Business Context and Reporting Period
The filing is Aastrom Biosciences, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2013; it does not identify Vericel Corp. as the registrant. Aastrom was a development-stage biotechnology company developing patient-specific cell therapies, principally ixmyelocel-T, for severe ischemic cardiovascular diseases.
During 2013, management shifted emphasis to advanced heart failure caused by ischemic dilated cardiomyopathy (DCM), stopped enrollment in the Phase 3 REVIVE critical limb ischemia (CLI) trial, and restructured operations.
Financial Metrics
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | None | None | $11,000 | $2,000 |
| Research and development expense | $2.575 million | $6.147 million | $11.789 million | $20.012 million |
| SG&A expense | $1.066 million | $2.138 million | $4.259 million | $6.131 million |
| Loss from operations | $3.641 million | $8.285 million | $16.040 million | $26.143 million |
| Net loss | $2.273 million | $6.034 million | $12.706 million | $22.824 million |
| Basic and diluted loss per share | $0.06 loss | $0.17 loss | $0.33 loss | $0.63 loss |
| Net cash used in operating activities | Not separately provided | Not separately provided | $15.600 million | $22.207 million |
At September 30, 2013, cash and cash equivalents were $10.816 million, versus $13.638 million at December 31, 2012. Total assets were $12.202 million and total liabilities were $7.252 million. Current liabilities included $4.025 million of warrant liabilities. The company reported accumulated development-stage losses of $284.797 million.
Debt was minimal: current debt was $10,000 and no long-term debt was reported at September 30, 2013. The filing does not provide a meaningful operating margin because revenue was negligible and the company remained in the development stage. Cash flow remained materially negative despite lower operating expenses.
Material Changes Versus the Prior Comparable Period
- Quarterly R&D expense declined 58% and nine-month R&D expense declined 41%, primarily because REVIVE enrollment stopped, staffing was reduced, and stock-compensation expense was reversed.
- Quarterly SG&A expense declined 50%; nine-month SG&A expense declined 31%.
- Quarterly net loss decreased 62%, while the nine-month net loss decreased 44%. The improvement reflected lower operating costs and non-cash warrant valuation income, not operating revenue growth.
- Cash decreased by $2.822 million during the first nine months. Operating cash use was partly offset by $12.818 million of financing cash inflows.
- The company raised approximately $3.337 million through its at-the-market program and approximately $8.169 million net through an August 2013 offering of common stock and warrants.
- Warrant liabilities increased from $1.995 million to $4.025 million, while a $3.331 million non-cash decrease in warrant fair value was recognized as income.
- Series B preferred stock was reclassified from mezzanine to shareholders’ equity after an agreement amendment removed a cash redemption provision. The filing also corrected a $4.487 million prior-period classification error deemed immaterial.
- On October 16, 2013, the company effected a one-for-twenty reverse stock split, which was a subsequent event to be reflected in the fourth quarter.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management stated that existing cash was not sufficient to sustain operations for one year and disclosed substantial doubt about the company’s ability to continue as a going concern.
- The company was evaluating short-term strategic and financing opportunities to maintain liquidity through December 31, 2013 and beyond. It expected to require significant additional funding to complete development and clinical trials.
- The ATM facility had approximately $16.2 million of remaining capacity, although trading volume, share price, and other factors could limit near-term proceeds.
- Management did not expect positive operating cash flow for at least several years and did not expect profitability unless significant product sales commenced.
- The ixCELL-DCM Phase 2b study was expected to complete enrollment by the end of the first quarter of 2014, with top-line data anticipated in the second quarter of 2015. REVIVE follow-up results were expected in the second quarter of 2014.
- Key risks included clinical-trial failure, regulatory approval uncertainty, manufacturing requirements, market acceptance, competition, dilution from equity financing, and inability to obtain funding on acceptable terms.
- A one-time restructuring charge of approximately $408,000 was recorded in the first quarter of 2013; approximately $60,000 of related severance payments was expected in the fourth quarter.
- The company reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements.
Facts an Investor Should Verify
- Confirm the registrant identity: the supplied filing is for Aastrom Biosciences, Inc., not Vericel Corp.
- Verify the effect of the October 2013 one-for-twenty reverse stock split on historical share counts, warrants, options, and per-share data.
- Assess liquidity after September 30, 2013, including ATM usage, financing proceeds, cash burn, and any subsequent strategic transactions.
- Review the going-concern disclosure and determine whether additional capital was obtained before cash resources became inadequate.
- Track ixCELL-DCM enrollment, clinical results, regulatory progress, and the follow-up results from the discontinued REVIVE program.
- Evaluate potential dilution and valuation volatility from approximately 27.5 million shares issuable under outstanding warrants, as well as outstanding options and preferred-stock conversion rights.