-public, proprietary technical information, know-how, trade secret, data, test results, knowledge,

techniques, discoveries, inventions, specifications, designs, regulatory filings, and other information (whether or not patentable) and (b) any intellectual property rights thereon (except trademarks), including patent and patent application issuing or filed for based thereon and copyright; in each case under clause (a) and (b), that is related to a Licensed Product or to the research, manufacture, development, distribution, promotion, marketing, use, import, offer for sale or sale of a Licensed Product and that is first owned or controlled on or after the Effective Date by such Party or any of its Affiliates. For clarity, Foreground IP of ATHX shall include the ATHX Foreground Patents.

1.10 The term “ Know-How ” shall mean any and all non-public, proprietary technical information, know-how, trade secret, data, test results, knowledge, techniques, discoveries, inventions, specifications, designs, regulatory filings, and other information (whether or not patentable).

1.11 The term “ Laws ” shall mean all applicable laws, statutes, regulations, rules, ordinance, order, decree, ruling or binding position or guideline of any governmental authority having jurisdiction over the subject act(s) or matter(s).

1.12 The term “ Licensed Field ” shall mean treatment, through local administration to the eye, of the ophthalmological diseases or conditions set forth on Schedule 2 (Licensed Field) in humans using either (a) a MultiStem Combination Ophthalmological Product or (b) a MultiStem Standalone Ophthalmological Product.

1.13 The term “ Licensed Product ” shall mean any MultiStem Combination Ophthalmological Product or MultiStem Standalone Ophthalmological Product.

1.14 The term “ MultiStem Combination Ophthalmological Product ” shall mean any MultiStem Product that is used in treatment of a disease within the Licensed Field, through local administration to the eye, in combination with either (a) RPE cells derived from iPSCs or (b) RPE cells derived from ESCs.

1.15 The term “ MultiStem Product ” shall mean any product that is covered by any claim of any ATHX MultiStem Background Patent or ATHX’s Foreground IP or that is otherwise manufactured, reproduced, modified, derived, developed, administered or used from, with, containing or based upon any of the ATHX MultiStem Background Know-How or ATHX’s Foreground IP.

1.16 The term “ MultiStem Standalone Ophthalmological Product ” shall mean any MultiStem Product that is used in treatment of a disease within the Licensed Field, through local administration to the eye, on a standalone basis.

1.17 The term “ Net Sales ” shall mean, with respect to each Licensed Product or component thereof (whether such components are sold individually or as a combination), the total gross sales of such Licensed Product or component(s) sold by Healios, its Affiliate or their respective direct or indirect sublicensee under the license or sublicense of this Agreement, for arm’s length sales to

any non-Affiliated third party, less the following deductions: trade and cash discounts, sales and excise taxes, rebates and return of goods. The foregoing shall be booked or calculated in accordance with Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standard (IFRS) each as consistently applied by the selling entity. For clarification, if the Licensed Product once sold by Healios, its Affiliate or their sublicensee, for arm’s length sales to any non-Affiliated third party is recalled for a reason attributable to ATHX, such sales shall be deducted from the Net Sales.

1.18 The term “ Other Improvements ” shall mean with respect to a Party, (a) any and all non-public, proprietary technical information, know-how, trade secret, data, test results, knowledge, techniques, discoveries, inventions, specifications, designs, regulatory filings, and other information (whether or not patentable) and (b) any intellectual property rights thereon (except trademarks), including patent and patent application issuing or filed for based thereon and copyright; in each case under clause (a) and (b), that result from activities conducted in accordance with this Agreement and that are not otherwise Foreground IP.

1.19 The term “ Potential Permitted Sublicensees ” shall mean [*].

1.20 The term “ Regulatory Authority ” shall mean any international, national, regional, state, or local governmental or regulatory or quasi-governmental or quasi-regulatory body, agency, department, bureau, or other entity responsible for the regulation (including pricing) of any aspect of pharmaceutical or medicinal products intended for human therapeutic use.

1.21 The term “ Representative ” shall mean, with respect to a Party, any Affiliate of such Party, and any director(s), officer(s), employee(s), agent(s), consultant(s), independent contractor(s) or other representative(s) of such Party or its Affiliate.

1.22 The term “ Royalties ” shall mean the amount calculated on Net Sales of Licensed Products pursuant to Section 5.5.

1.23 The term “ Termination of this Agreement ” shall mean any expiration of this Agreement in its entirety under Section 10.2 or termination of this Agreement in its entirety for any reason under SECTION 11.

1.24 The term “ Territory ” shall mean worldwide.

1.25 The term “ Trademark for Combination Products ” shall mean any trademark that is selected and used by Healios for the commercialization of MultiStem Ophthalmological Combination Products and that is not owned by, or confusingly similar to any trademark owned by or licensed to, ATHX or any of its Affiliates.

1.26 The term “ Trademark for Standalone Products ” shall mean any trademark owned by ATHX or its Affiliates and licensed to Healios under this Agreement for the commercialization of MultiStem Ophthalmological Standalone Products for the Licensed Field.

SECTION 2 LICENSE OF BACKGROUND IP.

2.1 Subject to the terms and conditions of this Agreement, ATHX grants to Healios, under the ATHX MultiStem Background Patents and ATHX MultiStem Background Know-How (collectively “ ATHX MultiStem Background IP ”), an exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, to research, develop, use, distribute, promote, market, offer for sale, sell and import Licensed Products throughout the Territory solely for and in the Licensed Field. Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem Products, then Healios may grant such sublicense only with the advance, written consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

2.2 Subject to the terms and conditions of this Agreement, ATHX grants to Healios, under the ATHX MultiStem Background IP, a non-exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, to make and have made MultiStem Combination Ophthalmological Products using the MultiStem Products supplied by ATHX pursuant to SECTION 8, for purposes of researching, developing (including in conducting clinical trials), using, distributing, promoting, marketing, offering for sale, selling or importing such MultiStem Combination Ophthalmological Products pursuant to the license granted to Healios in Section 2.1. For clarity, the foregoing license shall include rights for Healios to (i) conduct non-systemic, localized administration of the MultiStem Products at the same time and immediate vicinity as an iPSC-derived cell transplantation to make the MultiStem Combination Ophthalmological Product and (ii) use a combination formulation containing both the MultiStem Product and iPSC-derived cells to make the MultiStem Combination Ophthalmological Product. Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem Products, then Healios may grant such sublicense only with the advance, written consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

2.3 Subject to the terms and conditions of this Agreement, ATHX will grant to Healios under the ATHX MultiStem Background IP, a non-exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, to make, have made and import (i) MultiStem Standalone Ophthalmological Products and (ii) MultiStem Product portions of the Licensed Products worldwide throughout the Territory solely for and in the Licensed Field, upon and after any of the following events occurs:

(a) ATHX does not supply the MultiStem Product portion of the Licensed Products to Healios at the pricing set forth in Section 8.3;

(b) ATHX fails to supply all or a material part of the amount of the MultiStem Product portion of the Licensed Products reasonably requested by Healios, in accordance with Section 8.2, by any delivery date in a binding purchase order and fails to supply the shortfall within a reasonable period from the delivery date;

(d) At least 30 days before ATHX voluntarily files a petition for commencement of insolvency proceedings including, without limitation, bankruptcy, liquidation and reorganization (collectively referred to as “ Insolvency Proceeding ”);

(e) Prior to a court of competent jurisdiction issues (i) an order of relief in an Insolvency Proceeding with ATHX as the debtor or (ii) an order of commencement of an involuntary Insolvency Proceeding against ATHX and after such proceeding is not dismissed within 45 days after such commencement;

(f) ATHX is acquired by a non-Affiliated third party, and such license grant shall become effective simultaneously with such acquisition; or

(g) The Parties discuss and mutually agree to the transfer of manufacturing rights for the MultiStem Product from ATHX to Healios pursuant to a separate agreement in writing between the Parties.

Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem Products, then Healios may grant such sublicense only with the advance, written consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

2.4 ATHX represents and warrants that, to the best of its knowledge as of the Effective Date, the ATHX MultiStem Background Patents for the Licensed Field in the Territory are as specified in Schedule 1 . ATHX shall update Schedule 1 to reflect the current state of ATHX MultiStem Background Patents in the Territory and send to Healios the updated Schedule 1 as of each anniversary of the Effective Date within a 30 day period from the anniversary.

2.5 As between the Parties, ATHX or its Affiliate is and shall remain the sole owner of all ATHX MultiStem Background Patents, and ATHX shall be responsible for preparation, filing, prosecution, maintenance of all such ATHX MultiStem Background Patents in its sole discretion and at its sole cost and expense.

2.6 The rights to sublicense in Sections 2.1, 2.2, 2.3, 3.1, 3.2, and 3.3 could include the right to sublicense, without consent of ATHX, to Potential Permitted Sublicensees, [*].

SECTION 3 FOREGROUND IP AND OTHER IMPROVEMENTS.

3.1 Subject to the terms and conditions of this Agreement, ATHX shall grant, and hereby grants immediately upon the existence of any Foreground IP of ATHX, to Healios an exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, under the Foreground IP of ATHX to research, develop, use, distribute, promote, market, offer for sale, sell and import Licensed Products throughout the Territory solely for and in the Licensed Field. Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem Products, then Healios may grant such sublicense only with the advance, written consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

3.2 Subject to the terms and conditions of this Agreement, ATHX grants to Healios, under the Foreground IP of ATHX, a non-exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, to make and have made MultiStem Combination Ophthalmological Products using the MultiStem Products supplied by ATHX pursuant to SECTION 8, for purposes of researching, developing (including in conducting clinical trials), using, distributing, promoting, marketing, offering for sale, selling or importing such MultiStem Combination Ophthalmological Products pursuant to the license granted to Healios in Section 3.1. For clarity, the foregoing license shall include rights for Healios to (i) conduct non-systemic, localized administration of the MultiStem Products at the same time and immediate vicinity as an iPSC-derived cell transplantation to make the MultiStem Combination Ophthalmological Product and (ii) use a combination formulation containing both the MultiStem Product and iPSC-derived cells to make the MultiStem Combination Ophthalmological Product. Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem Products, then Healios may grant such sublicense only with the advance, written consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

3.3 Subject to the terms and conditions of this Agreement, ATHX will grant to Healios under the Foreground IP of ATHX, a non-exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, to make, have made and import (i) MultiStem Standalone Ophthalmological Products and (ii) MultiStem Product portions of the Licensed Products worldwide solely for use in the Licensed Field, upon and after occurrence of any of the events described in clauses (a) – (h) of Section 2.3. Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem Products, then Healios may grant such sublicense only with the advance, written

consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

3.4 Subject to the terms and conditions of this Agreement (and any other binding agreement between the Parties), Healios shall grant, and hereby grants immediately upon the existence of any Foreground IP of Healios specifically related to the manufacturing of the MultiStem Products, to ATHX a non-exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, under the Foreground IP of Healios, with the right to grant sublicenses, to research, develop, make, have made, use, distribute, promote, market, offer for sale, sell and import products outside the Licensed Field.

3.5 Unless constrained by the agreement with any licensee of ATHX or its Affiliate or as provided in any other agreement between Parties, ATHX will make reasonable efforts to consult with and enable Healios to use non-clinical/clinical data, record of discussions and meetings with regulatory agencies, and test results of the MultiStem Product portion of the Licensed Product (or any other non-RPE combination products of the MultiStem Products) generated by ATHX, its Affiliate or a licensee of ATHX, as reasonably necessary for Healios’ obtaining approval of the Licensed Product in the Licensed Field, including, but not limited to, filing applications for approval.

3.6 At least once per calendar quarter, each Party shall disclose in writing to the JSC and the other Party a general description of all new Foreground IP, including the results of any research or development relating to the Licensed Field and generated by such Party or any of its Affiliates since the last time reported. If a Party recognizes that any Foreground IP created by a Party and not previously disclosed to the other Party is reasonably likely to have a material impact on the activities contemplated by this Agreement, then such Party shall promptly notify the JSC and other Party of such Foreground IP. Each Party shall provide further, more detailed disclosures of any such Foreground IP as reasonably requested by the other Party or the JSC from time to time.

3.7 Inventorship of Foreground IP and Other Improvements, whether or not patentable, shall be determined in accordance with U.S. patent laws. Authorship of Foreground IP and Other Improvements shall be determined in accordance with U.S. copyright laws.

3.8 As between the Parties, ownership of Foreground IP shall be determined as follows:

(a) ATHX shall solely own all Foreground IP for which one or more Representatives of ATHX is/are the only inventor(s) or author(s), as applicable;

(b) Healios shall solely own all Foreground IP for which one or more Representative(s) of Healios is/are the only inventor(s) or author(s), as applicable; and

(c) ATHX and Healios shall jointly own all Foreground IP for which one or more Representative(s) of ATHX together with one or more Representative(s) of Healios are joint inventor(s) or author(s), as applicable;

in each such case, subject to (i) the licenses granted in such Foreground IP in this SECTION 3 and (ii) Healios shall not grant any license or otherwise permit any Person to use, access or exploit any of the Foreground IP of Healios for any purpose outside of the Licensed Field.

3.9 ATHX shall be responsible for preparation, filing, prosecution, maintenance of all such Foreground IP of ATHX in its sole discretion and at its sole cost and expense.

3.10 Healios shall be responsible for preparation, filing, prosecution, maintenance of all such Foreground IP of Healios in its sole discretion and at its sole cost and expense.

3.11 As between the Parties, ownership of Other Improvements shall be determined consistent with inventorship, or authorship, as applicable.

3.12 As between the Parties, unless otherwise mutually agreed by the Parties, ATHX shall be responsible for preparation, filing, prosecution, maintenance of all patent applications and patents that claim (i) jointly-owned Foreground IP or (ii) Other Improvements owned jointly by ATHX and Healios, in each case after obtaining a consent on the documents to be filed at the patent office from Healios, and the cost and expense of all such activities will be shared equally by the Parties. Except as provided in the preceding sentence, each of the Parties may exploit jointly-owned Foreground IP and Other Improvements, including any issued patents granted thereon, independently of, and without accounting to, the other joint owner (subject to any applicable underlying rights of either Party that may be required to exploit such joint ownership rights).

SECTION 4 TRADEMARKS.

4.1 ATHX shall select the Trademark for Standalone Products in accordance with Laws in the Territory and taking into account advice from relevant authorities. The Trademark for Standalone Products shall be property of ATHX.

4.2 As between the Parties, ATHX shall have the right and obligation (if so requested by Healios) to register and maintain the Trademark for Standalone Products for the MultiStem Ophthalmological Standalone Products at the competent authority throughout the Territory. ATHX shall file application of and maintain the registration of Trademark for Standalone Products and defend the registration against any third party’s challenge including, without limitation, filing of invalidation trial. ATHX shall be responsible for the costs and fees incurred in relation to filing application of, maintaining and defending the registration of the Trademark for Standalone Products. Healios will cooperate with ATHX with respect to all such activities as reasonably requested by ATHX from time to time, including by providing such testimony, documents, samples or other materials required to prove use of the Trademark for Standalone Products anywhere in the Territory. The reasonable out-of-pocket costs and fees incurred by Healios in connection with such cooperation shall be reimbursed by ATHX.

4.3 Healios shall promptly notify ATHX of any known infringements or other violations of the Trademark for Standalone Products anywhere in the Territory. The Parties may enforce the rights in the Trademark for Standalone Products as described in Section 15.2.

4.4 Subject to the terms and conditions of this Agreement, ATHX hereby grants to Healios and its Affiliate an exclusive, non-transferable and non-assignable license (except as provided pursuant to Section 17.6), with the right to sublicense with prior written notice to ATHX, to use the Trademark for Standalone Products to develop, use, distribute, promote, market, offer for sale, sell, and import MultiStem Ophthalmological Standalone Products in the Licensed Field in the Territory.

4.5 Healios shall and shall cause its Affiliate and its and their respective sublicensee to only distribute, use, promote, market, offer for sale, and sell MultiStem Ophthalmological Standalone Products in the Licensed Field throughout the Territory using the Trademark for Standalone Products. Furthermore, upon and after notice by ATHX, Healios shall refer to MultiStem Ophthalmological Standalone Products in its regulatory filings for the Licensed Field anywhere in the Territory using the Trademark for Standalone Products.

4.6 All goodwill of the Trademark for Standalone Products generated through use of it by Healios, its Affiliate and its and their respective sublicensee will inure to the sole benefit of ATHX. Healios shall not, and shall cause its Affiliate and their respective sublicensee not to (a) use, register or apply to register the Trademark for Standalone Products, an variant of it, any mark including it or any variant of it, or any mark confusingly similar to the Trademark for Standalone Products or (b) do or permit to be done any act that impairs, prejudices, dilutes or infringes ATHX’s rights in the Trademark for Standalone Products.

4.7 Healios shall and shall cause its Affiliate and its and their respective sublicensee to only use the Trademark for Standalone Products in the form approved by ATHX from time to time, provided that the approval shall not be unreasonably withheld. Healios shall provide to ATHX samples of use of the Trademark for Standalone Products as reasonably requested by ATHX from time to time.

4.8 Healios, its Affiliate or their sublicensee may seek the foregoing approval from ATHX, which approval shall not be unreasonably withheld or delayed, for use of the Trademark for Standalone Products in combination with any mark indicating (i) Healios, its Affiliate or their sublicensee, including, without limitation, corporate identity of Healios, its Affiliate or their sublicensee or (ii) any brand controlled or owned by Healios, its Affiliate or their sublicensee.

4.9 As between the Parties, Healios shall select and own the Trademark for Combination Products, and Healios shall have the right to register and maintain the Trademark for Combination Products at the competent authority in the Territory. Healios shall be the party to file application of and maintain the registration of Trademark for Combination Products and to defend the registration against any third party’s challenge including, without limitation, filing of invalidation trial. Healios shall be responsible for the costs and fees incurred in relation to filing application of, maintaining and defending the registration of the Trademark for Combination Products. Healios shall have the sole right to enforce the Trademark for Combination Products against infringements or other violations thereof, shall be responsible for all costs and fees incurred in relation to such activities, and shall be entitled to retain all awards or damages in connection with such activities.

4.10 ATHX does not grant to Healios, and Healios shall not use, any trademark of ATHX (including, for example, the mark MULTISTEM or translation thereof) or any mark confusingly similar thereto in connection with any MultiStem Ophthalmological Combination Products. If Healios desires to use any of the foregoing or any other trademark owned by or licensed to Athersys or any of its Affiliates in connection with MultiStem Ophthalmological Combination Products, Healios may notify Athersys and the Parties will discuss in good faith the circumstances and associated terms and conditions related to such use.

SECTION 5 PAYMENTS.

5.1 As partial consideration towards the rights granted under this Agreement, Healios has paid and might be required to pay after the Effective Date certain payments pursuant to the Collaboration Expansion Agreement.

5.2 As partial consideration for the rights granted under this Agreement, Healios shall pay to ATHX the following payments provided in Table 5.2(b) (“ Development Milestone Payments ”) for achieving certain development milestones for the first time in each territory specified below, each of which milestone payments shall be non-refundable, non-creditable towards future royalties or any other payments due from Healios under this Agreement and shall be due within 45 days from the end of the calendar quarter in which the milestone is achieved:

(a) For MultiStem Combination Ophthalmological Products: [*]

(b) For MultiStem Standalone Ophthalmological Products:


Table 5.2(b): Development Milestone Payments for MultiStem Standalone Ophthalmological Products
Development Milestone Activity		Milestone Payment (US Dollars)
[*]		[*]
[*]		[*]
[*]		[*]
[*]		[*]
[*]		[*]
[*]		[*]
[*]		[*]

(i) [*].

(ii) [*].

(iii) [*].

(iv) [*].

(v) [*].

5.3 As a partial consideration for the rights granted under this Agreement, and in addition to the milestones provided in Section 5.2, Healios shall pay to ATHX each of the following sales milestone payments upon first achievement of the corresponding Net Sales of Licensed Products in a calendar year provided in Table 5.3(b) (“ Sales Milestone Payments ”), which shall be non-refundable, non-creditable towards future royalties or any other payments due from Healios under this Agreement and shall be due within 45 days from the end of the calendar quarter in which the milestone is achieved:

(a) For MultiStem Combination Ophthalmological Products: [*]

(b) For MultiStem Standalone Ophthalmological Products:



Table 5.3(b): Sales Milestone Payments for MultiStem Standalone Ophthalmological Products

Net Sales in a Calendar Year		Milestone Payment (US Dollars)

[*]		[*]

[*]		[*]

[*]		[*]

5.4 Healios shall notify ATHX of the occurrence of each of the milestones provided in Sections 5.2 and 5.3 within 30 days of each such occurrence. ATHX will provide an invoice for any such payment promptly after request by Healios, but the date of such invoice will have no effect on the due date for the payment.

5.5 As partial consideration for the rights granted under this Agreement, and in addition to any payments due under Sections 5.2 and 5.3, Healios shall pay to ATHX Royalties on Net Sales of Licensed Products at the following rates, which payments shall be made in US Dollars within 60 days from the end of each calendar quarter:

(a) For MultiStem Combination Ophthalmological Products: [*] of Net Sales.

(b) For MultiStem Standalone Ophthalmological Products:

Table 5.5(b): Royalty Rates for MultiStem Standalone Ophthalmological Products

Net Sales of Products (US Dollars)

Royalty Rate (% of Net Sales)

[*]

5.6 To calculate any amounts due under this Agreement in US Dollars, Healios shall convert the amount of Net Sales of Licensed Products from the currency in which such Net Sales were collected to US Dollars using the currency conversion published by the Wall Street Journal, Eastern Edition , and based upon the average conversion rate for the calendar quarter being reported.

5.7 All amounts required to be paid by Healios under this Agreement shall be paid in US Dollars even if the calculation of such amount is not based upon US Dollars.

5.8 Any payments made by a Party pursuant to this Agreement shall not be reduced on account of any Taxes unless required by applicable law. ATHX shall be responsible for paying any and all Taxes (other than withholding taxes required to be paid by Healios under applicable law, except to the extent that ATHX does not provide any requested IRS documentation) levied on account of, or measured in whole or in part by reference to, any payments it receives hereunder. Healios shall deduct or withhold from any such payments to ATHX any Taxes that Healios is required to deduct or withhold under applicable law. Notwithstanding the foregoing, if ATHX is entitled under any applicable Tax treaty to a reduction in the rate of, or the elimination of, applicable withholding Tax, it may deliver to Healios or the appropriate governmental authority (with the assistance of Healios to the extent that such assistance is reasonably required and is requested in writing) the prescribed forms necessary to reduce the applicable rate of withholding or to relieve Healios of its obligation to withhold Tax, and Healios shall apply the reduced rate of withholding, or dispense with withholding, as the case may be, provided that Healios has received evidence, in a form reasonably satisfactory to Healios, of ATHX’s delivery of all applicable forms (and, if necessary, its receipt of appropriate governmental authorization) at least 10 days prior to the time that the payments are due. If, in accordance with the foregoing, Healios withholds any amount, it shall (a) timely remit to ATHX the balance of such payment excluding the withheld tax; (b) timely remit the full amount withheld to the proper governmental authority; and (c) send to ATHX written proof of remittance of the full amount withheld within 30 days following remittance.

5.9 Healios will keep, and will cause each of its Affiliates or other sublicensees to keep, records reasonably sufficient to determine all amounts payable to ATHX under this Agreement

(including the calculation of Royalties) for the longer of (a) 3 years after their creation or (b) the minimum period of time required by applicable law.

5.10 During the Term and for a period ending 3 years thereafter, at the request of ATHX, Healios will permit an independent certified public accounting firm of nationally recognized standing in the USA selected by ATHX to inspect and audit, upon reasonable advance notice, during regular business hours, and in a manner that does not interfere with normal operations, the books and records of Healios described in Section 5.9. ATHX and Healios will discuss to decide the number of independent accountants or auditors to access and examine the records in such audit. Healios may require the independent accountants or auditors to enter into a confidentiality agreement with Healios before undertaking any such audit, provided that the independent accountants or auditors may disclose and report the results of the audit to ATHX. All expenses of each such inspection and audit will be paid for by ATHX, unless the inspection and audit demonstrates any underpayment by Healios of over five percent (5%) of any invoiced amounts owed to ATHX under this Agreement. If the inspection and audit demonstrate any such underpayment of over five percent (5%), without limiting any other rights or remedies to ATHX, Healios will pay the balance due to ATHX together with interest at the rate of 1.5% per month (or the maximum amount permitted by applicable law if lower) and reimburse ATHX for the cost of such inspection and audit within 30 days after receiving the written report of the auditor.

SECTION 6 DEVELOPMENT OF LICENSED PRODUCTS.

6.1 As between the Parties, Healios shall be responsible to file applications for and to obtain and hold Approvals for the Licensed Products in the Territory as well as any reimbursement or pricing approvals for the Licensed Products in the Territory, if applicable. As between the Parties, Healios shall be the responsible Party for funding and conducting all clinical studies for the Licensed Products in the Territory. ATHX, at its discretion upon the request of Healios, will consult with and provide information and advice to Healios to support Healios’ regulatory and development activities within the Licensed Field.

SECTION 7 JOINT STEERING COMMITTEE.

7.1 In order to develop, to file applications for and to obtain and hold Approvals for the Licensed Products as smoothly and expeditiously as possible, as well as to distribute, to promote, to market and to sell the Licensed Products in the Territory as efficiently as possible, ATHX and Healios shall establish a Joint Steering Committee (the “ JSC ”) as a body for discussion and decision about all important courses of action to take in due course after the Effective Date.

7.2 Agenda of the JSC will cover the following:

(a) Determination of an overall research and development plan of Licensed Products and the life cycle management such as commencement and/or discontinuance of research or development of such Licensed Products in the Territory;

(b) Reporting and review of the progress of the research and development plan of Licensed Products in the Territory, and revision, if necessary, of such plan;

(c) Reporting and review of the application strategy for the approval of the Licensed Products in the Territory and the strategy for filing of application thereof and for pricing approvals;

(d) Reporting strategy on marketing, promotion plans, the sales record and post marketing study of Licensed Products in the Territory; and

(e) Any other important matters related to research, development, marketing or sale of Licensed Products for the purpose of achieving smooth and maximum penetration of Licensed Products in the Territory.

7.3 The JSC shall consist of [*]. Such representatives shall be at a senior management level, and may be changed by either Party appointing them. A chairperson of the JSC shall be appointed by Healios from its representatives.

7.4 The meetings of the JSC shall be held once a year as an ordinary meeting and at any time upon reasonable request from either Party as an extraordinary meeting for any urgent matters. The JSC meetings shall be held face to face or by telephone/video conference; provided, however, for the reason of urgency or convenience, with respect to agenda and content the JSC may also make decisions in writing (or by electromagnetic records) if all members of the JSC have agreed in advance in writing.

7.5 In the case of failure to form unanimity in the JSC, [*], subject to Section 7.6.

7.6 When a decision of JSC is reasonably expected to have a material effect on ATHX’s development, reimbursement, pricing or commercialization outside the Licensed Field, the chairperson of the JSC shall fairly and reasonably consider the material effect of such a decision. When either Party is dissatisfied with the judgment, the Party may submit such dispute to mediation in accordance with the mediation rules of the International Chamber of Commerce. The place of mediation shall be Tokyo. The language to be used in the mediation shall be English. If the Parties cannot agree upon the course of action to be taken as a result of such mediation, either Party may submit the dispute for final resolution by arbitration pursuant to Section 17.2. Unless and until such dispute is finally resolved by such arbitration or the Parties otherwise mutually agree as to the action to be taken (or not taken) regarding the disputed subject, the judgment shall have no effect and neither Party may take such action (or refrain from taking such action) that was the subject of such judgment.

SECTION 8 SUPPLY OF MULTISTEM PRODUCTS.

8.1 Subject to the terms and conditions of this SECTION 8, ATHX or its Affiliate, itself or through competent third party manufacturer(s) (“ Third Party Manufacturer(s) ”) shall supply to Healios, and Healios shall order and purchase from ATHX or its Affiliate, all of the MultiStem

Product portion of the Licensed Products reasonably required for the Licensed Field throughout the Territory.

8.2 The MultiStem Product portion of the Licensed Products delivered by or on behalf of ATHX or its Affiliate shall be manufactured in accordance with all Laws and any relevant specifications agreed to by the Parties in accordance with a supply agreement and shall be delivered in the form required for use in the Licensed Field in the applicable portion of the Territory.

8.3 In addition to the payments due under SECTION 5, as partial consideration for the rights granted under this Agreement, Healios will pay to ATHX or its Affiliate for the MultiStem Product portion of the Licensed Products supplied to Healios under this Agreement as follows: [*].

8.4 If ATHX or any of its Affiliates does not supply the MultiStem Product portion of the Licensed Products to Healios at the agreed prices set forth in Section 8.3, then ATHX will grant to Healios the licenses set forth in Sections 2.3 and 3.3 to make, have made and import the MultiStem Product portions so affected anywhere in the world for use in the Licensed Field throughout the Territory.

8.5 ATHX and its Affiliates shall deliver the MultiStem Product portion of the Licensed Products Ex-Works (Incoterms 2010) at the location of ATHX, its Affiliate or their respective Third Party Manufacturer, as may be designated by ATHX from time to time.

8.6 All payments under this SECTION 8 shall be invoiced and paid in US Dollars within 30 days from the date Healios receives the invoice from ATHX or its Affiliates.

8.7 Healios shall have the right to audit manufacturing facilities of ATHX, its Affiliates and the Third Party Manufacturer(s) that are making the MultiStem Product portion of the Licensed Products for delivery to Healios under this Agreement for compliance with Laws. ATHX shall permit Healios to conduct the audit upon reasonable advance notice, during normal business hours, in a manner that does not interfere with normal operations, and subject to all on-site rules and regulations for visitors, and ATHX shall cooperate with Healios in the audit. ATHX shall ensure that its contracts with the Third Party Manufacturer(s) allow such audits of Third Party Manufacturer(s).

8.8 Healios shall have the right to verify the [*] for the MultiStem Product portion of the Licensed Products through independent accountants or auditors selected by Healios. ATHX shall permit the independent accountants or auditors to conduct such verification upon reasonable advance notice, during normal business hours, in a manner that does not interfere with normal operations, and subject to all on-site rules and regulations for visitors, and ATHX shall cooperate with Healios and the independent accountants or auditors in the verification. ATHX shall make and keep records necessary for calculation of such [*] and allow the independent accounts or auditors to access and examine the records in the verification. ATHX and Healios will discuss to decide the number of independent accountants or auditors to access and examine the records in the verification, in each case, during the Term and for a period ending 3 years thereafter. ATHX

may require the independent accountants or auditors to enter into a confidentiality agreement with ATHX before undertaking any such verification, provided that the independent accountants or auditors may disclose and report the results of the verification, including, the information concerning the [*], to Healios. All expenses of each such verification will be paid for by Healios, unless the verification demonstrates a discrepancy in the [*] for the MultiStem Product portion of the Licensed Products of over five percent (5%) between ATHX’s reported amount and the actual amount confirmed through such verification. If the verification demonstrates any past overpayment by Healios of over five percent (5%) of such actual [*], without limiting any other rights or remedies to Healios, ATHX will pay the amount of such discrepancy to Healios together with interest at the rate of 1.5% per month (or the maximum amount permitted by applicable law if lower) and reimburse Healios for the cost of such verification within 30 days after receiving the written report of the independent accountant or auditor.

8.9 ATHX, its Affiliate or their Third Party Manufacturer shall provide certificates of analysis to Healios for all of the MultiStem Product portion of the Licensed Products supplied under this Agreement. Upon reasonable request from Healios, ATHX shall provide Healios with any documents that are related to the manufacturing and supply of the MultiStem Product portion of the Licensed Products to Healios under this Agreement and that are reasonably necessary for Healios to prepare or submit its regulatory filings in relation to the Licensed Products in the Licensed Field in each portion of the Territory.

SECTION 9 TECH TRANSFER.

9.1 When any of the events described in clauses (a) to (g) in Section 2.3 occurs, if requested by Healios, ATHX shall promptly begin to provide and transfer to Healios, its Affiliate or Healios’ designated third party manufacturer, any and all data, information, know-how or technology required for manufacturing the MultiStem Product portion of the Licensed Products for the Licensed Field and support Healios so that Healios may make or have made such MultiStem Product portion of the Licensed Products for the Licensed Field (collectively “ Manufacturing Information ”). Manufacturing Information shall include, without limitation, any confidential manufacturing dossier such as all specifications, SOPs and testing reports. Manufacturing Information shall cover any and all information that ATHX provides to at least one of the Third Party Manufacturer(s) of the subject MultiStem Product portion of the Licensed Products during all or part of the term of this Agreement. If requested by Healios, ATHX will use commercially reasonable efforts to facilitate an arrangement between Healios and a Third Party Manufacturer that ATHX retains for the manufacturing of the MultiStem Product portion of the Licensed Products provided to Healios, so that [*]. Such transfer of Manufacturing Information (the “ Tech Transfer ”) shall be deemed completed if Healios, its Affiliate or Healios’ designated third party manufacturer becomes ready to manufacture or have manufactured the subject MultiStem Product portion of the Licensed Products for the requirement.

Products for the Licensed Field with satisfactory quality and in a stable and continual manner, then Healios may not exercise such rights. If ATHX fails to so demonstrate, Healios may exercise such rights. In response to exercise of such rights by Healios upon or after ATHX’s failure to so demonstrate under this Section 9.2, ATHX shall assume the obligations as set forth in Section 9.1.

9.3 The Parties shall make their reasonable efforts, and shall reasonably cooperate with each other, so that the Tech Transfer may be completed as soon as reasonably possible after any of (a) to (g) in Section 2.3 occurs.

9.4 ATHX shall be responsible for the costs of ATHX and its Affiliates in connection with the Tech Transfer described in Section 9.1. Healios shall be responsible for the costs of Healios and its Affiliates in connection with the Tech Transfer described in Section 9.1 and any associated costs of Healios’ designated third party manufacturer, if applicable, [*].

9.5 If, at any time after Healios has exercised its right to manufacture the subject Product pursuant to Section 9.1 and before or after the Tech Transfer is completed, ATHX reasonably demonstrates that it is able to supply Healios with the subject Product for the Licensed Field in the Territory [*], then Healios will purchase a reasonable proportion of its requirements of the subject Product from ATHX on a non-exclusive basis, taking into account the nature and extent of Healios’ fixed manufacturing investment and third party purchase commitments and price competitiveness of ATHX, for so long as ATHX continues to demonstrate its ability to [*].

SECTION 10 TERM AND EXPIRATION.

10.1 [*].

10.2 This Agreement shall automatically terminate upon the expiration of all [*] for all countries in the Territory (the “ Term ”).

SECTION 11 TERMINATION; EFFECTS OF TERMINATION OF THIS AGREEMENT.

11.1 Healios may terminate this Agreement without cause with 6 months prior written notice to ATHX.

11.2 Healios may terminate this Agreement immediately by notice to ATHX in the event that ATHX is in material breach of this Agreement and fails to rectify such breach within 60 days of written notice of such breach from Healios.

11.3 ATHX may terminate this Agreement, in its entirety or in part with respect to any Licensed Product or portion of the Licensed Field, immediately by notice to Healios in the event Healios is in material breach of this Agreement and fails to rectify such breach within 60 days of written notice of such breach from ATHX. Without limiting the foregoing, Healios’ material failure to pay any of the amounts due under SECTION 5 when due is a material breach of this Agreement.

11.4 Upon Termination of this Agreement for any reason:

(a) the provisions in Sections SECTION 1, 2.5, 3.7 - 3.12, 4.1 - 4.3, 4.6, 5.6 - 5.10, 11.4, SECTION 13, SECTION 14, 16.7 and SECTION 17 shall survive Termination of this Agreement if and as applicable; and

(b) all obligations accruing prior to Termination of this Agreement shall remain due and owed in accordance with their respective terms.

11.5 Upon Termination of this Agreement by Healios pursuant to Section 11.1 or by ATHX pursuant to Section 11.3, Healios will work in good faith with ATHX to promptly (i) transfer to ATHX ownership of all investigator’s brochures, regulatory filings and regulatory approvals for the Licensed Product in the Licensed Field throughout the Territory; (ii) deliver to ATHX all clinical data and information in Healios’ possession or control relating to Licensed Products, including for clarity manufacturing data, if any, in the same form in which Healios maintains such data, (iii) deliver to ATHX, in the same form in which Healios maintains such items, copies of all reports, records, regulatory correspondence and other materials in Healios’ possession or control relating to the clinical development of Licensed Product in the Licensed Field throughout the Territory.

11.6 Upon Termination of this Agreement by Healios pursuant to Sections 11.1 or 11.2, Healios may continue to sell the then-current finished goods inventory of Licensed Product in its stock as of the effective date of termination even after termination, subject to any of its obligations under SECTION 5 that result from such sales and the rights granted under Sections 2.1, 2.2, 2.3 (if applicable), 3.1, 3.2 and 3.3 survive such Termination and remain in effect solely for such purpose until such inventory is exhausted.

11.7 Upon expiration of a [*] with respect to a particular Licensed Product and country in the Territory pursuant to Section 10.1, Sections 2.1, 2.2, 2.3 (if applicable), 3.1, 3.2 and 3.3, and SECTION 4 shall survive such expiration and remain in full force and effect with respect to such Licensed Product and country; provided, however , that the licenses granted to Healios under those sections as applicable to such Licensed Product in such country shall be royalty-bearing thereafter with respect to such Licensed Product and country until the expiration or termination of the Term (unless earlier terminated pursuant to this Section 11.7 or extended longer after the Term pursuant to Section 11.8), as follows: (i) with respect to MultiStem Ophthalmological Standalone Products, the applicable royalty rate for such licenses with respect to such country shall be the applicable rate set forth in Section 5.5(b) [*] and (ii) with respect to the MultiStem Ophthalmological Combination Products, the applicable royalty rate for such licenses with respect to such country shall be calculated based upon the total Net Sales of MultiStem Ophthalmological Combination Products for such country in a calendar year, or any partial calendar year, as appropriate, as set forth in Table 11.8 in Section 11.8 below. Notwithstanding the foregoing, Healios’ obligation to pay such royalties with respect to such Licensed Product in such country shall terminate on the date that is twenty (20) years from the date of the first commercial sale (after Approval) of the Licensed Product in such country, unless the initial [*] for such country extends beyond such twenty (20) year period, in which case Healios’ obligation to pay such royalties will terminate on the date that is five (5) years after the expiration of the such [*], and upon termination of such

payment obligation at the end of such 20-year or 5 year period, as applicable, all of the licenses granted by ATHX to Healios under this Agreement with respect to such Licensed Product in such country automatically convert to non-exclusive. In addition, all royalty-bearing licenses (and Healios’ obligation to pay such royalties) with respect to each Licensed Product in a country shall terminate automatically without further action by either Party at such time that neither Healios nor any of its Affiliates or permitted sublicensees have used the Trademark for Standalone Products or exploited any remaining enforceable rights in any of the ATHX MultiStem Background IP or Foreground IP owned by ATHX for the sale of the Licensed Product in such country for a continuous period of 1 year.

11.8 Upon Termination of this Agreement in its entirety for expiration pursuant to Section 10.2, Sections 2.1, 2.2, 2.3 (if applicable), 3.1, 3.2 and 3.3, and SECTION 4 shall survive such Termination and remain in full force and effect; provided, however , that the licenses granted to Healios under those sections shall be royalty-bearing thereafter in accordance with this Section 11.8 for a maximum period of twenty (20) years from the date of the first commercial sale (after Approval) of each Licensed Product in the Territory, unless the initial Term extends beyond such twenty (20) year period, in which case such licenses shall be royalty-bearing for a maximum period of five (5) years after the expiration of the initial Term (“ Post-Term Period ”), and upon termination of such payment obligation at the end of such 20-year or 5-year period, as applicable, all of the licenses granted by ATHX to Healios under this Agreement automatically convert to non-exclusive. Notwithstanding the foregoing, such royalty-bearing licenses (and Healios’ obligation to pay such royalties) shall terminate automatically without further action by either Party at such time that neither Healios nor any of its Affiliates or permitted sublicensees have used the Trademark for Standalone Products or any remaining enforceable rights in any of the ATHX MultiStem Background IP or Foreground IP owned by ATHX anywhere in the Territory for the sale of Licensed Products for a continuous period of 1 year. The applicable royalty rate for such licenses during the Post-Term Period shall be calculated based upon the total Net Sales of Licensed Products in a calendar year, or any partial calendar year, as appropriate, as set forth in Table 11.8 below:


Table 11.8 – Post-Term Royalty Rates
Total Net Sales of Licensed Products in the Calendar Year		Royalty Rate
[*]		[*]
[*]		[*]
[*]		[*]
[*]		[*]
[*]		[*]
[*]

All royalties due under this Section shall be paid in accordance with and subject to Sections 5.7 and 5.8. The payment of the amounts due under this Section 11.8 shall be made in US Dollars within 60 days from the end of each calendar year. To calculate the amount due in US Dollars, Healios shall convert the amount of Net Sales of Licensed Products from currency collected by Healios to US Dollars using the currency conversion published by the Wall Street Journal, Eastern Edition , and based upon the average conversion rate for the calendar year being reported. To determine the royalty rate applicable to Net Sales for a partial calendar year (such as for the period starting on Termination of this Agreement and ending at the end of the calendar year in which that occurs), [*].

11.9 Section 3.4 survives termination and remains in full force and effect upon Termination of this Agreement in its entirety for expiration pursuant to Section 10.2, by Healios pursuant to Section 11.1, or by ATHX pursuant to Section 11.3.

SECTION 12 PHARMACOVIGILANCE AND DILIGENCE.

12.1 In accordance with any Laws, Healios shall monitor and evaluate any and all adverse or undesirable events in relation to the Licensed Products arising in preclinical trials, clinical trials and post-marketing surveillance that Healios is involved with independently of (i) the causation between prevention or treatment with the Licensed Product and the event and (ii) the characteristics of the event. If such event occurs, Healios shall report such event required to be reported under Laws to an authority in charge in accordance with the Laws within time allowed for the report, and forward the information of such event to ATHX within the shortest delay and no later than one week after becoming aware of the event.

12.2 In response to a request of ATHX in relation to the event as set forth in Section 12.1, Healios shall provide an answer in writing within one week.

12.3 The Parties shall discuss and put in place a written agreement for exchanging adverse event and other safety and pharmacovigilance information relating to each Licensed Product prior to the initiation of clinical activity by Healios. Such agreement could be by amendment of an existing agreement between the Parties to cover the activities contemplated by this Agreement.

12.4 Healios shall use commercially reasonable efforts to develop and achieve Approval for the Licensed Products in the Licensed Field in the Territory. Following any such Approval, Healios shall use commercially reasonable efforts to commercialize such Licensed Products in the Licensed Field in the Territory.

SECTION 13 CONFIDENTIALITY.

13.1 “ Confidential Information ” means (a) terms of this Agreement (but not its mere existence) and (b) any and all proprietary information disclosed by one Party (“ Discloser ”) to the other Party (“ Recipient ”) under this Agreement, whether orally, visually, electronically such as by email or in an electric file, or in writing, which (i) if disclosed in writing or other tangible form, is clearly designated as being confidential by a mark with the word “Confidential” or a similar warning, or (ii) if disclosed orally, visually or in other non-tangible form, is disclosed as confidential at the time of disclosure, reduced to a written document describing such information and the place and date of such disclosure and provided to Recipient with a mark with the word “Confidential” or a similar warning within 30 days from the date of disclosure; provided, however, that the Confidential Information does not include information that falls under any of the following categories, which shall be proved by Recipient:

(a) Information which is publicly known at the time of disclosure by Discloser or information which becomes publicly known with no fault of Recipient after disclosure by Discloser;

(b) Information which is already in the possession of Recipient on or before disclosure by Discloser;

(c) Information which Recipient duly obtains from a third party who is not under any obligation to maintain the confidentiality of such information;

(d) Information which Recipient has independently developed or obtained without the benefit of information disclosed by Disclosure; or

(e) Information for which the Recipient obtains from the Discloser a prior written approval for disclosure.

its Staff needs to know the Confidential Information for the Purpose. Recipient shall make its Staff comply with the obligations as set forth in this SECTION 13, whether during the period in which the Staff has positions in Recipient or after the Staffs leave Recipient and shall be fully liable to Discloser for their breach of such terms as if such breach was by Recipient.

13.3 Recipient may disclose Confidential Information to its and its Affiliates’ licensees or sublicensees, as applicable, and its and their respective bankers, accountants, counsels, consultants and independent contractors (the “ Outside Staff ”) who need to know the Confidential Information for the Purpose or their professional duties in connection with the rights or obligations of Recipient under this Agreement, provided that Recipient shall cause the Outside Staff to be bound by no less stringent terms than those set forth in SECTION 13 (applied mutatis mutandis) and shall be fully liable to Discloser for their breach of such terms as if such breach was by Recipient.

13.4 Recipient shall manage Confidential Information with the same degree of care as it would manage its own confidential information but always with no less stringent degree of care than a reasonable care.

13.5 In the case where Recipient is required to disclose Confidential Information by any administrative or judicial organization (including the ICC for mediation or arbitration under this Agreement) or under any Law, including without limitation regulations and rules of stock exchange and, in response to the request, discloses the Confidential Information, such disclosure does not fall into any breach of the obligations as set forth in this SECTION 13. In such case, Recipient shall notify Discloser of such disclosure in advance (if an advance notice is impossible or difficult, promptly after such disclosure) and make reasonable efforts to minimize the scope of such disclosure.

13.6 Upon request by Discloser, within 60 days after Termination of this Agreement, Recipient shall promptly return to Discloser returnable materials in which Confidential Information (including reproduced/replicated Confidential Information) is recorded, or, as instructed by Discloser, destroy such materials and (ii) delete Confidential Information recorded in unreturnable materials (including that provided via email or as an attached file thereof and recorded in a hard disk drive); provided, however, that (a) digital backup files automatically generated by Recipient’s customary electronic data processing system may be retained and properly stored as confidential files for the sole purpose of backup and will be deleted in accordance with its retention policy and (b) ATHX may retain all information transferred from Healios to ATHX pursuant to Section 11.5 all of which shall thereafter be the Confidential Information of ATHX for which Healios is deemed the Recipient (notwithstanding that Healios may have first disclosed such information to ATHX) and with respect to which the exceptions in Sections 13.1(a)-(d) do not apply.

13.7 The obligations set forth in SECTION 13 shall be effective for 20 years from Termination of this Agreement.

SECTION 14 INDEMNIFICATION.

14.1 Each Party (“ Indemnifying Party ”) shall protect, defend, indemnify and hold the other Party (“ Indemnified Party ”), its Affiliate and its and their respective Staff and Outside Staff (collectively, the “ Indemnitees ”) harmless from and against any and all actual or threatened claims or lawsuits by any third party and all associated liabilities, losses, damages (whether or not “punitive” in nature), fees, expenses, costs, claims, demands, fines and penalties, including the burden and expense of defending against all third party claims and regulatory actions, amounts paid in settlement thereof (including interest), and reasonable attorneys’ fees and disbursements of counsel (“ Liabilities ”), arising out of or based upon (i) any misrepresentation or breach by the Indemnifying Party of any representation or warranty in this Agreement or (ii) any breach by the Indemnifying Party of any of the provisions of this Agreement; except in each case to the extent that any of the Liabilities are caused by or attributable to (x) negligence or willful misconduct of any of the Indemnitees, (y) any misrepresentation or breach by the Indemnified Party of any representation or warranty in this Agreement, or (z) any breach by the Indemnified Party of any of the provisions of this Agreement or any act (or omission) of any Indemnitees that if performed (or not performed) by the Indemnified Party would be a breach of any provision of this Agreement. The foregoing indemnification is conditional upon (a) the Indemnified Party notifying the Indemnifying Party of any claim or demand for Liabilities promptly after it receives or notices the same, (b) Indemnified Party cooperating with Indemnifying Party in the defense of Indemnifying Party, and if requested, giving full control of defense to the Indemnifying Party and (c) Indemnified Party not compromising or settling such claim or demand without the prior written consent of the Indemnifying Party.

SECTION 15 INFRINGEMENT AND CHALLENGE OF RIGHTS.

15.1 When either Party (the “ Notifying Party ”) becomes aware of any actual or threatened infringement of the ATHX MultiStem Background IP, the Trademark for Standalone Products or Foreground IP of ATHX by any third party in portion of the Territory (the “ Infringement by Third Party ”), the Notifying Party shall promptly notify the other Party of the detailed conduct of the Infringement by Third Party and the name of the third party to the extent that the Notifying Party knows.

15.2 Infringement by Third Party will be addressed as follows:

(a) Subject to Section 15.2(b), Healios shall have the right, but not the obligation, to attempt to stop Infringement by Third Party of the ATHX MultiStem Background IP, the Trademark for Standalone Products or Foreground IP of ATHX in the Licensed Field anywhere in the Territory, including through negotiation and litigation at its cost, to the extent that the Infringement by Third Party is related to a product(s) competing with any Licensed Product in the Licensed Field that is sold by Healios, its Affiliate or their sublicensee. ATHX shall provide Healios with any assistance in connection with the Healios’ activities to attempt to stop such Infringement by Third Party as reasonably requested by Healios, including by ATHX joining as a party to any such litigation or filing a joint action with Healios if Healios desires to seek an injunction against the Third Party

and ATHX’s participation as a party in such litigation is required to obtain such injunction. Any recoveries resulting from such efforts will be allocated in the following priority: (i) first, in reimbursing Healios’ out of pocket expenses (including counsel fees and expenses) in undertaking such activities, (ii) second, in reimbursing ATHX’s out of pocket expenses (including counsel fees and expenses) in assisting with such activities, and (iii) third, the remainder (if any) to be retained by Healios but reported as Net Sales and paid to ATHX thereon under SECTION 5. No settlement, stipulated judgment or other voluntary final disposition of litigation under this Section 15.2(a) may be undertaken by Healios without the consent of ATHX if such settlement, stipulated judgment or other voluntary final disposition would require ATHX to be subject to an injunction, admit wrong-doing, make a monetary payment or would otherwise materially adversely affect ATHX’ rights under this Agreement or any of the ATHX MultiStem Background IP, the Trademark for Standalone Products or Foreground IP of ATHX.

(b) If Healios fails, pursuant to Section 15.2(a) to bring an action with respect to, or to terminate, the Infringement by Third Party before the earlier of (i) 180 days following the notice of alleged infringement; and (ii) 10 days before the time limit, if any, set forth in the Laws for the filing of such actions, then ATHX shall have the right, but not the obligation, to attempt to stop such infringement, including through litigation. Healios will provide ATHX with any assistance in connection with ATHX’s activities to attempt to stop Infringement by Third Party as reasonably requested by ATHX, and ATHX shall be responsible for all of the out-of-pocket costs and expenses (including counsel fees) in relation to the assistance, regardless of whether any recoveries are obtained. Any recoveries resulting from such action will be retained by ATHX. ATHX may not enter into settlements, stipulated judgments or other arrangements respecting such infringement without the prior written consent of Healios if such settlement, stipulated judgment or other arrangement would require Healios to be subject to an injunction, admit wrong-doing, make a monetary payment or would otherwise conflict with the exclusive rights granted to Healios under this Agreement.

(c) The Parties will consult with each other with respect to potential strategies for stopping the Infringement by Third Party without litigation and during litigation. Each Party will cooperate with the other Party in its efforts to stop the Infringement by Third Party as reasonably requested, including by joining in any such litigation as a party or participating in any such litigation as a sole party to the extent required by any Laws.

15.3 When any third party takes any action to invalidate or to have declared unenforceable any of the ATHX MultiStem Background IP, the Trademark for Standalone Products or Foreground IP of ATHX in any manner, including filing an invalidation trial or an opposition or as an invalidation defense, a counterclaim, declaratory judgment or other response to an allegation made by Healios or ATHX under Section 15.2, ATHX shall have the sole right to defend against, and shall take at its sole expense commercially reasonable actions to defend against, the third party’s actions or claims. In response to a request of ATHX, Healios shall provide all reasonable assistance to ATHX in connection with ATHX’s actions above. ATHX shall be responsible for all

of the out-of-pocket costs and expenses reasonably incurred by Healios in connection with such assistance requested by ATHX.

15.4 When (a) either (i) any conduct under the license under this Agreement or the sublicense by Healios, its Affiliate or its permitted sublicensee constitutes a material risk of being deemed an infringement of any right, title or interest of any intellectual property of any third party (“ Infringement of Third Party ’ s Right ”) or (ii) any third party threatens or initiates legal actions alleging Infringement of Third Party’s Right in connection with any conduct under such license or the sublicense by Healios or its permitted sublicensee, and (b) such risk, threat or litigation is based upon the MultiStem Product as supplied by ATHX, its Affiliate or a Third Party Manufacturer to Healios under this Agreement or a supply agreement contemplated hereby (“ Supplied Product ”) or upon the manufacturing method as transferred by ATHX to Healios pursuant to Section 9.1 to make MultiStem Product for use in the Licensed Field in any portion of the Territory (“ Transferred Method ”), then (c) if requested by Healios and subject to Section 15.5, ATHX shall [*]. ATHX shall be responsible for all of ATHX’s and its Affiliates’ costs and expenses incurred in the actions above, including, if and as applicable, (A) payments under any agreement entered between ATHX or its Affiliate, on the one hand, and the third party, on the other hand, (B) any costs and expenses of ATHX and its Affiliates for legal procedures against the third party, including the attorneys’ fees of ATHX and its Affiliates, and (C) any costs and expenses of ATHX’s and its Affiliates’ associated with their respective negotiations with the third party. Healios shall cooperate with ATHX and its Affiliates in connection with the actions above; provided that ATHX shall reimburse Healios for Healios’ and its Affiliates’ reasonable out-of-pocket legal costs and expenses incurred in the actions above.

15.5 Notwithstanding Section 15.4, ATHX shall have no obligation thereunder:

(a) when the Supplied Product as supplied by ATHX or the Third Party Manufacturer(s) has been modified in a manner not specifically directed [in writing] by ATHX and without such modification exploitation of the Licensed Product would not be deemed a material risk of infringement;

(b) when the Transferred Method has been modified in a manner not specifically directed in writing by ATHX and without such modification exploitation of the Transferred Method would not be deemed a material risk of infringement;

(c) when the Supplied Product or the Transferred Method is exploited for any application outside of the Licensed Field or in any other manner that is not licensed or that would be a breach of this Agreement;

(d) (i) when the Supplied Product is exploited in combination with anything or (ii) when the Supplied Product is part of a MultiStem Combination Ophthalmological Product and, in each case, (i) or (ii), exploitation of the Supplied Product alone, as supplied by ATHX or the Third Party Manufacturer(s), would not be deemed a material risk of infringement;

(e) when the Transferred Method is exploited in combination with anything not provided or specifically directed in writing by ATHX and exploitation of the Transferred Method alone would not be deemed a material risk of infringement;

(f) for any use or methods of treatment developed by Healios; or

(g) other than as expressly set forth in this Agreement, any Liabilities incurred by Healios, its Affiliates or their respective sublicensees.

SECTION 16 REPRESENTATION AND WARRANTIES; DISCLAIMER.

16.1 Each of ATHX and Healios represents and warrants that as of the Effective Date it is duly organized and exists in good standing under the Laws of the jurisdiction in which it is organized, has the power to own its property and to carry on its business as now being conducted.

16.2 Each of ATHX and Healios represents and warrants that as of the Effective Date it has and during the Term will have the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder, including, without limitation, to grant the license as set forth in this Agreement, without consent of any third party and without breach of any agreements with or obligations to any third party.

16.3 Each of ATHX and Healios represents and warrants that as of the Effective Date it has not and thereafter it will not enter into agreement with an obligation to a third party inconsistent, incompatible, or conflicting with its obligations under this Agreement.

16.4 ATHX represents and warrants that, to its knowledge as of the Effective Date, the issued patents of ATHX MultiStem Background Patents in the Licensed Field in the Territory were valid and enforceable.

16.5 ATHX represents and warrants that it will not research, develop, use, distribute, promote, market, offer for sale, sell or import Licensed Products in any country in the Territory solely for or in the Licensed Field.

16.6 Each of ATHX and Healios represents and warrants that, to its knowledge as of the Effective Date, the information disclosed in the course of discussion and negotiation in relation to this Agreement was true in all material respects.

16.7 EXCEPT AS PROVIDED EXPRESSLY IN THIS SECTION 16 AND IN SECTION 2.4, NEITHER ATHX NOR HEALIOS MAKES ANY REPRESENTATIONS OR WARRANTIES UNDER THIS AGREEMENT WHATSOEVER, AND EACH OF ATHX AND HEALIOS HEREBY DISCLAIMS ALL OTHER SUCH POTENTIAL WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, AGAINST INFRINGEMENT, AND THOSE ARISING THROUGH COURSE OF DEALING OR TRADE OR OTHERWISE.

SECTION 17 MISCELLANEOUS.

17.1 This Agreement shall be governed by and construed under the Laws of State of New York without regard to its choice of law principles.

17.2 All disputes arising out of or relating to this Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by 3 arbitrators appointed in accordance with the said Rules. The Emergency Arbitrator Provisions shall not apply. The seat of the arbitration shall be Tokyo. The language to be used in the arbitration shall be English. The award rendered by arbitration shall be final and binding upon both Parties and judgment upon the award may be entered into in any court having jurisdiction for enforcement thereof. The Parties shall treat all matters relating to the arbitration, including, but not limited to, the existence of the arbitration, all documents produced by one Party in the arbitration, or the award rendered by the arbitration as Confidential Information.

17.3 All rights and licenses of Healios or its Affiliate under this Agreement except those for Trademark for Standalone Products are and shall be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code or any counterparts in other jurisdictions, licenses of rights to “intellectual property” as defined in Section 101 of the U.S. Bankruptcy Code, to the extent that the U.S. Bankruptcy Code or any counterparts in other jurisdictions is applicable to the rights and license. Healios may retain and exercise all of its rights and elections under the U.S. Bankruptcy Code or any counterparts in other jurisdictions.

17.4 The licenses granted by either Party under its respective intellectual property in this Agreement are limited to those specifically and expressly set forth in Sections 2.1, 2.2, 2.3, 3.1, 3.2, 3.3, 3.4 and 4.4. Nothing in this Agreement does or will be construed to grant to a Party any rights in any intellectual property rights not expressly granted, in each case whether by implication, estoppel or otherwise, and neither Party will exploit or grant sublicenses in any of the intellectual property rights licensed to it outside of the scope expressly licensed to it under this Agreement. All rights not specifically granted by a Party are reserved by such Party.

17.5 NEITHER ATHX NOR HEALIOS WILL BE LIABLE UNDER THIS AGREEMENT FOR ANY SPECIAL, PUNITIVE, CONSEQUENTIAL, INCIDENTAL OR OTHER INDIRECT DAMAGES OF ANY TYPE OR NATURE, WHETHER BASED IN CONTRACT, TORT, STRICT LIABILITY, NEGLIGENCE OR OTHERWISE, INCLUDING LOSS OF PROFITS OR REVENUES, EXCEPT (A) TO THE EXTENT ANY SUCH DAMAGES ARE PAYABLE TO THIRD PARTIES IN CONNECTION WITH A INDEMNIFICATION OBLIGATION HEREUNDER, (B) FOR WILLFUL BREACH OR BREACH RESULTED FROM BAD FAITH OF ANY PROVISION OF THIS AGREEMENT, (C) FOR EXPLOITATION OF ANY OF THE INTELLECTUAL PROPERTY RIGHTS LICENSED UNDER THIS AGREEMENT OUTSIDE OF THE SCOPE LICENSED, OR (D) BREACH OF THE CONFIDENTIALITY PROVISIONS IN SECTION 13.

17.6 Neither this Agreement nor any rights or obligations of any Party to this Agreement may be assigned or otherwise transferred by such Party without the consent of the other Party, except

that a Party may assign this Agreement, without such consent, to an Affiliate or to a purchaser of or successor in interest to substantially all of that Party’s business or assets to which this Agreement pertains, through merger, sale of assets and/or sale of stock or ownership interest, consolidation or name change. Any permitted assignee shall assume all obligations of its assignor under this Agreement and provide notice of such assignment to the other Party promptly after such assignment. Any purported assignment in violation of this Section is void.

17.7 This Agreement may be executed in counterparts, each of which, when executed, are deemed to be an original and all of which together constitute one and the same document.

17.8 This Agreement together with its Exhibit(s) sets forth the entire agreement and understanding between the Parties as to the subject matter hereof and supersedes all agreements or understandings, verbal or written, made between ATHX, Healios and their respective Affiliates with respect to the subject matter hereof. None of the terms of this Agreement may be amended, supplemented or modified except in writing signed by the Parties.

17.9 Headings in this Agreement are included herein for reference only and shall not affect in any way the meaning or interpretation of this Agreement.

17.10 All notices, consents, approvals, requests or other communications required hereunder given by one Party to the other Party shall be in writing and made by (i) registered or certified air mail, postage prepaid and return receipt requested, (ii) facsimile, (iii) internationally recognized express overnight courier or (iv) delivered personally to the following addresses of the respective Parties:


If to ATHX:		ABT Holding Company
		3201 Carnegie Avenue
		Cleveland, OH 44115
		Attention: President
		Facsimile: +1.216.361.9495

with a copy to:		Jones Day
		4655 Executive Drive, Suite 1500
		San Diego, CA 92121
		Attention: Thomas A. Briggs
		Facsimile: +1.858.314.1150

If to Healios:		HEALIOS K.K.
		World Trade Center Bldg. 15F
		2-4-1 Hamamatsucho,
		Minato-ku, Tokyo, 135-6115 Japan
		Attention: Chairman & CEO
		Tadahisa “Hardy” Kagimoto,
		Facsimile: +81.3.3434.7231


with a copy to:		HEALIOS K.K.
		World Trade Center Bldg. 15F
		2-4-1 Hamamatsucho,
		Minato-ku, Tokyo, 135-6115 Japan
		Attention: General Manager of Business Development
		Hiromu Ozaki
		Facsimile: +81.3.3434.7231

17.11 The relationship between ATHX and Healios is that of independent contractors. Nothing in this Agreement shall be constructed to create a relationship of employer and employee, partner, joint venture, or principal and agent.

17.12 The invalidity or unenforceability of any term or provision in this Agreement shall not affect the validity or enforceability of any other term or provision hereof. If any of the terms or provisions of this Agreement are in conflict with any applicable law or regulation, such term(s) or provision(s) shall be deemed inoperative to the extent they may conflict therewith and shall be deemed to be modified to confirm with such law and regulation.

17.13 Any right of one Party hereto to the other Party may not be or is not deemed waived except by an instrument in writing signed by the party having such right. All rights, remedies, undertakings, obligations and agreements contained in this Agreement are cumulative and none of them are a limitation of any other remedy, right, undertaking, obligation or agreement.

[Remainder of page intentionally blank]

Exhibit 2 to Collaboration Expansion Agreement

IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be executed by their duly authorized officers upon the date set out below.


ABT Holding Company		HEALIOS K.K.

By:	/s/ Gil Van Bokkelen	By:	/s/ Tadahisa “Hardy” Kagimoto
Name:	Gil Van Bokkelen	Name:	Tadahisa “Hardy” Kagimoto
Title:	Chairman & CEO	Title:	Chairman & CEO

GUARANTEE BY ATHERSYS, INC.

Athersys, Inc. hereby irrevocably guarantees the performance of all of ATHX’s obligations under this Agreement.


Athersys, Inc.

By:		/s/ Gil Van Bokkelen
Name:		Gil Van Bokkelen
Title:		Chairman & CEO

Exhibit 2 to Collaboration Expansion Agreement

Schedule 1

ATHX MultiStem Patents in the Territory

(see attached)

SCHEDULE 1

STEM CELL PATENTS AND APPLICATIONS

CONFIDENTIAL

[*]

Schedule 2

Ophthalmological Indications for the Licensed Field

[*]

Exhibit 2 to Collaboration Expansion Agreement

Schedule 3

[*]

Exhibit 3

Combination Product License Agreement

(See attached.)

Exhibit 3 to Collaboration Expansion Agreement

COMBINATION PRODUCT LICENSE AGREEMENT

This Combination Product License Agreement (this “ Agreement ”), dated as of 6 June 2018 (the “ Effective Date ”), is made and entered into between ABT Holding Company (“ ATHX ”), a Delaware corporation having its principal place of business at 3201 Carnegie Avenue, Cleveland, OH 44115 and wholly-owned subsidiary of Athersys, Inc. (“ Athersys ”), and HEALIOS K.K. (“ Healios ”), a Japanese company having its principal place of business at World Trade Center Bldg. 15F, 2-4-1 Hamamatsucho, Minato-ku, Tokyo 105-6115 Japan, and solely with respect to the guarantee set forth herein, Athersys. ATHX and Healios may be referred to individually as a “ Party ” and collectively as the “ Parties ”.

Background

A.	ATHX owns or otherwise controls certain patents, patent applications, know-how and trademarks potentially useful for the treatment of certain diseases when used in combination with induced pluripotent stem cells (“ *iPSC* ”).

Pursuant to the transactions contemplated by the Collaboration Expansion Agreement between the Parties effective as of the Effective Date to which this Agreement is attached as Exhibit 3 (“ Collaboration Expansion Agreement ”), and in partial consideration of the amounts payable thereunder, Healios would like to be granted a license under the intellectual property rights of ATHX, and ATHX is willing to grant such license, in accordance with the terms and conditions set forth below.

Agreement

ATHX and Healios hereby agree as follows:

SECTION 1 DEFINITIONS.

Capitalized terms used in this Agreement shall have the meaning ascribed to them in the preamble or recitals above, this Section 1, or the following Sections of this Agreement.

1.2 The term “ Approval ” shall mean approval by the Regulatory Authority or other duly authorized governmental authority(ies) in an applicable portion of the Territory necessary for sale and distribution of an approved Licensed Product in such portion of the Territory.

1.3 The term “ ATHX Foreground Patents ” shall mean any (a) patents and patent applications that are first owned or controlled by ATHX or any of its Affiliates after the Effective Date, excluding any such patents or patent applications that are jointly owned with Healios, (b) pre-grant forms claiming priority to any of the foregoing, including provisionals, converted provisionals, divisionals, continuations (in whole or in part), (c) all patents issuing from any of the foregoing, and (d) all post-grant forms of any of the foregoing, including extensions, reissues or renewals, in each case, that (if issued) would be infringed, but for the license granted under Sections 3.1, 3.2 and 3.3, by the manufacture, research, development, distribution, promotion, marketing, use, import, offer for sale or sale of Licensed Products.

1.4 The term “ ATHX MultiStem Background Know-How ” shall mean Know-How that is owned or controlled by ATHX or its Affiliates as of the Effective Date, in each case, that is specifically related to Licensed Products in the Licensed Field or to research, development, distribution, promotion, marketing, manufacture, use, import, offer for sale, or sale of Licensed Products in the Licensed Field.

1.5 The term “ ATHX MultiStem Background Patents ” shall mean any (a) patents and patent applications that are owned or controlled by ATHX or any of its Affiliates as of the Effective Date and are pending or issued anywhere in the Territory, (b) pre-grant forms claiming priority to any of the foregoing, including provisionals, converted provisionals, divisionals, continuations (in whole or in part), (c) all patents issuing from any of the foregoing, and (d) all post-grant forms of any of the foregoing, including extensions, reissues or renewals, in each case, that (if issued) would be infringed, but for the license granted under Sections 2.1, 2.2 and 2.3, by the manufacture, research, development, distribution, promotion, marketing, use, import, offer for sale or sale of Licensed Products. ATHX MultiStem Background Patents owned or controlled by ATHX as of the Effective Date include the patents as listed in Schedule 1 .

1.6 The term “ Cost of Supply ” shall mean [*].

1.7 The term “ Foreground IP ” shall mean, with respect to a Party, (a) any and all non-public, proprietary technical information, know-how, trade secret, data, test results, knowledge, techniques, discoveries, inventions, specifications, designs, regulatory filings, and other information (whether or not patentable) and (b) any intellectual property rights thereon (except trademarks), including patent and patent application issuing or filed for based thereon and copyright; in each case under clause (a) and (b), that is related to a Licensed Product or to the research, manufacture, development, distribution, promotion, marketing, use, import, offer for sale or sale of a Licensed Product and that is first owned or controlled on or after the Effective Date by such Party or any of its Affiliates. For clarity, Foreground IP of ATHX shall include the ATHX Foreground Patents.

1.8 The term “ Know-How ” shall mean any and all non-public, proprietary technical information, know-how, trade secret, data, test results, knowledge, techniques, discoveries, inventions, specifications, designs, regulatory filings, and other information (whether or not patentable).

1.9 The term “ Laws ” shall mean all applicable laws, statutes, regulations, rules, ordinance, order, decree, ruling or binding position or guideline of any governmental authority having jurisdiction over the subject act(s) or matter(s).

1.10 The term “ Licensed Field ” shall mean treatment of diseases or conditions of the liver, kidney, pancreas/islet cells and intestinal tissue using Licensed Products.

1.11 The term “ Licensed Product ” shall mean any MultiStem Product that is (a) used in treatment of a disease within the Licensed Field and (b) is used in combination with iPSC-derived cells that have been developed by or for Healios by either (i) non-systemic, localized administration of the MultiStem Product at the same time and immediate vicinity as the iPSC-derived cell transplantation or (ii) as a combination formulation containing both the MultiStem Product and iPSC-derived cells.

1.12 The term “ MultiStem Product ” shall mean any product that is covered by any claim of any ATHX MultiStem Background Patent or ATHX’s Foreground IP or that is otherwise manufactured, reproduced, modified, derived, developed, administered or used from, with, containing or based upon any of the ATHX MultiStem Background Know-How or ATHX’s Foreground IP.

1.13 The term “ Net Sales ” shall mean, with respect to each Licensed Product, the total gross sales of such Licensed Product sold by Healios, its Affiliate or their respective direct or indirect sublicensee under the license or sublicense of this Agreement, for arm’s length sales to any non-Affiliated third party, less the following deductions: trade and cash discounts, sales and excise taxes, rebates and return of goods. The foregoing shall be booked or calculated in accordance with Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standard (IFRS) each as consistently applied by the selling entity. For clarification, if the Licensed Product once sold by Healios, its Affiliate or their sublicensee, for arm’s length sales to any non-Affiliated third party is recalled for a reason attributable to ATHX, such sales shall be deducted from the Net Sales.

1.14 The term “ Other Improvements ” shall mean with respect to a Party, (a) any and all non-public, proprietary technical information, know-how, trade secret, data, test results, knowledge, techniques, discoveries, inventions, specifications, designs, regulatory filings, and other information (whether or not patentable) and (b) any intellectual property rights thereon (except trademarks), including patent and patent application issuing or filed for based thereon and copyright; in each case under clause (a) and (b), that result from activities conducted in accordance with this Agreement and that are not otherwise Foreground IP.

1.15 The term “ Potential Permitted Sublicensees ” shall mean [*].

1.16 The term “ Regulatory Authority ” shall mean any international, national, regional, state, or local governmental or regulatory or quasi-governmental or quasi-regulatory body, agency, department, bureau, or other entity responsible for the regulation (including pricing) of any aspect of pharmaceutical or medicinal products intended for human therapeutic use.

1.17 The term “ Representative ” shall mean, with respect to a Party, any Affiliate of such Party, and any director(s), officer(s), employee(s), agent(s), consultant(s), independent contractor(s) or other representative(s) of such Party or its Affiliate.

1.18 The term “ Royalties ” shall mean the amount calculated on Net Sales of Licensed Products pursuant to Section 5.2.

1.19 The term “ Termination of this Agreement ” shall mean any expiration of this Agreement in its entirety under Section 10.2 or termination of this Agreement in its entirety for any reason under SECTION 11.

1.20 The term “ Territory ” shall mean Japan.

1.21 The term “ Trademark ” shall mean any trademark that is selected and used by Healios for the commercialization of Licensed Products and that is not owned by, or confusingly similar to any trademark owned by or licensed to, ATHX or any of its Affiliates.

SECTION 2 LICENSE OF BACKGROUND IP.

2.1 Subject to the terms and conditions of this Agreement, ATHX grants to Healios, under the ATHX MultiStem Background Patents and ATHX MultiStem Background Know-How (collectively “ ATHX MultiStem Background IP ”), an exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, to research, develop, use, distribute, promote, market, offer for sale, sell and import Licensed Products throughout the Territory solely for and in the Licensed Field. Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem products, then Healios may grant such sublicense only with the advance, written consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

2.2 Subject to the terms and conditions of this Agreement, ATHX grants to Healios, under the ATHX MultiStem Background IP, a non-exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, to make and have made Licensed Products using the MultiStem Products supplied by ATHX pursuant to SECTION 8, for purposes of researching, developing (including in conducting clinical trials), using, distributing, promoting, marketing, offering for sale, selling or importing such Licensed Products pursuant to the license granted to Healios in Section 2.1. For clarity, the foregoing license shall include rights for Healios to (i) conduct non-systemic, localized administration of the MultiStem Products at the same time and immediate vicinity as an iPSC-derived cell transplantation to make the Licensed Product or (ii) use a combination formulation containing both the MultiStem Product and iPSC-derived cells to make the Licensed Product. Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-

party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem products, then Healios may grant such sublicense only with the advance, written consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

2.3 Subject to the terms and conditions of this Agreement, ATHX will grant to Healios under the ATHX MultiStem Background IP, a non-exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, to make, have made and import the MultiStem Product portions of the Licensed Products for use throughout the Territory solely for and in the Licensed Field, upon and after any of the following events occurs:

(a) ATHX does not supply the MultiStem Product portion of the Licensed Products to Healios at the pricing set forth in Section 8.3;

(f) ATHX is acquired by a non-Affiliated third party, and such license grant shall become effective simultaneously with such acquisition; or

(g) The Parties discuss and mutually agree to the transfer of manufacturing rights for the MultiStem Product from ATHX to Healios pursuant to a separate agreement in writing between the Parties.

Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem products, then Healios may grant such sublicense only with the advance, written consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

2.4 ATHX represents and warrants that, to the best of its knowledge as of the Effective Date, the ATHX MultiStem Background Patents in the Territory are as specified in Schedule 1 . ATHX shall update Schedule 1 to reflect the current state of ATHX MultiStem Background Patents in the Territory and send to Healios the updated Schedule 1 as of each anniversary of the Effective Date within a 30 day period from the anniversary.

2.6 The rights to sublicense in Sections 2.1, 2.2, 2.3, 3.1, 3.2, and 3.3 could include the right to sublicense, without consent of ATHX, to Potential Permitted Sublicensees, [*].

SECTION 3 FOREGROUND IP AND OTHER IMPROVEMENTS.

3.1 Subject to the terms and conditions of this Agreement, ATHX shall grant, and hereby grants immediately upon the existence of any Foreground IP of ATHX, to Healios an exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, under the Foreground IP of ATHX to research, develop, use, distribute, promote, market, offer for sale, sell and import Licensed Products throughout the Territory solely for and in the Licensed Field. Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem products, then Healios may grant such sublicense only with the advance, written consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

3.2 Subject to the terms and conditions of this Agreement, ATHX grants to Healios, under the Foreground IP of ATHX, a non-exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, to make and have made Licensed Products using the MultiStem Products supplied by ATHX pursuant to SECTION 8, for purposes of researching, developing (including in conducting clinical trials), using, distributing, promoting, marketing, offering for sale, selling or importing such Licensed Products pursuant to the license granted to Healios in Section 3.1. For clarity, the foregoing license shall include rights for Healios to (i) conduct non-systemic, localized administration of the MultiStem Products at the same time and immediate vicinity as an iPSC-derived cell transplantation to make the Licensed Product or (ii) use a combination formulation containing both the MultiStem Product and iPSC-derived cells to make the Licensed Product. Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem products, then Healios may grant such sublicense only with the advance,

written consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

3.3 Subject to the terms and conditions of this Agreement, ATHX will grant to Healios under the Foreground IP of ATHX, a non-exclusive, non-transferable and non-assignable (except as provided pursuant to Section 17.6) license, with the right to grant sublicenses, to make, have made and import the MultiStem Product portion of the Licensed Products worldwide, upon and after occurrence of any of the events described in clauses (a) – (h) of Section 2.3. Healios may grant sublicenses under the foregoing rights by prior written notice to ATHX (and without advance consent of ATHX); provided, however, that if the sublicense would be to any third-party company that develops, markets or sells cell therapies substantially similar in form and function to MultiStem products, then Healios may grant such sublicense only with the advance, written consent of ATHX, which will not be unreasonably withheld, delayed or conditioned (including through any separate financial consideration).

3.5 Unless constrained by the agreement with any licensee of ATHX or its Affiliate or as provided in any other agreement between Parties, ATHX will make reasonable efforts to consult with and enable Healios to use non-clinical/clinical data, record of discussions and meetings with regulatory agencies, and test results of the MultiStem Product portion of the Licensed Product (or any other non-iPSC combination products of the MultiStem Products) generated by ATHX, its Affiliate or a licensee of ATHX, as reasonably necessary for Healios’ obtaining approval of the Licensed Product in the Licensed Field, including, but not limited to, filing applications for approval.

3.6 At least once per calendar quarter, each Party shall disclose in writing to the JSC and the other Party a general description of all new Foreground IP, including the results of any research or development relating to MultiStem Products for the Licensed Field generated by such Party or any of its Affiliates since the last time reported. If a Party recognizes that any Foreground IP created by a Party and not previously disclosed to the other Party is reasonably likely to have a material impact on the activities contemplated by this Agreement, then such Party shall promptly notify the JSC and other Party of such Foreground IP. Each Party shall provide further, more detailed disclosures of any such Foreground IP as reasonably requested by the other Party or the JSC from time to time.

3.8 As between the Parties, ownership of Foreground IP shall be determined as follows:

(a) ATHX shall solely own all Foreground IP for which one or more Representatives of ATHX is/are the only inventor(s) or author(s), as applicable;

(b) Healios shall solely own all Foreground IP for which one or more Representative(s) of Healios is/are the only inventor(s) or author(s), as applicable; and

in each such case, subject to the licenses granted in such Foreground IP in this SECTION 3.

3.9 ATHX shall be responsible for preparation, filing, prosecution, maintenance of all such Foreground IP of ATHX in its sole discretion and at its sole cost and expense.

3.10 Healios shall be responsible for preparation, filing, prosecution, maintenance of all such Foreground IP of Healios in its sole discretion and at its sole cost and expense.

3.11 As between the Parties, ownership of Other Improvements shall be determined consistent with inventorship, or authorship, as applicable.

3.12 As between the Parties, unless otherwise mutually agreed by the Parties, Healios shall be responsible for the preparation, filing, prosecution, maintenance of all patent applications and patents that claim (i) jointly-owned Foreground IP or (ii) Other Improvements owned jointly by ATHX and Healios, in each case after obtaining consent on the documents to be filed at the patent office from ATHX, and the cost and expense of all such activities will be shared equally by the Parties. Except as provided in the preceding sentence, each of the Parties may exploit jointly-owned Foreground IP and Other Improvements, including any issued patents granted thereon, independently of, and without accounting to, the other joint owner (subject to any applicable underlying rights of either Party that may be required to exploit such joint ownership rights).

SECTION 4 TRADEMARK.

4.1 As between the Parties, Healios shall select and own the Trademarks, and Healios shall have the right to register and maintain the Trademarks at the competent authority in the Territory. Healios shall be the party to file application of and maintain the registration of Trademarks and to defend the registration against any third party’s challenge including, without limitation, filing of invalidation trial. Healios shall be responsible for the costs and fees incurred in relation to filing application of, maintaining and defending the registration of the Trademarks. Healios shall have the sole right to enforce the Trademarks against infringements or other violations thereof, shall be responsible for all costs and fees incurred in relation to such activities, and shall be entitled to retain all awards or damages in connection with such activities.

4.2 ATHX does not grant to Healios, and Healios shall not use any trademark of ATHX (including, for example, the mark MULTISTEM or translation thereof) or any mark confusingly similar thereto in connection with any Licensed Product or otherwise in connection with Healios’ exercise of its rights granted to it under this Agreement. If Healios desires to use any of the foregoing or any other trademark owned by or licensed to Athersys or any of its Affiliates in connection with Licensed Products or otherwise in connection with Healios’ exercise of its rights under this Agreement, Healios may notify Athersys and the Parties will discuss in good faith the circumstances and associated terms and conditions related to such use.

SECTION 5 PAYMENTS.

5.2 As partial consideration for the rights granted under this Agreement, [*].

5.3 To calculate any amounts due under this Agreement in US Dollars, Healios shall convert the amount of Net Sales of Licensed Products from the currency in which such Net Sales were collected to US Dollars using the currency conversion published by the Wall Street Journal, Eastern Edition , and based upon the average conversion rate for the calendar quarter being reported.

5.4 All amounts required to be paid by Healios under this Agreement shall be paid in US Dollars even if the calculation of such amount is not based upon US Dollars.

5.5 Any payments made by a Party pursuant to this Agreement shall not be reduced on account of any Taxes unless required by applicable law. ATHX shall be responsible for paying any and all Taxes (other than withholding taxes required to be paid by Healios under applicable law, except to the extent that ATHX does not provide any requested IRS documentation) levied on account of, or measured in whole or in part by reference to, any payments it receives hereunder. Healios shall deduct or withhold from any such payments to ATHX any Taxes that Healios is required to deduct or withhold under applicable law. Notwithstanding the foregoing, if ATHX is entitled under any applicable Tax treaty to a reduction in the rate of, or the elimination of, applicable withholding Tax, it may deliver to Healios or the appropriate governmental authority (with the assistance of Healios to the extent that such assistance is reasonably required and is requested in writing) the prescribed forms necessary to reduce the applicable rate of withholding or to relieve Healios of its obligation to withhold Tax, and Healios shall apply the reduced rate of withholding, or dispense with withholding, as the case may be, provided that Healios has received evidence, in a form reasonably satisfactory to Healios, of ATHX’s delivery of all applicable forms (and, if necessary, its receipt of appropriate governmental authorization) at least 10 days prior to the time that the payments are due. If, in accordance with the foregoing, Healios withholds any amount, it shall (a) timely remit to ATHX the balance of such payment excluding the withheld tax; (b) timely remit the full amount

withheld to the proper governmental authority; and (c) send to ATHX written proof of remittance of the full amount withheld within 30 days following remittance.

5.6 Healios will keep, and will cause each of its Affiliates or other sublicensees to keep, records reasonably sufficient to determine all amounts payable to ATHX under this Agreement (including the calculation of Royalties) for the longer of (a) 3 years after their creation or (b) the minimum period of time required by applicable law.

5.7 During the Term and for a period ending 3 years thereafter, at the request of ATHX, Healios will permit an independent certified public accounting firm of nationally recognized standing in the USA selected by ATHX to inspect and audit, upon reasonable advance notice, during regular business hours, and in a manner that does not interfere with normal operations, the books and records of Healios described in Section 5.6. ATHX and Healios will discuss to decide the number of independent accountants or auditors to access and examine the records in such audit. Healios may require the independent accountants or auditors to enter into a confidentiality agreement with Healios before undertaking any such audit, provided that the independent accountants or auditors may disclose and report the results of the audit to ATHX. All expenses of each such inspection and audit will be paid for by ATHX, unless the inspection and audit demonstrates any underpayment by Healios of over five percent (5%) of any amounts owed to ATHX under this Agreement. If the inspection and audit demonstrate any such underpayment of over five percent (5%), without limiting any other rights or remedies to ATHX, Healios will pay the balance due to ATHX together with interest at the rate of 1.5% per month (or the maximum amount permitted by applicable law if lower) and reimburse ATHX for the cost of such inspection and audit within 30 days after receiving the written report of the auditor.

SECTION 6 DEVELOPMENT OF LICENSED PRODUCTS.

SECTION 7 JOINT STEERING COMMITTEE.

7.2 Agenda of the JSC will cover the following:

(b) Reporting and review of the progress of the research and development plan of Licensed Products in the Territory, and revision, if necessary, of such plan;

(c) Reporting and review of the application strategy for the approval of the Licensed Products in the Territory and the strategy for filing of application thereof and for pricing approvals;

(d) Reporting strategy on marketing, promotion plans, the sales record and post marketing study of Licensed Products in the Territory; and

7.5 In the case of failure to form unanimity in the JSC, [*], subject to Section 7.6.

7.6 When a decision of JSC is reasonably expected to have a material effect on ATHX’s development, reimbursement, pricing or commercialization of MultiStem Products, the chairperson of the JSC shall fairly and reasonably consider the material effect of such a decision. When either Party is dissatisfied with the judgment, the Party may submit such dispute to mediation in accordance with the mediation rules of the International Chamber of Commerce. The place of mediation shall be Tokyo. The language to be used in the mediation shall be English. If the Parties cannot agree upon the course of action to be taken as a result of such mediation, either Party may submit the dispute for final resolution by arbitration pursuant to Section 17.2. Unless and until such dispute is finally resolved by such arbitration or the Parties otherwise mutually agree as to the action to be taken (or not taken) regarding the disputed subject, the judgment shall have no effect and neither Party may take such action (or refrain from taking such action) that was the subject of such judgment.

SECTION 8 SUPPLY OF MULTISTEM PRODUCTS.

8.6 All payments under this SECTION 8 shall be invoiced and paid in US Dollars within 30 days from the date Healios receives the invoice from ATHX or its Affiliates.

with normal operations, and subject to all on-site rules and regulations for visitors, and ATHX shall cooperate with Healios and the independent accountants or auditors in the verification. ATHX shall make and keep records necessary for calculation of such [*] and allow the independent accounts or auditors to access and examine the records in the verification. ATHX and Healios will discuss to decide the number of independent accountants or auditors to access and examine the records in the verification, in each case, during the Term and for a period ending 3 years thereafter. ATHX may require the independent accountants or auditors to enter into a confidentiality agreement with ATHX before undertaking any such verification, provided that the independent accountants or auditors may disclose and report the results of the verification, including, the information concerning the [*], to Healios. All expenses of each such verification will be paid for by Healios, unless the verification demonstrates a discrepancy in the [*] for the MultiStem Product portion of the Licensed Products of over five percent (5%) between ATHX’s reported amount and the actual amount confirmed through such verification. If the verification demonstrates any past overpayment by Healios of over five percent (5%) of such actual [*], without limiting any other rights or remedies to Healios, ATHX will pay the amount of such discrepancy to Healios together with interest at the rate of 1.5% per month (or the maximum amount permitted by applicable law if lower) and reimburse Healios for the cost of such verification within 30 days after receiving the written report of the independent accountant or auditor.

SECTION 9 TECH TRANSFER.

Healios’ designated third party manufacturer becomes ready to manufacture or have manufactured the subject MultiStem Product portion of the Licensed Products for the requirement.

9.2 Notwithstanding Section 9.1 above, if any of the events described in clauses (a) or (b) in Section 2.3 occurs, Healios may provide ATHX with notice thereof and its intent to exercise its rights under Section 9.1. If ATHX demonstrates within 30 days after receipt of such notice that ATHX is able to supply Healios with the subject MultiStem Product portion of the Licensed Products for the Licensed Field with satisfactory quality and in a stable and continual manner, then Healios may not exercise such rights. If ATHX fails to so demonstrate, Healios may exercise such rights. In response to exercise of such rights by Healios upon or after ATHX’s failure to so demonstrate under this Section 9.2, ATHX shall assume the obligations as set forth in Section 9.1.

SECTION 10 TERM AND EXPIRATION.

10.1 [*].

10.2 This Agreement shall automatically terminate upon the expiration of all Product Terms in the Territory (the “ Term ”).

SECTION 11 TERMINATION; EFFECTS OF TERMINATION OF THIS AGREEMENT.

11.1 Healios may terminate this Agreement without cause with 6 months prior written notice to ATHX.

11.4 Upon Termination of this Agreement for any reason:

(a) the provisions in Sections SECTION 1, 2.5, 3.7 - 3.12, 4.1, 5.3 - 5.7, 11.4, SECTION 13, SECTION 14, 16.7 and SECTION 17 shall survive Termination of this Agreement if and as applicable; and

(b) all obligations accruing prior to Termination of this Agreement shall remain due and owed in accordance with their respective terms.

11.5 Upon Termination of this Agreement by Healios pursuant to Section 11.1 or by ATHX pursuant to Section 11.3, Healios will work in good faith with ATHX to promptly (i) transfer to ATHX ownership of all investigator’s brochures, regulatory filings and regulatory approvals for the Licensed Product throughout the Territory; (ii) deliver to ATHX all clinical data and information in Healios’ possession or control relating to Licensed Products, including for clarity manufacturing data, if any, in the same form in which Healios maintains such data, (iii) deliver to ATHX, in the same form in which Healios maintains such items, copies of all reports, records, regulatory correspondence and other materials in Healios’ possession or control relating to the clinical development of Licensed Product throughout the Territory.

11.7 Upon expiration of a Product Term with respect to a particular Licensed Product pursuant to Section 10.1, Sections 2.1, 2.2, 2.3 (if applicable), 3.1, 3.2 and 3.3, and SECTION 4 shall survive such expiration and remain in full force and effect with respect to such Licensed Product; provided, however , that the licenses granted to Healios under such sections as applicable with respect to such Licensed Product shall be royalty-bearing thereafter (including after the Term) in accordance with this Section 11.7 for a maximum period of twenty (20) years from the date of the first commercial sale (after Approval) of such Licensed Product in the Territory, unless the initial Product Term extends beyond such twenty (20) year period, in which

case such licenses shall be royalty-bearing for a maximum period of five (5) years after the expiration of the initial Product Term (“ Post-Term Period ”), and upon termination of such payment obligation at the end of such 20-year or 5-year period, as applicable, all of the licenses granted by ATHX to Healios under this Agreement with respect to such Licensed Product automatically convert to non-exclusive. Notwithstanding the foregoing, such royalty-bearing licenses (and Healios’ obligation to pay such royalties) with respect to such Licensed Product shall terminate automatically without further action by either Party at such time that neither Healios nor any of its Affiliates or permitted sublicensees have used any remaining enforceable rights in any of the ATHX MultiStem Background IP or Foreground IP owned by ATHX anywhere in the Territory for the sale of such Licensed Product for a continuous period of 1 year. The applicable royalty rate for such licenses with respect to such Licensed Product during the Post-Term Period shall be calculated based upon the total Net Sales in a calendar year, or any partial calendar year, as appropriate, as set forth in Table 11.7 below:


Table 11.7 – Post-Product Term Royalty Rates
Total Net Sales of such Licensed Product in the Calendar Year		Royalty Rate
[*]		[*]
[*]		[*]
[*]		[*]
[*]		[*]
[*]		[*]
[*]

All royalties due under this Section shall be paid in accordance with and subject to Sections 5.4 and 5.5. The payment of the amounts due under this Section 11.7 shall be made in US Dollars within 60 days from the end of each calendar year. To calculate the amount due in US Dollars, Healios shall convert the amount of Net Sales of such Licensed Products from currency collected by Healios to US Dollars using the currency conversion published by the Wall Street Journal, Eastern Edition , and based upon the average conversion rate for the calendar year being reported. To determine the royalty rate applicable to Net Sales for a partial calendar year (such as for the period starting on Termination of this Agreement and ending at the end of the calendar year in which that occurs), [*].

11.8 Section 3.4 survives termination and remains in full force and effect upon Termination of this Agreement in its entirety for expiration pursuant to SECTION 10, by Healios pursuant to Section 11.1, or by ATHX pursuant to Section 11.3.

SECTION 12 PHARMACOVIGILANCE AND DILIGENCE.

12.2 In response to a request of ATHX in relation to the event as set forth in Section 12.1, Healios shall provide an answer in writing within one week.

12.4 Healios shall use commercially reasonable efforts to develop and achieve Approval for the Licensed Products for each of the diseases or conditions within the Licensed Field throughout the Territory. Following any such Approval, Healios shall use commercially reasonable efforts to commercialize such Licensed Products for each of the diseases or conditions within the Licensed Field throughout the Territory.

SECTION 13 CONFIDENTIALITY.

(a) Information which is publicly known at the time of disclosure by Discloser or information which becomes publicly known with no fault of Recipient after disclosure by Discloser;

(b) Information which is already in the possession of Recipient on or before disclosure by Discloser;

(c) Information which Recipient duly obtains from a third party who is not under any obligation to maintain the confidentiality of such information;

(d) Information which Recipient has independently developed or obtained without the benefit of information disclosed by Disclosure; or

(e) Information for which the Recipient obtains from the Discloser a prior written approval for disclosure.

13.2 Except as otherwise provided in this SECTION 13, Recipient shall hold and maintain Confidential Information in strict confidence, and shall not disclose to any third party Confidential Information without a prior written approval of Discloser and Recipient shall use Confidential Information solely for the purpose of this Agreement (“ Purpose ”). Notwithstanding the foregoing, Recipient may disclose Confidential Information to its directors, statutory auditors, officers, employees and agents and those of its Affiliate (collectively referred to as “ Staff ”) when its Staff needs to know the Confidential Information for the Purpose. Recipient shall make its Staff comply with the obligations as set forth in this SECTION 13, whether during the period in which the Staff has positions in Recipient or after the Staffs leave Recipient and shall be fully liable to Discloser for their breach of such terms as if such breach was by Recipient.

13.7 The obligations set forth in SECTION 13 shall be effective for 20 years from Termination of this Agreement.

SECTION 14 INDEMNIFICATION.

SECTION 15 INFRINGEMENT AND CHALLENGE OF RIGHTS.

15.1 When either Party (the “ Notifying Party ”) becomes aware of any actual or threatened infringement of the ATHX MultiStem Background IP or Foreground IP of ATHX by any third

party in portion of the Territory (the “ Infringement by Third Party ”), the Notifying Party shall promptly notify the other Party of the detailed conduct of the Infringement by Third Party and the name of the third party to the extent that the Notifying Party knows.

15.2 Infringement by Third Party will be addressed as follows:

(a) Subject to Section 15.2(b), Healios shall have the right, but not the obligation, to attempt to stop Infringement by Third Party of the ATHX MultiStem Background IP or Foreground IP of ATHX within the Licensed Field anywhere in the Territory, including through negotiation and litigation at its cost, to the extent that the Infringement by Third Party is related to a product(s) competing with any Licensed Product that is sold by Healios, its Affiliate or their sublicensee for use within the Licensed Field. ATHX shall provide Healios with any assistance in connection with the Healios’ activities to attempt to stop such Infringement by Third Party as reasonably requested by Healios, including by ATHX joining as a party to any such litigation or filing a joint action with Healios if Healios desires to seek an injunction against the Third Party and ATHX’s participation as a party in such litigation is required to obtain such injunction. Any recoveries resulting from such efforts will be allocated in the following priority: (i) first, in reimbursing Healios’ out of pocket expenses (including counsel fees and expenses) in undertaking such activities, (ii) second, in reimbursing ATHX’s out of pocket expenses (including counsel fees and expenses) in assisting with such activities, and (iii) third, the remainder (if any) to be retained by Healios but reported as Net Sales and paid to ATHX thereon under SECTION 5. No settlement, stipulated judgment or other voluntary final disposition of litigation under this Section 15.2(a) may be undertaken by Healios without the consent of ATHX if such settlement, stipulated judgment or other voluntary final disposition would require ATHX to be subject to an injunction, admit wrong-doing, make a monetary payment or would otherwise materially adversely affect ATHX’ rights under this Agreement or any of the ATHX MultiStem Background IP or Foreground IP of ATHX.

15.3 When any third party takes any action to invalidate or to have declared unenforceable any of the ATHX MultiStem Background IP or Foreground IP of ATHX in any manner, including filing an invalidation trial or an opposition or as an invalidation defense, a counterclaim, declaratory judgment or other response to an allegation made by Healios or ATHX under Section 15.2, ATHX shall have the sole right to defend against, and shall take at its sole expense commercially reasonable actions to defend against, the third party’s actions or claims. In response to a request of ATHX, Healios shall provide all reasonable assistance to ATHX in connection with ATHX’s actions above. ATHX shall be responsible for all of the out-of-pocket costs and expenses reasonably incurred by Healios in connection with such assistance requested by ATHX.

15.4 When (a) either (i) any conduct under the license under this Agreement or the sublicense by Healios, its Affiliate or its permitted sublicensee constitutes a material risk of being deemed an infringement of any right, title or interest of any intellectual property of any third party (“ Infringement of Third Party ’ s Right ”) or (ii) any third party threatens or initiates legal actions alleging Infringement of Third Party’s Right in connection with any conduct under such license or the sublicense by Healios or its permitted sublicensee, and (b) such risk, threat or litigation is based upon the MultiStem Product as supplied by ATHX, its Affiliate or a Third Party Manufacturer to Healios under this Agreement or a supply agreement contemplated hereby (“ Supplied Product ”) or upon the manufacturing method as transferred by ATHX to Healios pursuant to Section 9.1 to make MultiStem Product for use in the Licensed Field in any portion of the Territory (“ Transferred Method ”), then (c) if requested by Healios and subject to Section 15.5, [*]. ATHX shall be responsible for all of ATHX’s and its Affiliates’ costs and expenses incurred in the actions above, including, if and as applicable, (A) payments under any agreement entered between ATHX or its Affiliate, on the one hand, and the third party, on the other hand, (B) any costs and expenses of ATHX and its Affiliates for legal procedures against the third party, including the attorneys’ fees of ATHX and its Affiliates, and (C) any costs and expenses of ATHX’s and its Affiliates’ associated with their respective negotiations with the third party. Healios shall cooperate with ATHX and its Affiliates in connection with the actions above; provided that ATHX shall reimburse Healios for Healios’ and its Affiliates’ reasonable out-of-pocket legal costs and expenses incurred in the actions above.

15.5 Notwithstanding Section 15.4, ATHX shall have no obligation thereunder:

(a) when the Supplied Product as supplied by ATHX or the Third Party Manufacturer(s) has been modified in a manner not specifically directed in writing by ATHX and without such modification exploitation of the Licensed Product would not be deemed a material risk of infringement;

(c) when the Supplied Product or the Transferred Method is exploited in any manner that is not licensed or that would be a breach of this Agreement;

(d) (i) when the Supplied Product is exploited in combination with anything or (ii) when the Supplied Product is part of a Licensed Product and, in each case, (i) or (ii), exploitation of the Supplied Product alone, as supplied by ATHX or the Third Party Manufacturer(s), would not be deemed a material risk of infringement;

(f) for any use or methods of treatment developed by Healios; or

(g) other than as expressly set forth in this Agreement, for any Liabilities incurred by Healios, its Affiliates or their respective sublicensees.

SECTION 16 REPRESENTATION AND WARRANTIES; DISCLAIMER.

16.4 ATHX represents and warrants that, to its knowledge as of the Effective Date, the issued patents of ATHX MultiStem Background Patents in the Territory related to the Licensed Products in the Licensed Field were valid and enforceable.

SECTION 17 MISCELLANEOUS.

17.1 This Agreement shall be governed by and construed under the Laws of State of New York without regard to its choice of law principles.

17.3 All rights and licenses of Healios or its Affiliate under this Agreement are and shall be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code or any counterparts in other jurisdictions, licenses of rights to “intellectual property” as defined in Section 101 of the U.S. Bankruptcy Code, to the extent that the U.S. Bankruptcy Code or any counterparts in other jurisdictions is applicable to the rights and license. Healios may retain and exercise all of its rights and elections under the U.S. Bankruptcy Code or any counterparts in other jurisdictions.

17.4 The licenses granted by either Party under its respective intellectual property in this Agreement are limited to those specifically and expressly set forth in Sections 2.1, 2.2, 2.3, 3.1, 3.2, 3.3 and 4.2. Nothing in this Agreement does or will be construed to grant to a Party any rights in any intellectual property rights not expressly granted, in each case whether by implication, estoppel or otherwise, and neither Party will exploit or grant sublicenses in any of the intellectual property rights licensed to it outside of the scope expressly licensed to it under this Agreement. All rights not specifically granted by a Party are reserved by such Party.

17.5 NEITHER ATHX NOR HEALIOS WILL BE LIABLE UNDER THIS AGREEMENT FOR ANY SPECIAL, PUNITIVE, CONSEQUENTIAL, INCIDENTAL OR OTHER INDIRECT DAMAGES OF ANY TYPE OR NATURE, WHETHER BASED IN CONTRACT,

TORT, STRICT LIABILITY, NEGLIGENCE OR OTHERWISE, INCLUDING LOSS OF PROFITS OR REVENUES, EXCEPT (A) TO THE EXTENT ANY SUCH DAMAGES ARE PAYABLE TO THIRD PARTIES IN CONNECTION WITH A INDEMNIFICATION OBLIGATION HEREUNDER, (B) FOR WILLFUL BREACH OR BREACH RESULTED FROM BAD FAITH OF ANY PROVISION OF THIS AGREEMENT, (C) FOR EXPLOITATION OF ANY OF THE INTELLECTUAL PROPERTY RIGHTS LICENSED UNDER THIS AGREEMENT OUTSIDE OF THE SCOPE LICENSED, OR (D) BREACH OF THE CONFIDENTIALITY PROVISIONS IN SECTION 13.

17.6 Neither this Agreement nor any rights or obligations of any Party to this Agreement may be assigned or otherwise transferred by such Party without the consent of the other Party, except that a Party may assign this Agreement, without such consent, to an Affiliate or to a purchaser of or successor in interest to substantially all of that Party’s business or assets to which this Agreement pertains, through merger, sale of assets and/or sale of stock or ownership interest, consolidation or name change. Any permitted assignee shall assume all obligations of its assignor under this Agreement and provide notice of such assignment to the other Party promptly after such assignment. Any purported assignment in violation of this Section is void.

17.7 This Agreement may be executed in counterparts, each of which, when executed, are deemed to be an original and all of which together constitute one and the same document.

17.9 Headings in this Agreement are included herein for reference only and shall not affect in any way the meaning or interpretation of this Agreement.


If to ATHX:		ABT Holding Company 3201 Carnegie Avenue Cleveland, OH 44115 Attention: President Facsimile: +1.216.361.9495

with a copy to:		Jones Day 4655 Executive Drive, Suite 1500 San Diego, CA 92121


		Attention: Thomas A. Briggs Facsimile: +1.858.314.1150

If to Healios:		HEALIOS K.K. World Trade Center Bldg. 15F 2-4-1 Hamamatsucho, Minato-ku, Tokyo, 135-6115 Japan Attention: Chairman & CEO Tadahisa “Hardy” Kagimoto, Facsimile: +81.3.3434.7231

with a copy to:		HEALIOS K.K. World Trade Center Bldg. 15F 2-4-1 Hamamatsucho, Minato-ku, Tokyo, 135-6115 Japan Attention: General Manager of Business Development, Hiromu Ozaki Facsimile: +81.3.3434.7231

[Remainder of page intentionally blank]

Exhibit 3 to Collaboration Expansion Agreement

IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be executed by their duly authorized officers upon the date set out below.


ABT Holding Company		HEALIOS K.K.

By:	/s/ Gil Van Bokkelen	By:	/s/ Tadahisa “Hardy” Kagimoto
Name:	Gil Van Bokkelen	Name:	Tadahisa “Hardy” Kagimoto
Title:	Chairman & CEO	Title:	Chairman & CEO

GUARANTEE BY ATHERSYS, INC.

Athersys, Inc. hereby irrevocably guarantees the performance of all of ATHX’s obligations under this Agreement.


Athersys, Inc.

By:		/s/ Gil Van Bokkelen
Name:		Gil Van Bokkelen
Title:		Chairman & CEO

Exhibit 3 to Collaboration Expansion Agreement

Schedule 1

ATHX MultiStem Patents in the Territory

(see attached)

SCHEDULE 1

STEM CELL PATENTS AND APPLICATIONS IN JAPAN

CONFIDENTIAL

[*]

Exhibit 3 to Collaboration Expansion Agreement

Schedule 2

[*]

Exhibit 4

MultiStem China Option Agreement for License

Part 1: Terms in Option Agreement

“ Effective Date ” would be the date on which the Healios pays the first instalment of [*] to Healios for the China Option and [*].

“ Option Fields ” would be treatment of ischemic stroke, acute respiratory distress syndrome (including idiopathic pulmonary fibrosis), and either trauma or an alternative indication mutually agreed by the Parties, or some combination of the foregoing.

The “ Option Term ” would be the period that starts on the Effective Date of this Option Agreement and ends upon the first to occur of: (a) Option Expiration Date or (b) Healios’ proper exercise of the Option with respect to one or more of the Option Fields. The “ Option Expiration Date ” would mean [*].

If Healios paid the Option Extension Fee, then such amount may be applied as a credit towards the applicable License Fee below.

To exercise the Option, Healios would pay to ATHX one of the following amounts set forth in the table below (“ License Fee ”) before the end of the Option Term depending upon which portion(s) of the Option Field Healios desires to exercise and license. The License Fee would not be refundable for any reason.

Portion of Option Fields to be Licensed Field in
MultiStem China License Agreement

License Fee (US Dollars)

[*]

Part 2: Terms in License Agreement to be Attached to Option Agreement

The License Agreement would become effective as a result of exercising the Option and the form of such agreement would be patterned after the Initial License Agreement.

“ Licensed Field ” would be determined based upon how Healios exercised its option.

“ Territory ” would be China.

Payments:



Development Milestone Payments

Development Milestone Activity		Milestone Payment (US Dollars)

*[]**		*[]**

*[]**		*[]**

*[]**		*[]**

*[]**		*[]**

*[]**		*[]**

*[]**		*[]**



Sales Milestone Payments

Net Sales (US Dollars) in a Calendar Year		Milestone Payment (US Dollars)

*[]**		*[]**

*[]**		*[]**

*[]**		*[]**

*[]**		*[]**



Royalty Rates

Net Sales (US Dollars) of Products		Royalty Rate

[*]		[*]

[*]		[*]

[*]		[*]

[*]		[*]

[*]		[*]

[*]		[*]

[*].

10. Royalty Change: [*].

11. Manufacture in China: [*].

Exhibit 5

[*]

EXHIBIT 31.1

CERTIFICATIONS

I, Gil Van Bokkelen, certify that:

I have reviewed this quarterly report on Form 10-Q of Athersys, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 9, 2018

/s/ Gil Van Bokkelen

Gil Van Bokkelen

Chief Executive Officer and Chairman of the Board of Directors

EXHIBIT 31.2

CERTIFICATIONS

I, Laura K. Campbell, certify that:

I have reviewed this quarterly report on Form 10-Q of Athersys, Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 9, 2018

/s/ Laura K. Campbell

Laura K. Campbell

Senior Vice President of Finance

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Athersys, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Date: August 9, 2018

/s/ Gil Van Bokkelen

Name: Gil Van Bokkelen

Title: Chairman and Chief Executive Officer

/s/ Laura K. Campbell

Name: Laura K. Campbell

Title: Senior Vice President of Finance

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

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