athx-20200930

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 September 30, 2020


☐			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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ATHX	The NASDAQ Stock Market LLC

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 every Interactive Data File required to be submitted 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 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.

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Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

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 November 5, 2020 was 197,699,500.

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ATHERSYS, INC.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements	4
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	20
ITEM 4.	Controls and Procedures	20
PART II. OTHER INFORMATION
ITEM 1A.	Risk Factors	20
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
ITEM 6.	Exhibits	21
SIGNATURES

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Athersys, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)


	September 30, 2020		December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	61,711	$	35,041
Accounts receivable	—		17
Accounts receivable from Healios	141		945

Prepaid expenses and other	2,429		1,168


Total current assets	64,281		37,171
Equipment, net	3,069		2,882
Deposits and other	1,513		1,613
Total assets	$	68,863	$	41,666
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	12,735	$	9,048
Accounts payable to Healios	1,205		1,068
Accrued compensation and related benefits	1,840		773
Accrued clinical trial related costs	2,447		1,160
Accrued expenses and other	1,044		723


Deferred revenue - Healios	65		65

Total current liabilities	19,336		12,837
Advance from Healios	5,201		5,338
Other long-term liabilities	164		220
Stockholders’ equity:
Preferred stock, at stated value; 10,000,000 shares authorized, and no shares issued and outstanding at September 30, 2020 and December 31, 2019	—		—
Common stock, $0.001 par value; 300,000,000 shares authorized, and 197,585,732 and 159,791,585 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	198		160
Additional paid-in capital	518,147		440,735
Accumulated deficit	(474,183)		(417,624)
Total stockholders’ equity	44,162		23,271
Total liabilities and stockholders’ equity	$	68,863	$	41,666

See accompanying notes to unaudited condensed consolidated financial statements.

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Athersys, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Revenues
Contract revenue from Healios	$	85	$	(368)	$	162	$	5,266

Grant revenue	1		7		8		80
Total revenues	86		(361)		170		5,346
Costs and expenses
Research and development	18,471		8,856		44,333		31,411
General and administrative	3,700		2,958		11,606		8,930
Depreciation	233		167		645		508
Total costs and expenses	22,404		11,981		56,584		40,849

Loss from operations	(22,318)		(12,342)		(56,414)		(35,503)

Other (expense) income, net	(225)		327		(145)		844
Net loss and comprehensive loss	$	(22,543)	$	(12,015)	$	(56,559)	$	(34,659)
Net loss per share, basic and diluted	$	(0.11)	$	(0.08)	$	(0.31)	$	(0.23)
Weighted average shares outstanding, basic and diluted	197,343		153,096		183,841		149,767

See accompanying notes to unaudited condensed consolidated financial statements.

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Athersys, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)


	Preferred Stock			Common Stock			Stock Subscription Receivable		Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Number of Shares	Stated Value		Number of Shares	Par Value
Balance at December 31, 2019	—	$	—	159,791,585	$	160	$	—	$	440,735	$	(417,624)	$	23,271
Stock-based compensation	—	—		—	—		—		1,280		—		1,280
Stock subscription receivable from Healios warrant exercise	—	—		4,000,000	4		(7,040)		7,036		—		—
Issuance of common stock	—	—		6,825,000	7		—		10,243		—		10,250
Issuance of common stock under equity compensation plan	—	—		153,504	—		—		(149)		—		(149)
Net comprehensive loss	—	—		—	—		—		—		(15,644)		(15,644)
Balance at March 31, 2020	—	—		170,770,089	171		(7,040)		459,145		(433,268)		19,008
Stock-based compensation	—	—		—	—		—		2,579		—		2,579
Stock subscription receivable from Healios warrant exercise	—	—		—	—		7,040		—		—		7,040
Issuance of common stock, net of issuance cost	—	—		25,587,500	26		—		53,665		—		53,691
Issuance of common stock to Healios	—	—		310,526	—		—		534		—		534
Issuance of common stock under equity compensation plan	—	—		340,447	—		—		(302)		—		(302)
Net comprehensive loss	—	—		—	—		—		—		(18,372)		(18,372)
Balance at June 30, 2020	—	—		197,008,562	197		—		515,621		(451,640)		64,178
Stock-based compensation	—	—		—	—		—		1,651		—		1,651
Issuance of common stock	—	—		395,000	1		—		1,094		—		1,095
Issuance of common stock under equity compensation plan	—	—		182,170	—		—		(219)		—		(219)
Net comprehensive loss	—	—		—	—		—		—		(22,543)		(22,543)
Balance at September 30, 2020	—	$	—	197,585,732	$	198	$	—	$	518,147	$	(474,183)	$	44,162

See accompanying notes to unaudited condensed consolidated financial statements.

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Athersys, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)


	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Number of Shares	Stated Value		Number of Shares	Par Value
Balance at December 31, 2018	—	$	—	144,292,739	$	144	$	416,014	$	(373,042)	$	43,116
Stock-based compensation	—	—		—	—		1,090		—		1,090
Issuance of common stock, net of issuance cost	—	—		3,825,000	4		5,603		—		5,607
Issuance of common stock under equity compensation plan	—	—		158,494	—		(69)		—		(69)
Net comprehensive loss	—	—		—	—		—		(12,956)		(12,956)
Balance at March 31, 2019	—	—		148,276,233	148		422,638		(385,998)		36,788
Stock-based compensation	—	—		—	—		1,152		—		1,152
Issuance of common stock, net of issuance cost	—	—		3,350,000	4		5,102		—		5,106

Issuance of common stock under equity compensation plan	—	—		151,518	—		(107)		—		(107)
Net comprehensive income	—	—		—	—		—		(9,688)		(9,688)
Balance at June 30, 2019	—	—		151,777,751	152		428,785		(395,686)		33,251
Stock-based compensation	—	—		—	—		1,309		—		1,309
Issuance of common stock, net of issuance cost	—	—		3,300,000	3		4,572		—		4,575
Issuance of common stock under equity compensation plan	—	—		188,969	—		(118)		—		(118)
Net comprehensive loss	—	—		—	—		—		(12,015)		(12,015)
Balance at September 30, 2019	—	$	—	155,266,720	$	155	$	434,548	$	(407,701)	$	27,002

See accompanying notes to unaudited condensed consolidated financial statements.

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Athersys, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine months ended September 30,
	2020		2019
Operating activities
Net loss	$	(56,559)	$	(34,659)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	645		508

Stock-based compensation	5,510		3,551



Changes in operating assets and liabilities:
Accounts receivable	17		247
Accounts receivable from Healios	804		3,333
Prepaid expenses, deposits and other	(1,161)		991

Accounts payable, accrued expenses and other	6,209		151
Accounts payable to Healios	137		792

Deferred revenue - Healios	—		(323)
Advance from Healios	(137)		236
Net cash used in operating activities	(44,535)		(25,173)
Investing activities

Purchases of equipment	(735)		(434)
Net cash used in investing activities	(735)		(434)
Financing activities
Proceeds from issuance of common stock, net of issuance cost	65,036		15,314
Proceeds from issuance of common stock to Healios	534		—
Shares retained for withholding tax payments on stock-based awards	(670)		(320)
Proceeds from exercise of warrants - Healios	7,040		—
Net cash provided by financing activities	71,940		14,994
Increase (decrease) in cash and cash equivalents	26,670		(10,613)
Cash and cash equivalents at beginning of the period	35,041		51,059
Cash and cash equivalents at end of the period	$	61,711	$	40,446

See accompanying notes to unaudited condensed consolidated financial statements.

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Athersys, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Three- and Nine-Month Periods Ended September 30, 2020 and 2019

1. Background and Basis of Presentation

Background: We are an international biotechnology company focused in the field of regenerative medicine and operate in one business segment. Our operations consist of research, preclinical development and clinical development activities, and our most advanced program is in Phase 3 clinical development.

We have incurred losses since our inception in 1995 and had an accumulated deficit of $474.2 million at September 30, 2020, and we will not commence sales of our clinical product candidates until they receive regulatory approval for commercialization. We will require significant additional capital to continue our research and development programs, including progressing our clinical product candidates to commercialization and preparing for commercial-scale manufacturing and sales. At September 30, 2020, we had available cash and cash equivalents of $61.7 million. In April 2020, we completed an underwritten public offering of common stock, generating net proceeds of approximately $53.7 million. Also, in March 2020, HEALIOS K.K. (“Healios”), our collaborator in Japan, elected to exercise its warrant in full, generating proceeds of approximately $7.0 million. We believe that these recent proceeds combined with our cash on hand, certain cash receipts, proceeds from our equity facility, potential delays in non-core programs and our ability to defer certain spending will enable us 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. We expect that our near-term milestones and clinical trial results, including the results of Healios’ clinical trials, may have a significant impact on our ability to access capital from the equity capital markets. Depending on the outcome of these milestones and clinical trial results, we may accelerate, defer or stage the timing of certain programs, and we will have to continue to generate additional capital to meet our needs until we become cash flow positive from the sales of our clinical products, if they are approved for marketing. Such capital would come from new and existing collaborations and the related license fees, milestones and potential royalties, monetization of other assets, and/or the sale of equity securities from time to time including through our equity facility, and grant-funding opportunities.

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, 2019. The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and 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 and disclosures 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 in this Quarterly Report on Form 10-Q.

2. Recently Issued Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to issuing ASU 2016-13, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326): Effective Dates, delaying the effective date for smaller reporting companies until January 2023. We are currently evaluating the potential impact of adoption of this standard on our consolidated financial statements and disclosures, and we do not intend to early adopt.

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3. Net Loss per Share

Basic and diluted net loss per share have been computed using the weighted-average number of shares of common stock outstanding during the period. We have outstanding stock-based awards that are not used in the calculation of diluted net loss per share because to do so would be anti-dilutive.

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 September 30,		Nine months ended September 30,
	2020	2019	2020	2019
Stock-based awards	20,585	16,536	20,585	16,536
Healios warrant – see Note 6	—	4,000	—	4,000
Total	20,585	20,536	20,585	20,536

4. Collaborative Arrangements and Revenue Recognition

Healios Collaboration

We have a licensing collaboration with Healios to primarily develop and commercialize our cell therapy technologies for certain disease indications in Japan, pursuant to which we received nonrefundable license fee payments and are entitled to royalties on net sales. We also have the right to receive development and commercial milestone payments from Healios, subject to certain potential credits that have been negotiated from time-to-time and are associated with modifications to the arrangement. Healios is responsible for the development and commercialization of the licensed products in the licensed territories, and we provide certain services to Healios for which we are paid.

Refer to Note 6 regarding Healios’ exercise of a warrant in March 2020 and its exercise of a right to participate in certain equity transactions in May 2020.

Healios Revenue Recognition

At the inception of the Healios arrangement and again each time that the arrangement is modified, all material performance obligations are identified, which currently 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 are separate and distinct within the context of the contract. We determine the standalone selling price of each performance obligation and the related transaction price, taking into account variable consideration using the expected value or most likely amount method and reassessing our estimates 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.

During our evaluation of variable consideration in the third quarter of 2019, we determined that the estimated transaction price of certain product supply provided to Healios decreased due to a reduction in the underlying cost per dose of the product supply occurring during the quarter. Furthermore, the number of doses of clinical product requested by Healios was amended, and our revenues were further reduced during the period. These reductions collectively exceeded the amount of revenue generated during the quarter, resulting in negative contract revenue from Healios.

At inception and upon each modification date, once the estimated transaction price is established, amounts are allocated to each separate performance obligation on a relative standalone selling price basis. These performance obligations include 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.

The remaining transaction price for the performance obligations that were not yet delivered is not significant at September 30, 2020. At September 30, 2020, the contract liability, included in Deferred revenue - Healios on the unaudited condensed consolidated balance sheets, is properly classified as a current liability since the rights to consideration are expected to be satisfied, in all material respects, within one year.

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Advance from Healios

Certain clinical product supply services that were concluded in 2019 involved a cost-sharing arrangement, the proceeds from which may either (i) result in a reduction in the proceeds we receive from Healios upon the achievement of two potential milestones and an increase to a commercial milestone under the license agreement for stroke or (ii) be repaid to Healios at our election, as defined. The cost-sharing proceeds received are recognized in Advance from Healios on the unaudited condensed consolidated balance sheets until the earlier of the milestones being achieved or such amounts being repaid to Healios at our election, at which time, the culmination of the earnings process or the repayment will be complete.

Disaggregation of Revenues

We recognize license-related amounts, including upfront payments, exclusivity fees, additional disease indication fees and milestones at a point in time when earned. Similarly, product supply revenue is recognized at a point in time upon delivery, as defined in the applicable product supply contracts, while service revenue (e.g., technology transfer) is recognized when earned over time in proportion to the contractual services provided. 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.

The following table presents our contract revenues disaggregated by timing of revenue recognition (in thousands):


	Three months ended September 30, 2020				Three months ended September 30, 2019
	Point in Time		Over Time		Point in Time		Over Time
Contract Revenue from Healios

Product supply revenue	$	85	$	—	$	(62)	$	—
Service revenue	—		—		—		(306)

Total disaggregated revenues	$	85	$	—	$	(62)	$	(306)


	Nine months ended September 30, 2020				Nine months ended September 30, 2019
	Point in Time		Over Time		Point in Time		Over Time
Contract Revenue from Healios
License fee revenue	$	—	$	—	$	1,624	$	—
Product supply revenue	162		—		1,809		—
Service revenue	—		—		—		1,833

Total disaggregated revenues	$	162	$	—	$	3,433	$	1,833

5. Stock-based Compensation

Our 2019 Equity and Incentive Compensation Plan (the “EICP”) authorized at inception an aggregate of approximately 18,500,000 shares of common stock for awards to employees, directors and consultants. The EICP authorizes the issuance of stock-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. Under the EICP, in the three-month period ended September 30, 2020, we granted 93,184 stock options to our employees. Also, in the first quarter of 2020, we awarded inducement stock options to purchase 1,000,000 shares of our common stock.

As of September 30, 2020, a total of 9,295,564 shares were available for issuance under our EICP, and stock-based awards to purchase 19,585,196 shares of common stock were outstanding under our current and former equity incentive plans, and inducement awards granted outside of our equity incentive plans to purchase 1,000,000 shares of common stock were outstanding. For the three-month periods ended September 30, 2020 and 2019, stock-based compensation expense was approximately $1.7 million and $1.3 million, respectively. At September 30, 2020, total unrecognized estimated compensation cost related to unvested stock-based awards was approximately $15.7 million, which is expected to be recognized by the end of 2024 using the straight-line method.

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In June 2020, we modified stock option awards granted under the EICP and our prior equity plans for all then-current employees and directors by providing an extension to the period of time during which vested stock options can be exercised, first, for employees, following an employee’s voluntary termination of employment or the involuntary termination of the employee’s employment by the Company without cause (as defined with respect to the applicable options) and second, for directors, following a director’s death or voluntary termination of service with the Company, in each case following significant tenure with the Company. Upon modification, employees have post-employment exercise periods from three months up to a maximum of three years and directors have from eighteen months up to thirty months maximum, with the exercise periods increasing based on the applicable individual’s tenure. The modification was applied to all nonqualified stock option awards outstanding on the modification date and to those incentive stock options held by individuals who accepted the modification. Stock option awards issued post-modification include the extended exercise provisions as described in this paragraph. Following evaluation of the modification of the stock option awards, we recorded stock compensation expense of $1.2 million in the second quarter of 2020 for the incremental value of stock option awards vested prior to the modification date. The remaining incremental value of $0.5 million determined at the modification date, associated with the unvested stock option awards, will be recognized over the remaining vesting period of these modified stock option awards.

6. Stockholders’ Equity

Public Offering

In April 2020, we completed an underwritten public offering of common stock, generating gross proceeds of approximately $57.6 million and net proceeds of approximately $53.7 million through the issuance of 25,587,500 shares of common stock at an offering price of $2.25 per share.

Equity Purchase Agreement

We have had equity purchase agreements in place since 2011 with Aspire Capital Fund LLC (“Aspire Capital”) that provide us the ability to sell shares to Aspire Capital from time to time. Currently, we have an agreement with Aspire Capital that was entered into on November 5, 2019 and includes Aspire Capital’s commitment to purchase up to an aggregate of $100.0 million of shares of our common stock over a defined timeframe. The terms of the 2019 equity facility are similar to the previous equity facilities with Aspire Capital, and we issued 350,000 shares of our common stock to Aspire Capital as a commitment fee in November 2019 and filed a registration statement for the resale of 31,000,000 shares of common stock in connection with the equity facility. Our prior equity facility that was entered into in February 2018 was fully utilized and terminated during the first quarter of 2020.

We sold 395,000 shares to Aspire Capital at an average price of $2.77 per share in the third quarter of 2020, generating proceeds of $1.1 million, and sold 7,220,000 shares to Aspire Capital at an average price of $1.57 per share during the nine months ended September 30, 2020, generating proceeds of $11.3 million.We sold 3,300,000 shares to Aspire Capital at an average price of $1.39 per share in the third quarter of 2019, generating proceeds of $4.6 million, and sold 10,475,000 shares to Aspire Capital at an average price of $1.46 per share during the nine months ended September 30, 2019, generating proceeds of $15.3 million.

Healios Warrant

In March 2020, Healios elected to exercise its warrant in full, and we issued 4,000,000 shares of our common stock at an exercise price equal to the reference price of $1.76 per share, as defined in the warrant. Proceeds of approximately $7.0 million were received in April 2020 in accordance with the terms of the warrant.

Healios Investor Rights Agreement

In March 2018, we entered into an investor rights agreement (the “Investor Rights Agreement”) with Healios that governs certain of our and Healios’ rights relating to its ownership of our common stock. Under the Investor Rights Agreement, Healios is permitted to participate in certain equity issuances as a means to maintain its proportionate ownership of our common stock as of the time of such issuance. In May 2020, we entered into a purchase agreement with Healios, providing for Healios to purchase shares of our common stock in connection with certain equity issuances to Aspire Capital. In May 2020, we sold Healios 310,526 shares of our common stock at $1.72 per share for an aggregate purchase price of $534,105, in accordance with the terms of the Investor Rights Agreement.

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7. Income Taxes

We have United States (“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 carrying value of our deferred tax assets and liabilities is determined by the enacted U.S. corporate income tax rate. Consequently, any changes in the U.S. corporate income tax rate impacts the carrying value of our deferred tax assets and liabilities. Also, there are significant limitations on our ability to utilize our net operating loss and tax credit carryforwards under Section 382 of the Internal Revenue Code of 1986, as amended.

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, 2019. 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. We are developing our MultiStem cell therapy product, a patented, adult-derived “off-the-shelf” stem cell product, initially for disease indications in the neurological, inflammatory and immune, cardiovascular and other critical care indications. We have ongoing clinical trials evaluating this potential regenerative medicine product, and our most advanced program is a Phase 3 clinical trial for treatment of ischemic stroke. We also launched in April 2020 a Phase 2/3 study for the treatment of patients with acute respiratory distress syndrome, or ARDS, induced by a novel strain of coronavirus, a condition commonly referred to as COVID-19.

As of the date of this Quarterly Report on Form 10-Q, the COVID-19 pandemic has not had a significant adverse effect on our core business operations. However, the pandemic has adversely impacted operations at certain existing and potential future clinical sites involved in our ongoing clinical studies. It is possible that the COVID-19 pandemic could adversely affect our business, results of operations, financial condition or liquidity in the future. For example, it could impact the timing and enrollment of our or our collaborators’ planned or ongoing clinical trials, delaying clinical site initiation, regulatory review and the potential receipt of regulatory approvals, payment of milestones under our license agreements and commercialization of one or more of our product candidates, if approved. The COVID-19 pandemic could also disrupt the production capabilities of our contract manufacturing partners and materially and adversely impact our MultiStem trial supply chain. Further, the outbreak of COVID-19 has heightened the risk that a significant portion of our workforce may suffer illness or otherwise be unable to work, although to date, we have not experienced any employees that have become COVID-19 positive. The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot currently predict the extent to which our business, clinical trials, results of operations, financial condition or liquidity will ultimately be impacted.

Current Programs

Our MultiStem cell therapy product development programs in the clinical development stage include the following:

Ischemic Stroke: We are conducting a pivotal Phase 3 clinical trial of MultiStem cell therapy for the treatment of ischemic stroke, referred to as MASTERS-2. The MASTERS-2 study has received several regulatory designations, including both Fast Track and Regenerative Medicine Advanced Therapy designation, or RMAT designations, from the U.S. Food and Drug Administration, or FDA. In addition, this trial is being conducted under a Special Protocol Assessment from the FDA and has received a Final Scientific Advice positive opinion from the European Medicines Agency. These designations are designed to help accelerate the development, regulatory review and subsequent commercialization of products focused on areas of substantial unmet medical need, such as the administration of MultiStem cell therapy for ischemic stroke if future clinical evaluation demonstrates appropriate safety and therapeutic effectiveness. We initiated the MASTERS-2 study with a limited number of high-enrolling sites and have been bringing on additional sites over time in line with clinical product supply and clinical operations objectives. The COVID-19 pandemic has impacted enrollment at some clinical sites due to operational restrictions at the hospital sites, including hospital staff redeployment in response to the pandemic. All clinical sites for MASTERS-2 that were previously inactivated due to COVID-19 related operational disruptions have now been reactivated. Our focus is on activating additional clinical sites in the coming months with a goal of having all sites up and running in the first half of 2021 and a goal of completing enrollment for the trial around the end of next year.

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In addition, Healios K.K., or Healios, has an ongoing clinical trial, named TREASURE, evaluating the safety and efficacy of administration of MultiStem cell therapy for the treatment of ischemic stroke in Japan. TREASURE will be evaluated under the progressive regulatory framework for regenerative medicine therapies in Japan under which Healios’ ischemic stroke program has been awarded the SAKIGAKE designation by the Pharmaceuticals and Medical Devices Agency. This framework and designation are designed to expedite regulatory review and approval, and is analogous to Fast Track designation from the FDA. Healios has reported that enrollment of patients to the clinical trial is intended to be completed around the end of the current year. We look forward to the completion of both the MASTERS-2 and TREASURE trials and using the accelerated pathways afforded to us by the regulators in the United States, Europe and Japan.

ARDS: In January 2020, we announced one-year follow-up results from our exploratory clinical study of the intravenous administration of MultiStem cell therapy to treat patients who are suffering from ARDS, or the MUST-ARDS study. The study results provide further confirmation that the MultiStem treatment was well-tolerated and importantly, there were lower mortality and a greater number of ventilator-free and ICU-free days in the MultiStem-treated patient group compared to the placebo group. In April 2020, the FDA authorized the initiation of a Phase 2/3 pivotal study to assess the safety and efficacy of MultiStem therapy in subjects with moderate to severe ARDS induced by COVID-19, or the MACOVIA study, and the first patients were enrolled in May 2020. In September 2020, MultiStem cell therapy received RMAT designation for the ARDS program. The MACOVIA study features an open-label lead-in followed by a double-blinded, randomized, placebo-controlled Phase 2/3 portion, and the study is designed to enroll up to approximately 400 patients at leading pulmonary critical care centers throughout the United States. However, the scope and timing of our MACOVIA study may be adjusted depending on regulatory discussions and funding sources, including the potential entry into new partnerships and/or other transactions, and timing of such events.

In Japan, Healios continues enrolling patients with pneumonia-induced ARDS in the ONE-BRIDGE study, and in April 2020, Healios announced the addition of a small cohort to examine the treatment of COVID-19 induced ARDS patients, and the small cohort has been fully enrolled. Healios reported that enrollment of patients in the ONE-BRIDGE study is expected to be completed in the fourth quarter of 2020, and we look forward to the results of this study.

Trauma: In April 2020, the FDA authorized the initiation of a Phase 2 clinical trial evaluating MultiStem cell therapy for the early treatment of traumatic injuries and the subsequent complications that result following severe trauma.The trial will be conducted by The University of Texas Health Science Center at Houston, or UTHealth, at the Memorial Hermann-Texas Medical Center in Houston, Texas, one of the busiest Level 1 trauma centers in the United States.This study is being supported under a grant awarded to the McGovern Medical School at UTHealth from the Medical Technology Enterprise Consortium, and the Memorial Hermann Foundation will provide additional funding. We are providing the investigational clinical product for the trial, as well as regulatory and operational support. The COVID-19 pandemic has the potential to affect the launch and the pace of activity for the study since the trauma center also attends to COVID-19 patients, however, the site has commenced patient screening for the trial.

As part of the U.S. Government’s response to the outbreak of COVID-19, we have held discussions with and made presentations under the Medical Countermeasures TechWatch program to the Biomedical Advanced Research and Development Authority, or BARDA, and to the U.S. government interagency COVID-19 Medical Countermeasures task force led by BARDA that also included other relevant governmental agencies and public health institutions. As a result of the potential use of our MultiStem cell therapy for treating COVID-19 induced ARDS, our formal proposal was submitted, evaluated and negotiated closely with BARDA under the Broad Agency Announcement (BAA). As we were responding to the few remaining questions from BARDA, it announced on June 3, 2020, that it had suspended Area of Interest 9.3 from the BAA dealing with immunomodulators or therapeutics targeting lung repair, thus jeopardizing our potential funding. After multiple interactions with the relevant governmental agencies and re-evaluation of our proposal by the U.S. Department of Health and Human Services, we have so far not managed to secure an award. The outcome of the recent general election in the United States could impact our options with respect to government programs or agencies related to the COVID-19 pandemic. Furthermore, our willingness to pursue any options with governmental agencies may be additionally impacted by events related to ongoing partnering negotiations and related development objectives. For example, if government programs seek to restrict certain activities to certain types of patients, or to the United States only, such constraints may be inconsistent with clinical or other development objectives related to a partnership, where international clinical development to support product registration might be an important priority. As we have stated previously, we remain committed to the development of more effective treatment options for patients that are becoming seriously or critically ill from ARDS, whether caused by COVID-19 or other pathogens.

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While the MultiStem product platform continues to advance, we are engaged in process development initiatives intended to increase manufacturing scale, reduce production costs and enhance process controls and product quality, among other things. We are also working toward the establishment of large-scale manufacturing capabilities. In addition to our manufacturing efforts, we are also stepping up our planning and preparations for the potential commercialization of our MultiStem product candidate, including strategies for market access and reimbursement. These initiatives are being conducted both internally and outsourced to select contractors, and the related investments are meant to enable us to meet potential commercial demand in the event of eventual regulatory approval.

We have a collaboration with Healios primarily for the development and commercialization in Japan of MultiStem cell therapy for ischemic stroke and ARDS. We provide manufacturing and related services to Healios for which we are compensated.

Financial

In connection with an equity investment in us made by Healios in March 2018, Healios received a warrant to purchase shares of our common stock. On March 26, 2020, Healios elected to exercise its warrant in full, and we issued 4,000,000 shares of our common stock at an exercise price equal to the reference price of $1.76 per share, as defined in the warrant. The proceeds of approximately $7.0 million were received in April 2020 in accordance with the terms of the warrant.

We have had equity purchase agreements in place since 2011 with Aspire Capital Fund LLC, or Aspire Capital, that provide us the ability to sell shares to Aspire Capital from time to time. Currently, we have an agreement with Aspire Capital that was entered into in November 2019 and includes Aspire Capital’s commitment to purchase up to an aggregate of $100.0 million shares of our common stock over a defined timeframe. Our prior equity facility that was entered into in February 2018 was fully utilized and terminated during the first quarter of 2020. During the quarter ended September 30, 2020, we sold 395,000 shares of our common stock to Aspire Capital at an average price of $2.77 per share. During the quarter ended September 30, 2019, we sold 3,300,000 shares of common stock to Aspire Capital at an average price of $1.39 per share.

We have entered into a series of agreements with Healios, our collaborator in Japan and currently our largest stockholder. Under the collaboration that began in 2016, Healios is responsible for the development and commercialization of the MultiStem product for the licensed fields in the licensed territories, and we provide services to Healios for which we are compensated. Each license agreement with Healios has defined economic terms, and we may receive success-based milestone payments, some of which may be subject to credits. While there is no assurance that we will receive milestone proceeds under the Healios collaboration, any milestone payment we receive is non-refundable and non-creditable towards future royalties or any other payment due from Healios. Also, we are entitled to receive tiered royalties on net product sales, as defined in the license agreements.

In March 2018, we entered into an investor rights agreement, or the Investor Rights Agreement, with Healios, which governs certain of our and Healios’ rights relating to Healios’ ownership of our common stock. Under the Investor Rights Agreement, Healios is permitted to participate in certain equity issuances as a means to maintain its proportional ownership of our common stock as of the time of issuance. In May 2020, we entered into a purchase agreement with Healios providing for Healios to purchase shares of our common stock in connection with certain equity issuances to Aspire Capital. In May 2020, we sold to Healios 310,526 shares of our common stock at $1.72 per share for an aggregate purchase price of $534,105, in accordance with the terms of the Investor Rights Agreement.

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Results of Operations

Since our inception, our revenues have consisted of license fees, contract revenues, royalties and milestone payments from our collaborators, and grant proceeds. We have not derived revenue from our commercial sale of therapeutic products to date since we are in clinical development. Research and development expenses consist primarily of external clinical and preclinical study fees, manufacturing and process development 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, manufacture our product candidates and prepare for potential commercialization of our MultiStem cell therapy product. 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 September 30, 2020 and 2019

Revenues. There were revenues of $0.1 million for the three months ended September 30, 2020 compared to negative $0.4 million for the three months ended September 30, 2019, primarily related to our collaboration with Healios. During our evaluation of variable consideration in the third quarter of 2019, we determined that the estimated transaction price of certain product supply provided to Healios decreased due to a reduction in the underlying cost per dose of the product supply occurring during the quarter. Furthermore, the number of doses of clinical product requested by Healios was amended, and our revenues were further reduced during the period. Our collaboration revenues currently fluctuate from period to period based on the delivery of goods and services under our arrangement with Healios.

Research and Development Expenses. Research and development expenses increased to $18.5 million for the three months ended September 30, 2020 from $8.9 million for the comparable period in 2019. The $9.6 million increase is associated with increases in clinical trial and manufacturing process development costs of $6.9 million, research supplies of $1.4 million, personnel costs of $0.7 million, stock compensation costs of $0.2 million, and other research and development costs of $0.4 million. Our clinical development, clinical manufacturing and manufacturing process development expenses vary over time based on the timing and stage of clinical trials underway, manufacturing campaigns for clinical trials and manufacturing process development projects, and we expect our annual 2020 research and development expenses to increase compared to 2019. These variations in activity level may also impact our accounts payable, accrued expenses, prepaid expenses and deposits balances from period to period. Other than external expenses for our clinical and preclinical programs, we generally 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 $3.7 million for the three months ended September 30, 2020 from $3.0 million in the comparable period in 2019. The $0.7 million increase was primarily due to increased personnel and stock compensation costs, outside services, and consulting costs. We expect our annual 2020 general and administrative expenses to increase compared to 2019.

Depreciation. Depreciation expense was consistent at $0.2 million for the three months ended September 30, 2020 and September 30, 2019. We expect that our annual depreciation will increase in 2020 compared to 2019.

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

Nine Months Ended September 30, 2020 and 2019

Revenues. Revenues were $0.2 million for the nine months ended September 30, 2020 compared to $5.3 million in the nine months ended September 30, 2019. The revenues in both periods were primarily generated from our collaboration with Healios. As stated above, our collaboration revenues currently fluctuate from period to period based on the delivery of goods and services under our arrangement with Healios.

Research and Development Expenses. Research and development expenses increased to $44.3 million for the nine months ended September 30, 2020 from $31.4 million in the comparable period in 2019. The $12.9 million increase is associated with increases in clinical trial and manufacturing process development costs of $6.8 million, research supplies of $2.6 million, personnel costs of $1.3 million, stock compensation costs of $0.8 million, outside services of $0.7 million and other research and development costs of $0.7 million. 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.

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General and Administrative Expenses. General and administrative expenses increased to $11.6 million for the nine months ended September 30, 2020 from $8.9 million in the comparable period in 2019. The $2.7 million increase was due primarily to increases in personnel and stock compensation costs, and outside services costs compared to the same period in 2019. We expect our annual 2020 general and administrative expenses to increase compared to 2019.

Depreciation. Depreciation expense of $0.6 million for the nine months ended September 30, 2020 was slightly higher compared to $0.5 million for the comparable period in 2019.

Other (Expense) Income, net. Other expense, net was $0.1 million for the nine month period ended September 30, 2020 and income of $0.8 million for the comparable 2019 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 September 30, 2020, we had $61.7 million in cash and cash equivalents. We have primarily financed our operations through business collaborations, grant funding and equity financings. Although the COVID-19 pandemic has not had a significant adverse effect on our business as of the date of this Quarterly Report on Form 10-Q, the pandemic could negatively impact our ability to access financing sources on the same or reasonably similar terms as were available to us before the pandemic. 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 $474.2 million at September 30, 2020. 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, discover and develop therapeutic product candidates and develop business collaborations, and we may use our sources of capital to acquire certain technologies and assets.

We are entitled to receive potential milestones payments, subject to certain credits, and royalties from Healios under our licensed programs. We also receive payments from Healios for clinical product supply and other manufacturing-related services. Certain proceeds from Healios may be used by Healios to offset milestone payments that may become due in the future.

In March 2020, Healios elected to exercise a warrant in full, and we issued 4,000,000 shares of our common stock at an exercise price equal to the reference price of $1.76 per share, in accordance with the terms of the warrant. The proceeds of approximately $7.0 million were received in April 2020.

We have had equity purchase agreements in place since 2011 with Aspire Capital that provide us the ability to sell shares to Aspire Capital from time to time. Currently, we have an agreement with Aspire Capital that was entered into on November 5, 2019 and includes Aspire Capital’s commitment to purchase up to an aggregate of $100.0 million shares of our common stock over a defined timeframe. Our prior equity facility that was entered into in February 2018 was fully utilized and terminated during the first quarter of 2020. During the quarter ended September 30, 2020, we sold 395,000 shares of common stock to Aspire Capital at an average price of $2.77 per share. During the quarter ended September 30, 2019, we sold 3,300,000 shares of common stock to Aspire Capital at an average price of $1.39 per share.

We will require substantial additional funding in order to continue our research and product development programs, including clinical trials of our product candidates and process development and manufacturing projects, and to prepare for possible approval and commercial activities. We intend to generate additional funding to meet our needs through business development and other transactions, collaborator achievement of milestones under our agreements, grant-funding activities, and other activities. At September 30, 2020, we had available cash and cash equivalents of $61.7 million. We intend to meet our short-term liquidity needs with available cash combined with expected cash receipts from our collaboration with Healios and potential proceeds from business development. Over the longer term, we will continue to make use of available cash and may raise capital from time to time through our equity facility, subject to any volume and price limitations, and equity offerings. We

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may 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 borrowing 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. Furthermore, delays in product supply for our and Healios’ clinical trials may impact the timing and cost of such studies. 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 $44.5 million for the nine months ended September 30, 2020 compared to $25.2 million for the nine months ended September 30, 2019. 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 clinical trial costs, such as clinical manufacturing campaigns, contract research organization costs and manufacturing process development projects. These variations in activity level may also impact our accounts payable, accrued expenses, prepaid expenses and deposits balances from period to period.

Net cash used in investing activities was $0.7 million and $0.4 million for the nine months ended September 30, 2020 and 2019, respectively. The fluctuations over the periods were due to the timing of equipment purchases primarily for our manufacturing process development activities.

Financing activities provided cash of $71.9 million and $15.0 million for the nine months ended September 30, 2020 and 2019, respectively. The increase in financing activities of $56.9 million is due to the underwritten public offering, for which we received net proceeds of approximately $53.7 million in April 2020, the Healios warrant exercise for which we received proceeds of $7.0 million in April 2020, and $0.5 million received from Healios in May 2020 from the issuance of our common stock related to its participation right under the Investor Rights Agreement. Also included in financing activities for the nine months ended September 30, 2020 and September 30, 2019 are proceeds from the issuance of common stock to Aspire Capital in the amounts of $11.3 million and $15.3 million, respectively.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Management Estimates

The SEC defines critical accounting policies as those that are, in management’s view, important to the portrayal of our financial condition and results of operations and demanding of management’s judgment. Our discussion and analysis of financial condition and results of 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, 2019. 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, 2019.

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, 2019.

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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 on Form 10-Q.

In addition, a number of known and unknown risks, uncertainties, and other factors could affect the accuracy of these statements. Some of the more significant known risks that we face are the risks and uncertainties inherent in the process of discovering, developing, and commercializing products that are safe and effective for use as 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, including but not limited to, our ability to access our traditional financing sources on the same or reasonably similar terms as were available to us before the COVID-19 pandemic;

•the timing and nature of results from MultiStem clinical trials, including the MASTERS-2 Phase 3 clinical trial evaluating the administration of MultiStem for the treatment of ischemic stroke, and the Healios TREASURE and ONE-BRIDGE clinical trials in Japan evaluating the treatment in stroke and ARDS patients, respectively;

•the success of our MACOVIA clinical trial evaluating the administration of MultiStem for the treatment of COVID-19 induced ARDS, and the MATRICS-1 clinical trial being conducted with The University of Texas Health Science Center at Houston evaluating the treatment of patients with serious traumatic injuries;

•the impact of the COVID-19 pandemic on our ability to complete planned or ongoing clinical trials;

•the possibility that the COVID-19 pandemic could delay clinical site initiation, clinical trial enrollment, regulatory review and potential receipt of regulatory approvals, payments of milestones under our license agreements and commercialization of one or more of our product candidates, if approved;

•the availability of product sufficient to meet commercial demand shortly following any approval, such as in the case of accelerated approval for the treatment of COVID-19 induced ARDS;

•the impact on our business, results of operations and financial condition from the ongoing and global COVID-19 pandemic, or any other pandemic, epidemic or outbreak of infectious disease in the United States;

•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 impact of the COVID-19 pandemic on the production capabilities of our contract manufacturing partners and our MultiStem trial supply chain;

•the possibility of delays, work stoppages or interruptions in manufacturing by third parties or us, such as due to material supply constraints, contaminations, operational restrictions due to COVID-19 or other public health emergencies, labor constraints, regulatory issues or other factors which could negatively impact our trials and the trials of our collaborators;

•uncertainty regarding market acceptance of our product candidates and our ability to generate revenues, including MultiStem cell therapy for neurological, inflammatory and immune, cardiovascular and other critical care 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 meet milestones and earn royalties under our collaboration agreements, including the success of our collaboration with Healios;

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•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, 2019 under Item 1A, “Risk Factors” and our other filings with the SEC.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events and is subject to these other risks, uncertainties and assumptions relating to our operations, operating results growth strategy and liquidity. 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.

There were no material changes in our exposure to market risk since the disclosure included in 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, 2019.

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 Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 Chief Financial Officer 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(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors.

The following disclosure supplements the discussion of certain risks and uncertainties previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. These risks and uncertainties, along with those previously disclosed, could materially adversely affect our business, results of operations, financial position or cash flows.

We face risks related to the current COVID-19 pandemic and other health epidemics and outbreaks.

The global outbreak of COVID-19 is currently impacting countries, communities, supply chains and markets. As of the date of this Quarterly Report on Form 10-Q, the COVID-19 pandemic has not had a significant adverse effect on our core business operations. However, the pandemic has adversely impacted operations at certain existing and potential future clinical sites involved in our ongoing clinical studies. It is possible that the COVID-19 pandemic could adversely affect our business, results

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of operations, financial condition or liquidity in the future. For example, it could impact the timing and enrollment of our collaborators’ planned or ongoing clinical trials, delaying clinical site initiation, regulatory review and the potential receipt of regulatory approvals, payment of milestones under our license agreements and commercialization of one or more of our product candidates, if approved. The COVID-19 pandemic could negatively impact our financial liquidity by impairing our ability to access our primary financing sources, including, but not limited to, business collaborations, grant funding and equity financings, on the same or reasonably similar terms as were available to us before the pandemic. The COVID-19 pandemic could also disrupt the production capabilities of our contract manufacturing partners and materially and adversely impact our MultiStem trial supply chain. Further, the outbreak of COVID-19 has heightened the risk that a significant portion of our workforce will suffer illness or otherwise be unable to work. The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot currently predict the extent to which our business, clinical trials, results of operations, financial condition or liquidity will ultimately be impacted.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019, such as those relating to our significant operating losses, our need for substantial additional funding to develop our products and support our operations, delays or difficulties in developing and commercializing our MultiStem product candidates, and delays in clinical trials and regulatory approvals relating to our products.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Aspire Capital Equity Purchase Agreement

During the quarter ended September 30, 2020, we sold 395,000 shares of common stock to Aspire Capital under our equity purchase agreement, generating proceeds of $1.1 million. Each issuance of these unregistered shares qualifies as an exempt transaction pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). Each issuance qualified for exemption under Section 4(a)(2) of the Securities Act because it did not involve a public offering. Each offering was not a public offering due to the number of persons involved, the manner of the issuance and the number of securities issued. In addition, Aspire Capital had the necessary investment intent.

Healios Investor Rights Agreement

In May 2020, we entered into a purchase agreement with Healios, allowing Healios to purchase shares of our common stock in connection with certain equity issuances to Aspire Capital. We sold to Healios 310,526 shares of our common stock at $1.72 per share for an aggregate purchase price of $534,105, in accordance with the terms of the Investor Rights Agreement. The issuance of these unregistered shares qualifies as an exempt transaction pursuant to Section 4(a)(2) of the Securities Act. The issuance qualified for exemption under Section 4(a)(2) of the Securities Act because it did not involve a public offering due to the number of persons involved, the manner of the issuance and the number of securities issued. In addition, Healios had the necessary investment intent.

Item 6. Exhibits.


Exhibit No.						Description

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 Ivor Macleod, Chief Financial Officer, 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 Ivor Macleod, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101						The following materials from Athersys’ Quarterly Report on Form 10-Q for the period ended September 30, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheet (ii) the Condensed Consolidated Statements of Operations and Comprehensive Loss (iii) the Condensed Consolidated Statement of Shareholders’Equity (iv) the Condensed Consolidated Statement of Cash Flows (v) Notes to Unaudited Condensed Consolidated Financial Statements and (vi) document and entity information.

104						Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).

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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: November 9, 2020						/s/ Gil Van Bokkelen
						Gil Van Bokkelen
						Chairman and Chief Executive Officer
						(principal executive officer authorized to sign on behalf of the registrant)


						/s/ Ivor Macleod
						Ivor Macleod
						Chief Financial Officer
						(principal financial officer authorized to sign on behalf of the registrant)