Business Context and Reporting Period
The filing is Aastrom Biosciences, Inc.’s Form 10-K for the fiscal year ended December 31, 2011, not Vericel Corp. Aastrom was a clinical-development-stage regenerative medicine company developing patient-specific cellular therapies, principally ixmyelocel-T, for critical limb ischemia (CLI) and dilated cardiomyopathy (DCM). The company changed its fiscal year-end from June 30 to December 31 in 2010; the six months ended December 31, 2010 were a transition period. Fourth-quarter data are unaudited.
Financial Results and Key Metrics
| Metric | Year ended Dec. 31, 2011 | Comparable period |
|---|---|---|
| Total revenue | $18,000 | $253,000 for the twelve months ended Dec. 31, 2010 |
| Product sales and rentals | $18,000 | $9,000 for the six months ended Dec. 31, 2010 |
| Research and development expense | $21.330 million | $15.073 million for the twelve months ended Dec. 31, 2010 |
| Selling, general and administrative expense | $7.724 million | $6.204 million for the twelve months ended Dec. 31, 2010 |
| Total costs and expenses | $29.058 million | $21.279 million for the twelve months ended Dec. 31, 2010 |
| Loss from operations | $29.040 million | $21.026 million for the twelve months ended Dec. 31, 2010 |
| Net loss | $19.668 million, or $0.51 per share | $25.534 million, or $0.90 per share, for the twelve months ended Dec. 31, 2010 |
| Operating cash flow | $(24.492) million | $(9.252) million for the six months ended Dec. 31, 2010 |
| Cash and cash equivalents | $5.530 million | $31.248 million at Dec. 31, 2010 |
| Working capital | $(14.495) million | $1.835 million at Dec. 31, 2010 |
| Long-term debt | $80,000 | $255,000 at Dec. 31, 2010 |
| Warrant liabilities | $16.625 million | $25.954 million at Dec. 31, 2010 |
| Shareholders’ equity | $(12.971) million | $2.922 million at Dec. 31, 2010 |
Reported profitability and margins were not meaningful because revenue was minimal and the company remained loss-making. The $9.329 million reduction in warrant fair value recognized as non-cash income materially reduced the reported net loss; it did not provide operating cash.
Material Changes Versus the Prior Comparable Period
- Revenue fell approximately 93% from $253,000 to $18,000, primarily because 2010 included a non-recurring $244,000 Qualifying Therapeutic Discovery Project grant.
- Research and development expense increased approximately 41% to $21.330 million, driven by higher headcount, clinical research organization costs, consulting costs, and preparation for the Phase 3 CLI program.
- CLI research and development spending increased to approximately $15.842 million from $6.799 million, while DCM spending declined to approximately $5.452 million from $8.191 million.
- Net loss improved despite higher operating costs because warrant valuation income increased to $9.329 million from a $4.593 million warrant-related expense in the twelve months ended December 31, 2010, and because the comparison period included other non-cash effects.
- Cash declined by $25.718 million during 2011, and shareholders’ equity moved from positive $2.922 million to a deficit of $12.971 million.
- Non-cash stock compensation increased to $3.743 million, including $2.164 million in research and development and $1.753 million in selling, general and administrative expense.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management stated that existing cash at December 31, 2011, together with $37.8 million of net proceeds from a Series B preferred-stock financing completed on March 9, 2012, was expected to fund planned operations through at least December 31, 2012. Management also stated that additional funding would be required for later development, clinical trials, and commercialization.
- The pivotal Phase 3 REVIVE trial for CLI began screening in February 2012. The planned study included 594 no-option CLI patients with tissue loss, with amputation-free survival as the primary endpoint and approximately 80 U.S. sites.
- Management planned a randomized, placebo-controlled Phase 2b DCM trial enrolling approximately 60 to 80 ischemic DCM patients in mid-2012.
- Final 12-month RESTORE-CLI data reported in November 2011 showed a 62% reduction in risk for the primary treatment-failure endpoint versus placebo, with a p-value of 0.0032. The trial met its primary safety endpoint, but the study was not powered to establish statistical significance for amputation-free survival.
- The company expected no positive operating cash flow for at least several years unless significant product sales were achieved. It had never been profitable and had accumulated a deficit of approximately $240.880 million through December 31, 2011.
- The products required FDA approval as biologics, including successful clinical trials, a Biologics License Application, and manufacturing-facility approval. There was no assurance that approval would be obtained.
- Key risks included the need for substantial additional capital, clinical-trial failure or delay, patient-enrollment challenges, regulatory uncertainty, reimbursement limitations, manufacturing concentration at the Ann Arbor facility, dependence on Vention Medical as the sole cell-cassette supplier, competition, intellectual-property challenges, and potential product-liability claims.
- Five University of Michigan-licensed patents were expected to expire in 2012, and the company relied on licensed intellectual property, trade secrets, and unpatentable know-how.
- Outstanding warrant liabilities were measured using valuation models containing significant unobservable assumptions. Changes in the company’s stock price could produce substantial future non-cash gains or losses.
- Contractual obligations totaled approximately $1.582 million, consisting primarily of operating-lease commitments of $1.502 million and capital-lease obligations of $80,000.
Most Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Aastrom Biosciences, Inc., whereas the request identifies Vericel Corp.
- Reconcile the 2010 comparison period, because the filing presents both a six-month transition period and a twelve-month period ended December 31, 2010.
- Verify the March 2012 Series B financing, including its 11.5% cumulative compounded dividend through the fifth anniversary, conversion terms, senior liquidation rights, and potential redemption obligations.
- Assess whether the $37.8 million financing, combined with $5.53 million of year-end cash, was sufficient for the stated 2012 operating plan and the REVIVE and DCM programs.
- Review the warrant liability terms, potential cash-settlement provisions, anti-dilution protections, and resulting dilution or liquidity exposure.
- Track enrollment, endpoint results, regulatory interactions, and manufacturing readiness for the REVIVE Phase 3 CLI trial.
- Evaluate the company’s ability to obtain additional financing before completing clinical development and commercialization.
- Confirm the status and remaining term of key patents and University of Michigan licenses, as well as supply continuity from Vention Medical.