TYPE:   424B3
SEQUENCE:       1
DESCRIPTION:        PROS. SUPPLEMENT FILED PURSUANT TO RULE 424(B)(3)

                                      Filed under Rule 424(c) of Regulation C
                                                   SEC File Number: 333-81399

PROSPECTUS SUPPLEMENT
(To Prospectus Dated September 21, 1999)


                            3,794,874 TOTAL SHARES

                           AASTROM BIOSCIENCES, Inc.
                                 COMMON STOCK

    The information in this prospectus supplement concerning the total number of
shares of common stock to be sold pursuant to this prospectus, the revised risk
factor and the additional risk factor, each as set out below, supplements the
statements set forth on the first page and under the Risk Factors heading in the
prospectus. Capitalized items used and not defined herein shall have the
meanings given to them in the prospectus.

    The total number of shares to be sold pursuant to this prospectus supplement
is 3,794,874.

                                 RISK FACTORS

We Cannot Be Certain That We Will Be Able To Raise The Required Capital to
Conduct Our Operations and Develop Our Products.

We will require substantial capital resources in order to conduct our operations
and develop our products. Based on our declining level of capital resources and
our current financing alternatives, we recently reduced our operations to align
the existing resources with our focus on pursuing corporate strategic
alternatives, including a possible merger or acquisition. This reduction in our
operating activities has negatively impacted our ability to develop our
products. Aastrom anticipates that its available cash and expected interest
income will only be sufficient to finance its current activities into early
2000. If we can not obtain additional funding, Aastrom will be forced to further
substantial reductions in the scope and size of its operations and has only a
very limited amount of capital to sustain its operations, even at a reduced
scale. This estimate is based on certain assumptions, which could be negatively
impacted by the matters discussed under this heading and elsewhere under the
caption "Risk Factors." In order to resume our earlier activities, grow and
expand our business, and to introduce our product candidates into the
marketplace, Aastrom will need to raise additional funds. We will also need
additional funds or a collaborative partner to finance the research and
development activities of Aastrom's product candidates for the expansion of
additional cell types.

Aastrom's future capital requirements will depend upon many factors, including:

 .    continued scientific progress in its research and development programs;

 .    costs and timing of conducting clinical trials and seeking regulatory
     approvals and patent prosecutions;

 .    competing technological and market developments;

 .    the ability of Aastrom to establish additional collaborative relationships;
     and

 .    effective commercialization activities and facilities expansions if and as
     required.

Because of our long-term funding requirements, we may attempt to access the
public or private equity markets if and whenever conditions are favorable, even
if we do not have an immediate need for additional capital at that time. This
additional funding may not be available to Aastrom on reasonable terms, or at
all. If adequate funds are not available, Aastrom may be required to further
delay or terminate research and development programs, curtail capital
expenditures, and reduce business development and other operating activities.

Our Stock May Be Delisted From Nasdaq, Which Could Affect the Market Price and
Liquidity.

    We are required to meet certain financial tests (including a minimum bid
price of our common stock of $1.00 and $5 million in tangible net-worth) to
maintain the listing of our common stock on the Nasdaq National Market. As a
result of recent price fluctuations, our common stock price has fallen below the
minimum level and we have been notified that our common stock will be delisted
if the Company does not regain compliance with the minimum listing requirements
prior to February 16, 2000, unless an exemption is granted. If that happened the
market price and liquidity of our Common Stock would be impaired.

          The date of this prospectus supplement is December 8, 1999.