Business Context and Reporting Period
The filing is Aastrom Biosciences, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2013. The request identifies Vericel Corp., but the supplied filing is for Aastrom Biosciences, the predecessor company. Aastrom was a development-stage biotechnology company developing patient-specific cell therapies, primarily ixmyelocel-T, for ischemic dilated cardiomyopathy (DCM) and critical limb ischemia (CLI).
Financial Highlights
| Metric | Q2 2013 | Q2 2012 | Six Months 2013 | Six Months 2012 |
|---|---|---|---|---|
| Total revenues | $3 thousand | $0 | $11 thousand | $2 thousand |
| Research and development | $3.676 million | $7.069 million | $9.214 million | $13.865 million |
| Selling, general and administrative | $1.560 million | $2.231 million | $3.193 million | $3.993 million |
| Net loss attributable to common shareholders | $4.889 million | $8.566 million | $11.696 million | $18.310 million |
| Loss per share | $0.11 | $0.22 | $0.26 | $0.47 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $11.461 million | $14.553 million |
| Cash and cash equivalents at period end | $4.494 million at June 30, 2013 | $13.638 million at December 31, 2012 |
Q2 2013 operating loss was $5.234 million, compared with $9.300 million in Q2 2012. The company recorded $345 thousand of non-cash income from a decrease in warrant fair value. For the six months, the corresponding non-cash income was $1.964 million. The company had minimal revenue, no meaningful operating margin, and an accumulated deficit of $287.011 million attributable to common shareholders.
At June 30, 2013, total assets were $5.683 million, including $4.494 million of cash. Total liabilities were $3.842 million, consisting primarily of accounts payable, accrued expenses, and warrant liabilities. Convertible preferred stock classified outside shareholders’ equity totaled $42.876 million. Debt was immaterial, with $19 thousand of current debt and no long-term debt.
Material Changes Versus the Prior Comparable Period
- Research and development expense declined 48% in Q2 and 34% for the six-month period, primarily because enrollment in the Phase 3 REVIVE trial was stopped, staffing was reduced, and related stock-based compensation was reversed.
- SG&A declined 30% in Q2 and 20% for the six-month period due to the corporate restructuring and lower non-cash compensation expense.
- Q2 net loss attributable to common shareholders improved by $3.677 million, while the six-month loss improved by $6.614 million. The improvement reflected lower operating expenses and warrant valuation gains.
- Cash declined by $9.144 million during the first six months, despite $2.451 million of gross proceeds from the company’s at-the-market equity program.
- Warrant liabilities declined from $1.995 million at December 31, 2012 to $31 thousand at June 30, 2013, principally because of the decline in the stock price, fewer warrants, and reduced time to maturity.
Guidance, Outlook, Risks, and Unusual Items
- Management shifted development priorities toward ixmyelocel-T for advanced ischemic DCM and stopped enrollment in the Phase 3 REVIVE CLI trial. Approximately 40 REVIVE patients had been enrolled, with follow-up results expected in the second quarter of 2014.
- The Phase 2b ixCELL-DCM trial was expected to enroll 108 patients, complete enrollment by the end of the first quarter of 2014, and produce top-line data in the second quarter of 2015.
- The restructuring reduced operating cash needs by approximately 50% and generated a one-time charge of approximately $408 thousand in the first quarter. The remaining restructuring accrual was $204 thousand at June 30, 2013.
- Management stated that existing cash was insufficient to sustain operations for one year and that additional financing or strategic transactions were required. The filing raises substantial doubt about the company’s ability to continue as a going concern.
- On July 25, 2013, the company filed a Form S-1/A to register up to $17.250 million of common stock. Its ability to raise funds through the ATM could be limited by trading volume, stock price, and other market conditions.
- The company expected continuing operating losses and negative operating cash flow for at least several years unless it obtained regulatory approvals and achieved significant product sales.
- Key risks included clinical-trial failure, regulatory or manufacturing delays, inability to obtain financing, lack of market acceptance, competition, and uncertainty regarding commercialization of ixmyelocel-T. No material pending legal proceedings or off-balance-sheet arrangements were reported.
Most Important Facts to Verify
- Confirm that the intended issuer is Aastrom Biosciences rather than Vericel Corp.; the supplied filing does not identify Vericel.
- Verify subsequent financing activity and whether the proposed $17.250 million registration materially improved liquidity.
- Track cash burn, restructuring payments, and the company’s ability to fund operations beyond December 31, 2013.
- Monitor ixCELL-DCM enrollment, trial completion, top-line data, and any regulatory developments.
- Verify the eventual outcome of the suspended REVIVE trial and whether the CLI program was resumed, partnered, or discontinued.
- Assess dilution from ATM sales, preferred stock, options, and outstanding warrants.