Business Context and Reporting Period
This Form 10-Q was filed by Aastrom Biosciences, Inc. (not Vericel Corp.) for the quarter and six months ended June 30, 2012. Aastrom was a development-stage regenerative medicine company developing patient-specific cell therapies, primarily ixmyelocel-T, for critical limb ischemia (CLI) and dilated cardiomyopathy (DCM).
The filing was signed August 7, 2012. The company reported 42.6 million common shares outstanding as of July 31, 2012.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $0.0 million in 2012 versus $0.0 million in 2011 | $0.002 million in 2012 versus $0.009 million in 2011 |
| Research and development expense | $7.069 million versus $5.304 million | $13.865 million versus $9.676 million |
| SG&A expense | $2.231 million versus $2.203 million | $3.993 million versus $4.098 million |
| Net loss attributable to common shareholders | $8.566 million, or $0.22 per share, versus $9.957 million, or $0.26 per share | $18.310 million, or $0.47 per share, versus $14.945 million, or $0.39 per share |
| Net cash used in operating activities | Not separately presented | $14.553 million versus $12.208 million |
| Cash and cash equivalents | $28.666 million at June 30, 2012, versus $5.530 million at December 31, 2011 |
Operating loss was $9.300 million in the second quarter and $17.858 million for the first six months. Revenue was immaterial, so meaningful gross or operating margins were not applicable. Interest expense was $6,000 for the six-month period, and long-term debt was $59,000 at June 30, 2012.
Current liabilities were $11.990 million, including $7.221 million of warrant liabilities. The company had total assets of $30.439 million, total liabilities of $12.009 million, and shareholders’ deficit of $20.710 million. Series B convertible preferred stock was recorded outside shareholders’ equity with a carrying value of $39.140 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter R&D expense increased 33% year over year, and first-half R&D expense increased 43%, primarily because of preparation and initial enrollment for the Phase 3 REVIVE CLI program, clinical-site activity, employee costs, and regulatory expenses.
- First-half operating cash usage increased to $14.553 million from $12.208 million.
- The second-quarter common-shareholder loss improved because the company recorded $1.948 million of non-cash warrant fair-value income versus a $2.465 million non-cash expense in the prior-year quarter. For the first half, warrant fair-value income was $1.048 million versus a $1.210 million expense.
- Cash increased by $23.136 million during the first half, mainly from $37.620 million of net proceeds from the Series B-1 preferred stock financing, partly offset by operating cash use and other expenditures.
- The company exchanged 7.667 million December 2010 warrants for 3.833 million common shares through June 30, reducing warrant liabilities by $8.356 million. A subsequent exchange completed July 27, 2012 left 308,100 of those warrants outstanding.
- R&D spending shifted toward CLI: first-half CLI spending increased to approximately $11.793 million from $6.505 million, while DCM spending declined to approximately $2.072 million from $3.145 million.
Guidance, Outlook, Risks, and Unusual Items
- Management expected cash on hand at June 30, 2012 to fund planned operations through at least December 31, 2012, but stated that additional capital would be required over the longer term to complete development programs and clinical trials.
- The company expected continued operating losses and negative operating cash flow for at least several years unless significant product sales began. It had accumulated a common-shareholder deficit of approximately $260.158 million.
- Management disclosed substantial doubt regarding the company’s ability to maintain sufficient liquidity to operate effectively over at least the next twelve months, creating going-concern uncertainty. The financial statements contained no adjustments related to this uncertainty.
- The company could reduce discretionary hiring, non-critical R&D, or certain clinical activity if needed, while seeking additional funding through equity offerings, its at-the-market program, grants, research agreements, licensing, collaborations, or strategic transactions.
- The pivotal Phase 3 REVIVE trial for CLI had begun screening in February 2012, with the first patient randomized and aspirated in May 2012. The planned trial included 594 patients at approximately 80 U.S. sites, with amputation-free survival as the primary endpoint.
- Management planned to initiate a randomized, placebo-controlled Phase 2b DCM trial for up to approximately 100 ischemic DCM patients in the second half of 2012.
- Prior RESTORE-CLI Phase 2b results showed a reported 62% reduction in the primary treatment-failure risk versus placebo, but management cautioned that prior clinical results may not predict later trial outcomes.
- Warrant liabilities were valued using Level 3 assumptions and could produce significant future non-cash income or expense without affecting cash flows.
- The company reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Aastrom Biosciences, Inc., whereas the request metadata identifies Vericel Corp.
- Verify the timing and sufficiency of financing needed beyond December 31, 2012, given the disclosed going-concern uncertainty and continued cash burn.
- Track enrollment, execution, safety, and efficacy results in the 594-patient REVIVE Phase 3 CLI trial.
- Assess the terms, accretion, dividend obligations, redemption features, and potential dilution associated with the Series B preferred stock.
- Monitor remaining warrant liabilities, further warrant exchanges, and potential non-cash fair-value volatility.
- Verify whether the planned DCM Phase 2b trial commenced and whether subsequent results supported further development.