Filing Overview
Registrant: Aastrom Biosciences, Inc. The provided filing does not identify Vericel Corp.; investors should verify the company identity. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2012, filed November 8, 2012. Aastrom was a development-stage regenerative medicine company developing patient-specific cell therapies, principally ixmyelocel-T, for critical limb ischemia (CLI) and dilated cardiomyopathy (DCM).
Financial Condition and Results
| Metric | Q3 2012 | Q3 2011 | Nine Months 2012 | Nine Months 2011 |
|---|---|---|---|---|
| Total revenue | $0.0 million | $0.009 million | $0.002 million | $0.018 million |
| Research and development | $6.147 million | $5.750 million | $20.012 million | $15.426 million |
| Selling, general and administrative | $2.138 million | $1.696 million | $6.131 million | $5.794 million |
| Loss attributable to common shareholders | $7.252 million | $1.934 million | $25.562 million | $16.879 million |
| Loss per common share | $0.17 | $0.05 | $0.63 | $0.44 |
| Net cash used in operations | Not separately provided | Not separately provided | $22.207 million | $18.348 million |
Revenue was immaterial and the company remained dependent on external financing. Operating losses were driven primarily by clinical development spending. The filing does not provide a meaningful operating margin because revenue was negligible and the company was not commercially generating material sales.
- Cash and cash equivalents were $21.089 million at September 30, 2012, compared with $5.530 million at December 31, 2011.
- Total current assets were $21.462 million and total current liabilities were $6.980 million at September 30, 2012.
- Total debt was $49 thousand, consisting of $40 thousand current debt and $9 thousand long-term debt.
- Warrant liabilities declined to $2.954 million from $16.625 million at December 31, 2011.
- Series B convertible preferred stock was recorded as mezzanine equity at $40.358 million. The filing states that the preferred stock had a redemption value of $31.102 million for the Series B-1 component at September 30, 2012.
- Accumulated deficit during the development stage was $267.410 million.
- Cash included $20.639 million held through an Insured Cash Sweep program intended to maximize FDIC coverage.
Material Changes Versus Prior Comparable Period
- Quarterly revenue declined from $9 thousand to zero; nine-month revenue declined from $18 thousand to $2 thousand.
- Quarterly research and development expense increased 7% to $6.147 million; nine-month expense increased approximately 30% to $20.012 million. The increase reflected initial enrollment and site-related costs for the Phase 3 CLI program, higher employee costs, and regulatory expenses.
- CLI-related research and development spending increased to $16.850 million for the nine months from $11.067 million; DCM spending decreased to $3.162 million from $4.328 million.
- Quarterly selling, general and administrative expense increased approximately 26% to $2.138 million, primarily due to stock-based compensation and legal and consulting costs.
- Quarterly loss attributable to common shareholders increased to $7.252 million from $1.934 million, and nine-month loss increased to $25.562 million from $16.879 million.
- Non-cash preferred-stock accretion was $1.218 million in the quarter and $2.738 million for the nine months, compared with none in the prior-year periods.
- The company received $37.620 million of net proceeds from its March 2012 Series B preferred-stock offering.
- An exchange program completed in July 2012 exchanged 9.6919 million December 2010 warrants for 4.845949 million common shares, reducing warrant liabilities by $10.382 million on a non-cash basis.
- Common shares outstanding increased to approximately 43.784 million at September 30, 2012 from 38.635 million at December 31, 2011.
Outlook, Clinical Programs, and Risks
- The Phase 3 REVIVE trial for CLI began screening in February 2012, with the first patient randomized and aspirated in May 2012. The trial was designed for 594 patients at approximately 100 U.S. sites, with amputation-free survival as the primary efficacy endpoint.
- Management planned to launch the randomized, placebo-controlled Phase 2b ixCELL-DCM trial in the fourth quarter of 2012 for 108 ischemic DCM patients.
- Management stated that positive operating cash flow was not expected for at least several years and would depend on successful product development, regulatory approvals, and significant product sales.
- Management believed cash on hand would fund planned operations through at least December 31, 2012, but stated that additional capital would be required over the longer term.
- The filing states that uncertainty regarding the company’s ability to maintain sufficient liquidity for at least the next twelve months raises substantial doubt about its ability to continue as a going concern. The financial statements contain no adjustments related to this uncertainty.
- Potential responses included delaying hiring, deferring non-critical research and development, slowing selected clinical activity, using an at-the-market equity facility, pursuing grants or collaborations, and completing additional debt or equity financings.
- Key risks included clinical-trial failure or delay, inability to obtain FDA approval, manufacturing and regulatory requirements, market acceptance, competition, limited access to capital, stock-price and trading-volume volatility, and dilution from equity, preferred stock, warrants, and options.
- Warrant fair values were based partly on Level 3 assumptions and could produce significant future non-cash income or expense. The company stated these changes would not affect cash, operating expenses, or cash flows.
- No material pending legal proceedings or material changes to previously disclosed risk factors were reported. No off-balance-sheet arrangements were reported.
Investor Verification Checklist
- Verify that the filing belongs to Aastrom Biosciences rather than Vericel Corp.; the source text identifies Aastrom throughout.
- Reconcile the $21.089 million cash balance with the company’s projected cash usage and the going-concern disclosure.
- Assess the funding required to complete the REVIVE and ixCELL-DCM trials and the availability and practical capacity of the ATM facility.
- Review the terms, accretion, redemption rights, dividend rates, conversion provisions, and potential dilution associated with the Series B preferred stock.
- Evaluate the potential dilution and valuation volatility from outstanding warrants, options, and preferred-stock conversion rights.
- Track enrollment, costs, interim or final results, regulatory interactions, and approval prospects for the CLI and DCM programs.
- Separate non-cash warrant valuation income and preferred-stock accretion from recurring operating performance and cash burn.