At the end of last week, Athersys, Inc. (NASDAQ:ATHX) announced a public offering that will see it distribute just shy of 20 million shares at $1.01 a share. Gross proceeds are expected to be around $20 million, meaning the company should net around $18 million on the raise.  As we might’ve expected, Athersys has taken a hit on the release. With pretty much any stock issue, and especially as it relates to this end of the market (and even more so with biotechnology) there is a resultant dilution of the current shareholder base. As such, the immediate response to the announcing of a capital raise is one of negative sentiment. Companies take a hit as markets revalue their capitalization to incorporate the shares set to flood the current base.

There is another side of the story, however. One that, if taken advantage of, can generally result in a discount exposure to a company ahead of some upside momentum. This may be the case here.

When companies raise, and again, especially in the biotechnology sector, the capital generally targets a specific event. In the healthcare sector, this event is usually a trial initiation or the commercialization of a product that has recently picked up FDA approval. In this instance, Athersys intends to use the funds to carry out a phase 3 investigation of its lead stroke treatment asset. Pivotal trials are always chock-full of catalysts, and so the recent decline seen in Athersys’ market capitalization could quickly turn around as and when these catalysts hit press, assuming they fall in line with the suggestion of clinical benefit for the drug.

So, what is the drug? As mentioned, it is a stroke therapy asset, and it is rooted in stem cell technology. It’s called MultiStem, and it’s a biologic product that is manufactured from human stem cells obtained from adult bone marrow or other tissue sources. Unlike other cell types, after isolation from a qualified donor, MultiStem may be expanded on a large scale for future clinical use and stored in frozen form until needed. When the company obtains cells from a single donor, they require no genetic modification, and the technology affords Athersys the ability to ramp up yields to up to millions of doses of the drug. This dramatically outweighs any numbers of cell yield currently available on the market, and therein lies the differentiator.

Data so far has been positive, and in order to get this one in front of the FDA (and in turn, pick up a regulatory green light) the company believes it will need to conduct a trial that it is calling MultiStem Administration for Stroke Treatment and Enhanced Recovery Study-2 (MASTERS-2). It will be a randomized, double-blind, placebo-controlled clinical trial designed to enroll 300 patients in North America and Europe who have suffered moderate to moderate-severe ischemic stroke. Patients will receive either the active compound or placebo at some point between 18 to 36 hours after suffering from the stroke, administered in conjunction with current standard of care treatment. The primary endpoint will use what’s called the­ Rankin Scale (mRS), which is an industry standard stroke severity scale, to compare the impact of the drug with placebo at a predefined timeframe of three months.

This structure is relatively simple compared to some pivotal trials, and as such, should serve to underpin some definitive data as and when it is released. Basically, it’s asking the question: are patients who receive this treatment after suffering strokes still suffering at three months, and if so, are the symptoms any better than those who received placebo?

So what is next?

The company has already submitted protocol to the FDA, so the study is ready to go. The latest capital raise is essentially the last box that require ticking, and so once this capital raise closes, we should see some indication as to a potential time frame on initiation. As such, our nearest catalyst is the closing of the equity issue. Beyond that, we’re looking for trial initiation and – in turn – enrollment completion as medium-term upside catalysts.