Business Context and Reporting Period
This unaudited Form 10-Q covers Aastrom Biosciences, Inc. for the quarter ended March 31, 2014. The filing identifies the registrant as a development-stage biotechnology company focused on patient-specific multicellular therapies, principally ixmyelocel-T, for severe ischemic cardiovascular diseases. The supplied metadata identifies Vericel Corp., but the filing itself is for Aastrom Biosciences, Inc.
The company was enrolling its Phase 2b ixCELL-DCM study for advanced heart failure caused by ischemic dilated cardiomyopathy and continuing follow-up in the Phase 3 REVIVE-CLI study. On April 19, 2014, after quarter-end, Aastrom agreed to acquire Sanofi’s cell therapy and regenerative medicine business, including Carticel, Epicel and MACI, subject to closing conditions.
Financial Performance and Position
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Total revenue | $0 | $8,000 |
| Research and development expense | $3.271 million | $5.538 million |
| Selling, general and administrative expense | $1.374 million | $1.633 million |
| Loss from operations | $4.645 million | $7.165 million |
| Net loss | $5.995 million | $5.544 million |
| Basic and diluted loss per common share | $1.26 | $3.00 |
| Net cash used in operating activities | $4.674 million | $6.761 million |
Revenue consisted of no product sales, rentals, research and development agreement revenue or grant revenue in Q1 2014. The filing does not provide a meaningful operating margin because revenue was zero and the company remained in the development stage.
Cash was $8.836 million at March 31, 2014, compared with $8.059 million at December 31, 2013. Total current assets were $9.236 million and total current liabilities were $6.109 million. Warrant liabilities increased to $3.226 million from $2.019 million. Current debt was $2,000, and the filing does not indicate material long-term debt outstanding at quarter-end.
Financing activities provided $5.451 million during the quarter, including $5.286 million of net proceeds from the at-the-market offering. The company had approximately $9.624 million of remaining ATM capacity at March 31, 2014. It also had a purchase agreement with Lincoln Park Capital Fund allowing potential sales of up to $15 million of common stock, subject to limitations. Subsequent to quarter-end, the company raised $1.042 million in net proceeds under that agreement.
Material Changes Versus the Prior Comparable Period
- Revenue declined from $8,000 to zero.
- Research and development expense decreased 41%, primarily because REVIVE-CLI enrollment had been stopped and prior restructuring reduced staffing and operating costs.
- Critical limb ischemia spending fell from $4.471 million to $218,000, while dilated cardiomyopathy spending increased from $1.059 million to $3.053 million.
- SG&A expense decreased 16% due primarily to the 2013 restructuring.
- Net loss increased modestly despite lower operating expenses, largely because the company recorded a $1.352 million non-cash expense from the increase in the fair value of warrant liabilities, compared with $1.619 million of non-cash income in Q1 2013.
- Weighted-average common shares increased to 5.868 million from 2.243 million, reducing reported loss per share from $3.00 to $1.26.
- Common shares outstanding increased to 6.245 million at March 31, 2014 from 4.723 million at December 31, 2013; 6.497 million shares were outstanding at April 30, 2014.
Guidance, Outlook, Risks and Unusual Items
- Management expected to complete ixCELL-DCM enrollment in 2014 and report top-line efficacy results approximately 12 months later. The study was designed to enroll 108 patients at approximately 35 sites.
- Management expected results from the ongoing 41-patient REVIVE-CLI follow-up study in the second quarter of 2014.
- The company stated that existing cash was not sufficient to sustain operations for one year and that it was evaluating financing and strategic alternatives to maintain liquidity through December 31, 2014 and beyond.
- The filing includes substantial doubt regarding the company’s ability to continue as a going concern. The financial statements contain no adjustments that might result from this uncertainty.
- Management did not expect positive operating cash flow for at least several years and stated that additional funding would be required to complete development programs and clinical trials.
- The planned Sanofi acquisition had an announced consideration of $6.5 million, consisting of $4.0 million in cash and a $2.5 million promissory note, subject to adjustments. The note would be due upon the earliest of July 12, 2014, certain liquidation or change-of-control events, or other specified conditions. Closing was expected in Q2 2014 but was subject to conditions that might not be satisfied.
- Warrant fair values were subject to significant estimation uncertainty, including stock-price volatility and Level 3 assumptions regarding potential financings and fundamental transactions. Changes in fair value affect reported earnings but not cash flow.
- Key operating risks included clinical-trial outcomes, regulatory approval, manufacturing requirements, market acceptance, competition, ability to raise capital and the ability to integrate or close the Sanofi transaction.
- The company reported no material pending legal proceedings, no off-balance-sheet arrangements and no material changes to internal control over financial reporting.
Most Important Facts to Verify
- Confirm the issuer identity: the filing is for Aastrom Biosciences, Inc., not Vericel Corp., and verify any subsequent name change or corporate transaction.
- Verify the post-quarter-end closing and final accounting for the Sanofi/Genzyme Biosurgery asset acquisition, including cash paid, promissory-note terms, assumed liabilities and acquired revenue.
- Verify subsequent equity issuance under the ATM and Lincoln Park agreements and the resulting share count and dilution.
- Review liquidity after the acquisition and determine whether additional financing was obtained to address the going-concern uncertainty.
- Verify the actual ixCELL-DCM enrollment timeline and clinical results, as well as the REVIVE-CLI follow-up results.
- Reconcile the warrant liability valuation and the effect of future stock-price changes or financing transactions on reported earnings.