Aastrom Biosciences, Inc. 2012 Form 10-K Summary
Filing identity: The provided filing is for Aastrom Biosciences, Inc. (NASDAQ: ASTM), not Vericel Corp. It reports the fiscal year ended December 31, 2012. The filing includes unaudited fourth-quarter data for the three months ended December 31, 2012.
Business Context and Reporting Period
Aastrom was a development-stage regenerative medicine company developing ixmyelocel-T, an autologous, expanded multicellular therapy derived from a patient’s bone marrow. Its primary programs targeted critical limb ischemia (CLI) and ischemic dilated cardiomyopathy (DCM). The company had no approved commercial products and relied primarily on equity financing.
The company changed its fiscal year-end from June 30 to December 31 in 2010. Accordingly, 2012 is a comparable 12-month calendar-year period to 2011. The filing was signed March 18, 2013.
Financial Performance and Key Metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Total revenue | $21,000 | $18,000 | Increase of $3,000 |
| Research and development expense | $26.025 million | $21.330 million | Increase of $4.695 million |
| Selling, general and administrative expense | $7.750 million | $7.724 million | Increase of $26,000 |
| Total costs and expenses | $33.781 million | $29.058 million | Increase of $4.723 million |
| Loss from operations | $(33.760) million | $(29.040) million | Loss increased by $4.720 million |
| Net loss attributable to common shareholders | $(33.467) million | $(19.668) million | Loss increased by $13.799 million |
| Loss per common share | $(0.81) | $(0.51) | Loss increased by $0.30 per share |
| Net cash used in operating activities | $(29.545) million | $(24.492) million | Use increased by $5.053 million |
Revenue consisted almost entirely of minor product sales and rentals. The filing does not report a meaningful commercial revenue base or product gross margin. The 2012 product sales and rentals were $21,000, with $6,000 of related costs.
R&D spending increased primarily because of higher contract research organization and consulting costs associated with the Phase 3 REVIVE CLI trial, as well as increased employee compensation and stock-based compensation. CLI R&D spending increased to $21.650 million from $15.842 million, while DCM R&D spending declined to $4.366 million from $5.452 million.
Other income included a $4.248 million non-cash decrease in the fair value of warrant liabilities. Interest income was $50,000, and interest expense was $12,000. The company recorded $3.993 million of non-cash preferred-stock accretion, which increased the loss attributable to common shareholders.
Cash Flow, Liquidity, Debt and Capitalization
| Balance-sheet metric | December 31, 2012 | December 31, 2011 |
|---|---|---|
| Cash and cash equivalents | $13.638 million | $5.530 million |
| Working capital | $8.331 million | $(14.495) million |
| Total assets | $15.178 million | $7.739 million |
| Total liabilities | $5.665 million | $20.710 million |
| Long-term debt | $40,000 | $80,000 |
| Warrant liabilities | $1.995 million | $16.625 million |
| Total shareholders’ deficit | $(32.100) million | $(12.971) million |
Cash increased by $8.108 million during 2012, primarily because of $37.620 million of net proceeds from the issuance of Series B preferred stock. This financing was largely offset by operating cash use of $29.545 million, investing cash use of $273,000 and debt payments.
At December 31, 2012, approximately $13.349 million of cash was held in an Insured Cash Sweep program. Contractual obligations totaled $3.490 million, including $3.450 million of operating lease obligations and $40,000 of capital lease obligations.
The company had no material traditional debt burden, but its Series B preferred stock had senior rights, cumulative dividends and redemption features. The preferred stock was presented as mezzanine equity and had a carrying value of $41.613 million, including Series B-1 and Series B-2 balances. Dividends accrued at 11.5% annually through the five-year anniversary of issuance, subject to the terms disclosed in the filing.
Fourth-Quarter Results
| Metric | Fourth Quarter 2012 | Fourth Quarter 2011 |
|---|---|---|
| Revenue | $19,000 | None reported |
| Loss from operations | $(7.617) million | $(7.834) million |
| Net loss attributable to common shareholders | $(7.905) million | $(2.789) million |
| Loss per common share | $(0.18) | $(0.07) |
The fourth-quarter 2012 net loss included a $959,000 non-cash decrease in the fair value of warrant liabilities.
Material Changes Versus the Prior Comparable Period
- Revenue remained negligible, increasing only from $18,000 to $21,000 for the full year.
- Operating expenses increased 16.3%, primarily from expanded clinical activity and related CRO and consulting costs.
- The net loss attributable to common shareholders increased 70.2%, driven by higher operating expenses, preferred-stock accretion and changes in warrant-related income.
- Operating cash use increased from $24.492 million to $29.545 million.
- Liquidity improved temporarily because of the $37.620 million preferred-stock financing, but management stated that available cash was insufficient to fund operations for one year.
- Warrant liabilities declined substantially following the exchange of 9,691,900 warrants for 4,845,949 common shares and a decrease in warrant fair value.
- Common shares outstanding increased from 38.635 million at year-end 2011 to 43.784 million at year-end 2012. The filing reports 45.664 million shares outstanding as of March 5, 2013.
Guidance, Outlook, Risks and Unusual Items
Management did not provide conventional revenue or earnings guidance. It expected continued operating losses and negative operating cash flow for at least several years unless significant product sales were achieved. Additional funding, strategic transactions or corporate partnerships were required to complete clinical development and commercialization.
The filing and the independent auditor’s report included an explicit going-concern warning. Management stated that the $13.638 million cash balance was insufficient to sustain operations for one year and that there was substantial doubt about the company’s ability to continue as a going concern. The financial statements did not include adjustments that might result from this uncertainty.
- The pivotal Phase 3 REVIVE trial for CLI was planned to enroll 594 patients, with amputation-free survival as the primary efficacy endpoint. The first patient was randomized in May 2012.
- The Phase 2b ixCELL-DCM trial was expected to enroll 108 ischemic DCM patients. Sites began screening in February 2013, with first randomization expected in April 2013.
- Prior RESTORE-CLI Phase 2b results showed a reported 62% reduction in risk for the primary treatment-failure endpoint, but the study was small and subsequent trial results were uncertain.
- FDA approval had not been obtained. Commercialization would require successful clinical trials, a Biologics License Application and approval of manufacturing facilities.
- The company depended on third parties, including Vention Medical as the sole supplier of proprietary cell cassettes, and operated a centralized manufacturing facility without a redundant site.
- The business faced risks involving patient enrollment, clinical-trial failure, regulatory delays, reimbursement, manufacturing scale-up, intellectual property and competition.
- Former CEO Timothy M. Mayleben resigned in December 2012. Dominick C. Colangelo joined as CEO in 2013, creating a notable management transition after the reporting period.
- Preferred stock held by Eastern Capital had senior liquidation and redemption rights, cumulative dividends and significant voting influence after conversion or exchange.
Most Important Facts for Investors to Verify
- Confirm that the filing belongs to Aastrom Biosciences, Inc., rather than Vericel Corp., before relying on the figures.
- Review the audited financial statements and going-concern language concerning the company’s ability to fund operations through December 31, 2013.
- Assess the remaining cash runway after the 2012 preferred-stock financing and the company’s dependence on additional equity, debt or partnership funding.
- Review the terms, accrued dividends, redemption provisions and potential dilution associated with the Series B preferred stock.
- Track enrollment, interim findings and final outcomes for the REVIVE CLI and ixCELL-DCM trials, as well as FDA requirements for a BLA.
- Separate recurring operating performance from non-cash warrant fair-value gains and preferred-stock accretion.
- Evaluate dilution from common-stock issuances, options, warrants and potential preferred-stock conversion.
- Verify the status of the Vention supply arrangement, the Ann Arbor manufacturing facility and the company’s ability to scale production.