Vericel Corp quarterly report, Q1 FY2013

2013 Q1 Form 10-Q Summary

Filing entity: Aastrom Biosciences, Inc. The provided filing does not identify Vericel Corp. as the registrant. Vericel was formerly associated with Aastrom, but this summary is based on the Aastrom filing text.

Reporting period: Three months ended March 31, 2013; filed May 8, 2013. The company was classified as a development-stage biotechnology company focused on ixmyelocel-T, an autologous multicellular cell therapy for severe cardiovascular diseases.

Financial Highlights

Metric	Q1 2013	Q1 2012	Change
Total revenue	$8,000	$2,000	+$6,000
Research and development expense	$5.538 million	$6.796 million	-$1.258 million
SG&A expense	$1.633 million	$1.762 million	-$129,000
Loss from operations	$7.165 million	$8.558 million	Improved by $1.393 million
Net loss	$5.544 million	$9.455 million	Improved by $3.911 million
Net loss attributable to common shareholders	$6.807 million	$9.744 million	Improved by $2.937 million
Loss per share	$0.15	$0.25	Improved by $0.10
Net cash used in operating activities	$6.761 million	$6.603 million	Use increased by $158,000

Revenue consisted primarily of minor product sales and rentals; the filing provides no material commercial revenue base.
Gross profit was approximately $6,000, based on $8,000 of revenue and $2,000 of product costs. Operating and net margins were substantially negative because the company remained in development stage.
Cash and cash equivalents declined from $13.638 million at December 31, 2012 to $9.226 million at March 31, 2013.
Total liabilities were $4.278 million at March 31, 2013, including approximately $29,000 of current debt and $2,000 of long-term debt. Warrant liabilities declined to $376,000 from $1.995 million.
Convertible preferred stock was recorded outside shareholders’ equity at $42.876 million. The company recorded $1.263 million of non-cash preferred-stock accretion during the quarter.
Accumulated deficit attributable to common shareholders reached approximately $282.122 million.

Material Changes Versus Q1 2012

R&D expense decreased 18.5%, primarily because of a reversal of non-cash stock compensation expense following the restructuring and lower manufacturing-supply purchases.
SG&A decreased 7.3%, also primarily due to lower stock-based compensation.
Net loss attributable to common shareholders improved, partly because warrant fair-value accounting produced $1.619 million of non-cash income in Q1 2013 versus a $900,000 non-cash expense in Q1 2012.
Stock-based compensation changed from $815,000 of expense to $43,000 of income, reflecting a $938,000 forfeiture adjustment associated with workforce reductions.
Operating cash use increased modestly despite lower reported losses, and cash declined by $4.412 million during the quarter.
The company raised $2.451 million of gross proceeds through its at-the-market equity program. Anti-dilution provisions reduced exercise prices for certain outstanding warrants.
On March 27, 2013, management changed its development strategy to focus on ixmyelocel-T for ischemic dilated cardiomyopathy and stopped enrollment in, and began ending, the Phase 3 REVIVE critical-limb-ischemia trial.

Outlook, Liquidity, Risks and Unusual Items

Management stated that the $9.226 million of cash at March 31, 2013 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 strategic and financial alternatives to maintain liquidity through December 31, 2013 and beyond. On April 29, 2013, it filed a Form S-1 to register up to $25 million of common-stock financing.
Management expected the restructuring to reduce staff and ongoing operating cash needs by approximately 50%. A one-time restructuring charge of approximately $408,000 was recorded in Q1, with related severance payments expected through Q4 2013.
The Phase 3 REVIVE trial had enrolled approximately 40 patients when enrollment was stopped. Patients were expected to continue being followed for safety and selected efficacy measures.
The Phase 2b ixCELL-DCM trial had begun screening, with the first patient randomized in April 2013. Management anticipated completion of enrollment by the end of Q1 2014 and top-line data in Q2 2015; these are forward-looking estimates, not guarantees.
The company did not expect positive operating cash flow for at least several years and would require additional funding to complete development programs and clinical trials.
Key risks included financing availability, clinical-trial execution and outcomes, regulatory approval, manufacturing requirements, market acceptance, competition, stock-price volatility and dilution from future equity issuance.
Warrant fair-value changes are based partly on Level 3 assumptions and may cause significant non-cash volatility in future earnings.
No material pending legal proceedings or off-balance-sheet arrangements were disclosed. Management reported effective disclosure controls and no material changes in internal control over financial reporting.

Investor Verification Checklist

Verify the company identity: the supplied filing is for Aastrom Biosciences, not a registrant named Vericel Corp.
Review subsequent financing activity, including the Form S-1 registration and ATM sales, and assess dilution and financing terms.
Confirm the company’s ability to fund operations through year-end 2013 and evaluate the going-concern disclosure.
Track the financial and clinical consequences of terminating REVIVE and reallocating resources to ixCELL-DCM.
Assess whether the projected 50% reduction in ongoing operating cash needs was achieved.
Monitor ixCELL-DCM enrollment, clinical outcomes, regulatory interactions and the timing of anticipated data.
Reconcile future losses for non-cash warrant revaluations, preferred-stock accretion, stock compensation and restructuring charges.
Review the terms, redemption features and accretion of the Series B preferred stock, as well as potential dilution from options and warrants.