Aastrom Biosciences, Inc. Form 10-Q Summary
Filing-period note: The supplied filing is for Aastrom Biosciences, Inc., not Vericel Corp. It covers the quarterly and six-month periods ended June 30, 2011, and was filed August 15, 2011. Aastrom was a clinical-development-stage company developing patient-specific cell therapies, principally ixmyelocel-T, for critical limb ischemia (CLI) and dilated cardiomyopathy (DCM).
Financial Position and Results
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 million in 2011 vs. $0 million in 2010 | $0.009 million in 2011 vs. $0 million in 2010 |
| Research and development expense | $5.304 million vs. $3.619 million | $9.676 million vs. $6.464 million |
| SG&A expense | $2.203 million vs. $1.521 million | $4.098 million vs. $2.939 million |
| Operating loss | $7.507 million vs. $5.140 million | $13.767 million vs. $9.403 million |
| Net loss | $9.957 million, or $0.26 per share, vs. $3.767 million, or $0.13 | $14.945 million, or $0.39 per share, vs. $6.446 million, or $0.23 |
| Net cash used in operating activities | $12.208 million in the first six months of 2011 vs. $7.879 million in 2010 |
Revenue was immaterial, and the company remained dependent on external financing. The filing does not provide a meaningful operating margin because revenue was negligible and the business was still in development. Research and development spending increased primarily because of preparation for the planned Phase 3 CLI program, including personnel, clinical-site, and regulatory costs.
- Cash and cash equivalents were $18.521 million at June 30, 2011, down from $31.248 million at December 31, 2010.
- Cash and equivalents included approximately $18.344 million invested in money-market funds.
- Total current liabilities were $30.419 million, including $27.164 million of warrant liabilities.
- Total debt was approximately $0.146 million, consisting of $0.103 million current debt and $0.043 million long-term debt.
- Shareholders’ equity declined from $2.922 million at December 31, 2010 to a deficit of $10.158 million at June 30, 2011.
- Accumulated development-stage deficit was $237.125 million at June 30, 2011.
- There were 38.625 million common shares outstanding as of July 31, 2011.
Material Changes and Unusual Items
- Quarterly net loss increased by approximately $6.190 million year over year, while the six-month net loss increased by approximately $8.499 million.
- R&D expense increased 47% for the quarter and 50% for the six-month period, reflecting advancement of the CLI program toward Phase 3.
- SG&A expense increased 45% for the quarter and 39% for the six-month period, driven by higher stock-based compensation, consulting costs, and expenses associated with the historical financial-statement restatement.
- The fair-value change in warrant liabilities produced a $2.465 million expense in the second quarter and a $1.210 million expense for the first six months, compared with income of $1.348 million and $2.907 million, respectively, in the prior-year periods. These were non-cash items.
- Warrant liabilities increased from $25.954 million at December 31, 2010 to $27.164 million at June 30, 2011. Valuation relied partly on Level 3 assumptions and could create significant future earnings volatility.
- Non-cash stock-based compensation increased to $1.848 million for the first six months of 2011 from $0.360 million in the prior-year period. The company granted 3.676 million service-based options during the period.
- On June 16, 2011, the company entered into an at-the-market equity sales agreement permitting up to approximately $20.3 million of gross proceeds; no shares had been sold under the agreement as of June 30.
- After quarter-end, on August 11, 2011, the board adopted a shareholder rights plan that generally could be triggered by ownership or a tender offer involving 15% or more of the common stock.
Liquidity, Outlook, Risks, and Clinical Programs
Management stated that cash on hand at June 30, 2011 was expected to fund operations through at least December 31, 2011. Depending on ATM usage, management expected to need additional capital by early to mid-2012 to fund the Phase 3 CLI trial, with additional funding required thereafter for product development, clinical trials, regulatory approval, and commercialization.
- The company did not expect positive operating cash flow for at least several years and had never been profitable.
- Management could reduce cash use by delaying hiring, non-critical R&D, or certain clinical activity, while seeking additional equity, grants, research agreements, collaborations, or other financing.
- The company reached agreement with the FDA in July 2011 on the primary Special Protocol Assessment for the “no-option” CLI Phase 3 program, called REVIVE.
- The company planned to advance into Phase 3 CLI development in the fourth quarter of 2011 and planned to present full RESTORE-CLI data in the fourth quarter.
- The company reported that the RESTORE-CLI Phase 2b trial met its final primary safety and efficacy endpoints at 12 months, but future trials may not replicate those results and regulatory approval remained uncertain.
- The DCM program remained in Phase 2. The company expected six-month results from the catheter-based DCM trial in the third quarter of 2011 and planned to present 12-month surgical-trial data in September 2011.
- Key risks included clinical-trial failure, inability to obtain FDA approval, manufacturing and regulatory uncertainties, market acceptance, competition, stock-price volatility, and inability to raise capital on acceptable terms.
- The company reported no material pending legal proceedings and no off-balance-sheet arrangements.
- Management concluded that disclosure controls were effective and reported remediation of the material weakness related to warrant accounting during the quarter.
Investor Verification Items
- Confirm that the intended issuer is Aastrom Biosciences rather than Vericel Corp.
- Verify subsequent ATM share sales, dilution, and the company’s actual financing runway after June 30, 2011.
- Review the terms, valuation assumptions, and potential dilution or cash-settlement exposure associated with the $27.164 million warrant liability.
- Confirm the final RESTORE-CLI data, FDA interactions, and subsequent progress or delays in the REVIVE Phase 3 program.
- Assess whether the company obtained required regulatory approvals and whether ixmyelocel-T generated commercial revenue.
- Review the impact of the historical financial-statement restatement and the effectiveness of the remediation of warrant-accounting controls.