Aastrom Biosciences, Inc.
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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The fiscal year ended
June 30, 2006
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
0-22025
Aastrom Biosciences,
Inc.
(Exact name of registrant as
specified in its charter)
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Michigan
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94-3096597
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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24 Frank Lloyd Wright Drive
P. O. Box 376
Ann Arbor, MI 48106
(Address of principal executive
offices, including zip code)
Registrants telephone number, including area code:
(734) 930-5555
Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, no par value
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer (as defined in
Rule 12b-2
of the Exchange Act).
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The approximate aggregate market value of the registrants
Common Stock, no par value (Common Stock), held by
non-affiliates of the registrant (based on the closing sales
price of the Common Stock as reported on the Nasdaq Capital
Market) on December 31, 2005 was approximately
$216 million. This computation excludes shares of Common
Stock held by directors, officers and each person who holds 5%
or more of the outstanding shares of Common Stock, since such
persons may be deemed to be affiliates of the registrant. This
determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of August 31, 2006, 119,487,843 shares of Common
Stock, no par value, were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
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Document
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Form 10-K
Reference
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Proxy Statement for the Annual
Meeting of Shareholders
scheduled for November 2, 2006
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Items 10, 11, 12, 13 and
14 of
Part III
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AASTROM
BIOSCIENCES, INC.
ANNUAL
REPORT ON
FORM 10-K
TABLE OF
CONTENTS
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Except for the historical information presented, the matters
discussed in this Report, including our product development and
commercialization goals and expectations, our plans and
anticipated results of clinical development activities,
potential market opportunities revenue expectations and the
potential advantages and applications of our products and
product candidates under development, include forward-looking
statements that involve risks and uncertainties. Our actual
results may differ significantly from the results discussed in
the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to,
those discussed under the caption Risk Factors in
Managements Discussion and Analysis of Financial
Condition and Results of Operations. Unless the context
requires otherwise, references to we,
us, our and Aastrom refer to
Aastrom Biosciences, Inc.
PART I
We are a development stage company focused on the development of
autologous cell products for use in regenerative medicine. Our
pre-clinical and clinical product development programs utilize
patient-derived bone marrow stem and progenitor cell
populations, and are being investigated for their ability to aid
in the regeneration of tissues such as vascular, bone, cardiac
and neural.
Our platform Tissue Repair Cell (TRC) technology is based on
1) our cell products which are a unique cell mixture
containing large numbers of stromal, stem and progenitor cells,
produced outside of the body from a small amount of bone marrow
taken from the patient, and 2) the means to produce these
products in an automated process. TRC-based products have been
used in over 225 patients, and are currently in active
clinical trials for bone regeneration (long bone fractures and
spine fusion) and vascular regeneration (diabetic patients with
critical limb ischemia) applications. We have reported positive
interim clinical trial results for TRCs suggesting both the
clinical safety and the ability of TRCs to induce tissue
regeneration in long bone fractures and jaw bone reconstruction.
Recently, our proprietary TRC cell product received an Orphan
Drug Designation from the U.S. Food and Drug Administration
(FDA) for use in the treatment of osteonecrosis of the femoral
head. In addition, we are developing plans for a TRC-based
therapy for cardiac regeneration.
Our primary business is to develop our TRC-based products for
use in multiple therapeutic areas. Currently, we intend to
pursue TRC-based cell products for the following therapeutic
areas:
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Vascular tissue regeneration
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Bone tissue regeneration
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Cardiac tissue regeneration
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Neural tissue regeneration
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We have developed a patented manufacturing system to produce
human cells for clinical use. This automated cell manufacturing
system enables our single-pass perfusion cell
culture process. Single-pass perfusion is our patented
technology for growing large quantities of human cells. These
cells include adult stromal, stem and progenitor cell
populations, which are considered to be required in the
formation of tissues such as vascular, bone, cardiac and neural,
as well as the hematopoietic system and its supporting stoma.
We do not expect to generate positive cash flows from our
consolidated operations for at least the next several years and
then only if more significant TRC cell product sales commence.
Until that time, we expect that our revenue sources will consist
of only minor sales of our cell products such as TRCs, and our
dendritic cell and T-cell kits to academic research centers,
grant revenue and research funding, and potential licensing fees
or other financial support from potential future corporate
collaborators.
To date, we have financed our operations primarily through
public and private sales of our equity securities, and we expect
to continue obtaining required capital in a similar manner. As a
development-stage company, we have never been profitable and do
not anticipate having net income unless and until significant
product sales commence. This is not likely to occur until we
obtain significant additional funding, complete the required
clinical trials for
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regulatory approvals, and receive the necessary approvals to
market our products. Through, June 30, 2006, we have
accumulated a net loss of approximately $141 million. We
cannot provide any assurance that we will be able to achieve
profitability on a sustained basis, if at all, obtain the
required funding, obtain the required regulatory approvals, or
complete additional corporate partnering or acquisition
transactions.
Clinical
Development
Currently, our active clinical development programs are focused
on the utilization of our TRCs in the areas of vascular tissue
and bone regeneration, though we anticipate beginning clinical
trials in the cardiac and neural regeneration therapeutic areas.
The pre-clinical data for our TRCs have shown a substantial
increase in the stem and progenitor cells that can develop into
tissues such as hematopoietic (i.e., blood forming) or
mesenchymal,(i.e., developing into tissues characteristic of
certain internal organs) as well as certain key populations of
stromal progenitor cells that produce various growth factors. We
have demonstrated in the laboratory that TRCs can progress into
bone cell and blood vessel cell lineages. Based on these
pre-clinical observations, we initiated clinical trials in the
U.S. and European Union (EU) for bone regeneration in patients
with severe long bone fractures, and in the EU for vascular
tissue regeneration in patients with critical limb ischemia as a
result of peripheral arterial disease.
It should be noted that the preliminary results of our current
clinical trials may not be indicative of results that will be
obtained from subsequent patients in those trials or from future
clinical trials. Further, our future clinical trials may not be
successful, and we may not be able to obtain the required
Biologic License Application (BLA) registration in the
U.S. or required foreign regulatory approvals, Marketing
Authorization (MA) for our TRCs in a timely fashion, or at all.
See Risk Factors.
Clinical
Trials Summary
Vascular
Tissue Regeneration
Critical
Limb Ischemia:
Based on our laboratory observations that TRCs have the ability
to form small blood vessels, and third party trials involving
the use of bone marrow cells for peripheral vascular disease, we
are conducting a trial to evaluate the safety and efficacy of
TRCs in the treatment of diabetics with critical limb ischemia.
We entered into a clinical trial agreement with the
Heart & Diabetes Center located in Bad Oeynhausen,
Germany, to conduct a pilot trial to evaluate the safety and
efficacy of TRCs to improve peripheral circulation in diabetic
patients with critical limb ischemia. An approved
Investigational Medicinal Product Dossier (IMPD) the
required filing in the EU for a clinical trial and
the cell manufacturing license required in Germany were
obtained, and patient accrual is ongoing.
We are in the process of preparing to submit a clinical trial
protocol in the U.S. to treat patients suffering from
critical limb ischemia with the goal of reducing of the
incidence of major amputations.
Bone
Regeneration
Long Bone
Fractures:
A U.S. Phase I/II clinical trial for the treatment of
severe long bone non-union fractures is ongoing under an
FDA-approved Investigational New Drug (IND) application at the
following centers: Lutheran General Hospital, Park Ridge, IL;
the University of Michigan Health System, Ann Arbor, MI; William
Beaumont Hospital, Royal Oak, MI; Lutheran Medical Center,
Brooklyn, NY; and, the University of Nebraska Medical Center,
Omaha, NE, with enrollment of up to 36 patients. As of
June 30, 2006, we have accrued and treated all
36 patients in this trial, and are continuing the required
follow-up of
those patients. Data collection will be completed in July 2007,
and we will initiate data analysis thereafter.
In March 2006, results based on clinical experience with the
first seven patients treated in the U.S. Phase I/II
long bone fracture trial were presented by the Principal
Investigator at the combined Orthopaedic Research Society
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and American Academy of Orthopaedic Surgeons meetings in
Chicago, IL. The report stated that all seven patients exhibited
bone healing by the 6 month endpoint, and four of the seven
patients exhibited early healing by 3 months. These
patients had previously failed to heal after an average of two
prior surgeries utilizing standard of care treatments. No
TRC-related adverse events were reported.
Bone regeneration studies in the EU were conducted at centers in
Spain and Germany, under Ethical Committee approvals. Results
from the Phase I clinical trial conducted at Hospital
General de lHospitalet, Centro Médico Teknon and
Hospital de Barcelona-SCIAS in Spain were disclosed in May 2005.
All five patients, with a total of 6 treated fractures, have
been reported as healed by a third party independent reviewer
using radiographic images, or by clinical observations. No
TRC-related adverse events were observed. Following the
Phase I trial, an IMPD was filed and we obtained permission
from the Spanish Drug Agency (AEMPS) to commence a Phase II
non-union fracture trial in Spain. This study can accrue up to
10 patients, and is actively enrolling.
Spine
Fusion:
We are conducting a Phase I/II spine fusion clinical trial
in the U.S., to accrue up to 25 patients. In addition, we
are preparing for a clinical study in Spain to evaluate the use
of TRCs in spine fusions.
Osteonecrosis:
In March 2006, our proprietary TRCs received an Orphan Drug
Designation from the FDA for use in the treatment of
osteonecrosis of the hip. We are in the process of preparing a
clinical trial protocol in the U.S.; we are also preparing for
similar clinical studies in the EU.
Jaw Bone
Reconstruction:
We have completed a jaw (maxilla) bone regeneration clinical
feasibility control trial in Barcelona, Spain, for edentulous
patients with severe bone loss who needed a sinus lift procedure
so that dental implants could be placed. This trial has enrolled
the targeted 5 patients for the evaluation of bone
regeneration resulting from TRCs compared with a standard bone
grafting procedure. Four months after cell therapy, the
treatments that included TRCs had reduced swelling, and
significant height increase of the bone in the grafted area as
determined in radiographic images. Histologic observations made
on tissue sections adjacent to the grafted area showed changes
consistent with the stimulation of bone turnover and with the
induction of new connective tissue.
Additional
Activity
In certain
non-U.S. regions,
autologous cell products such as TRCs may be marketed without
further registration or marketing authorization. We are
exploring these types of markets through commercial supply
agreements to gain additional clinical information to support
our clinical trial strategy. We have completed one limited
commercial evaluation agreement under this type of arrangement.
Product
Development
Our current product development efforts are focused on the
development of our autologous cell products, TRCs, for use in
vascular tissue regeneration (critical limb ischemia), bone
regeneration applications (fractures, spine fusion and
osteonecrosis), cardiac tissue regeneration and neural tissue
regeneration. Our TRCs have been used in over 225 human patients
in several clinical trials. (See Clinical
Development.). We believe that TRCs can potentially be
used in other clinical indications, and that additional clinical
trials will be required.
Our research programs are currently directed at improving TRC
functionality for certain clinical indications, improving
product shelf life, and decreasing the cost of manufacturing our
TRC products. Our programs are also exploring the capability of
TRCs to generate different types of human tissues. These
production process changes may alter the functionality of our
TRCs, and would require various levels of experimental and
clinical testing and evaluation. Any such testing could lengthen
the time before these products would be commercially available.
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Research and development expenses for the fiscal years ended
June 30, 2004, 2005 and 2006 were $6,289,000, $7,206,000
and $9,484,000, respectively.
Strategic
Relationships
In June 2003, we announced a strategic alliance with the
Musculoskeletal Transplant Foundation (MTF) to jointly develop
and commercialize innovative treatments for the regeneration of
tissues such as bone and cartilage. The collaboration aligns us
with the leading provider of allograft, or donor-derived tissue
materials (matrices) with a focus on forming a coordinated
business and clinical approach for new products and treatments
needed in orthopedic medicine. Under the terms of the alliance,
Aastrom and MTF may develop products that are based on
combinations of MTFs allograft matrices and our TRCs.
In March 2006, we announced a collaboration to develop products
for the orthopedics market using Orthovitas synthetic
ceramic matrices and ceramic-collagen matrices (VITOSS) and our
TRCs.
Manufacturing
Cell
Manufacturing
Aastroms TRC cell products will be regulated in the U.S.,
EU and other markets as biologics/pharmaceuticals. With this
classification, commercial manufacturing of TRCs will need to
occur in registered/licensed facilities in compliance with Good
Tissue Practice (GTP, U.S. FDA), Good Manufacturing
Practice (GMP) for biologics (cellular products) or drugs, and
the EU Tissue Procurement and GMP Directives.
In May 2006, we received a human pharmaceuticals manufacturing
license from a regional regulatory authority in Germany for the
production of TRCs at the Fraunhofer Institute for Interfacial
Engineering and Biotechnology (Fraunhofer). This license allows
us to produce our TRC-based products for clinical trials in
compliance with EU regulations. The Fraunhofer facility and
staff are under contract for the manufacturing of TRC products
for both clinical trials and commercial activity under the
license.
In the U.S., we have established and operate a pilot cell
manufacturing facility in our Ann Arbor location, to support the
current U.S. clinical trials. We intend to establish and
operate our own larger commercial-scale cell manufacturing
facilities for the EU and U.S. markets in the future to
accommodate potential market growth.
Cell
Manufacturing Platform Components
We have established relationships with manufacturers that are
FDA registered as suppliers of medical products to manufacture
various components of our patented cell manufacturing system.
In March 2003, we signed a three-year master supply agreement
with Astro Instrumentation, L.L.C., to manufacture our final
assemblies, component parts, subassemblies and associated spare
parts, used in the instrumentation platform of our cell
manufacturing system. This agreement includes an annual
provision for automatic 12 month extensions. We retain all
proprietary rights to our intellectual property that is utilized
by Astro pursuant to this agreement.
In February 2004, we entered into a five-year agreement
continuing with Moll Industries as our supplier of the cell
culture cassettes used in the production of TRCs. Under this
agreement, Moll will perform the manufacturing and assembly of
the cassettes while we retain all rights to our intellectual
property that is utilized by Moll pursuant to this agreement.
There can be no assurance that we will be able to continue our
present arrangements with our suppliers, supplement existing
relationships or establish new relationships or that we will be
able to identify and obtain the ancillary materials that are
necessary to develop our product candidates in the future. Our
dependence upon third parties for the supply and manufacture of
such items could adversely affect our ability to develop and
deliver commercially feasible products on a timely and
competitive basis. See Risk Factors.
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Sales and
Marketing
We do not currently have the sales or marketing resources that
will be needed to fully commercialize our therapeutic products.
We intend to advance each target therapeutic area to a decision
point where the options to seek a development
and/or
commercialization partnerships, or to make the investment to
complete development and commercialize a product alone will be
evaluated. In some cases, we may undertake some pilot level of
sales and marketing activity while seeking a commercial
partnership.
Domestic product sales and rentals for the fiscal years ended
June 30, 2004, 2005 and 2006 were $10,000, $194,000 and
$74,000, respectively. Foreign product sales and rentals for the
fiscal years ended June 30, 2004, 2005 and 2006 were
$39,000, $193,000 and $85,000, respectively.
Patents
and Proprietary Rights
Our success depends in part on our ability, and the ability of
our licensors, to obtain patent protection for our products and
processes. We have exclusive rights to over 25 issued
U.S. patents, and non-exclusive rights to one other issued
U.S. patent. These patents present various claims related
to the following, as well as other, areas: (i) certain
methods for enabling ex vivo stem cell division (for
cells derived from bone marrow, peripheral blood, umbilical cord
blood, or the spleen) or improving the ex vivo production
of progenitor cells, and the therapeutic use of these cells
where normal bone marrow has a therapeutic effect;
(ii) certain apparatus for cell culturing, including a
bioreactor suitable for culturing human stem cells or human
hematopoietic cells; (iii) certain methods of infecting or
transfecting target cells with vectors; and (iv) a cell
composition containing human stem cells or progenitor cells, or
genetically modified stem cells, when such cells are produced in
an ex vivo medium exchange culture and have been
originally derived from bone marrow, peripheral blood, umbilical
cord blood, or the spleen. Certain patent equivalents to the
U.S. patents have also been issued in other jurisdictions
including Australia and Canada and under the European Patent
Convention. Certain of these foreign patents are due to expire
beginning in 2008. In addition, we have filed applications for
patents in the U.S. and equivalent applications in certain other
countries claiming other aspects of our products and processes,
including a number of U.S. patent applications and
corresponding applications in other countries related to various
components of our cell manufacturing system.
The validity and breadth of claims in medical technology patents
involve complex legal and factual questions and, therefore, may
be highly uncertain. No assurance can be given that any patents
based on pending patent applications or any future patent
applications by us, or our licensors, will be issued, that the
scope of any patent protection will exclude competitors or
provide competitive advantages to us, that any of the patents
that have been or may be issued to us or our licensors will be
held valid if subsequently challenged or that others will not
claim rights in or ownership of the patents and other
proprietary rights held or licensed by us. Furthermore, there
can be no assurance that others have not developed or will not
develop similar products, duplicate any of our products or
design around any patents that have been or may be issued to us
or our licensors. Since patent applications in the U.S. are
maintained in secrecy until shortly before a patents
issuance, we also cannot be certain that others did not first
file applications for inventions covered by our and our
licensors pending patent applications, nor can we be
certain that we will not infringe any patents that may be issued
to others on such applications.
We rely on certain licenses granted by the University of
Michigan and others for certain patent rights. If we breach such
agreements or otherwise fail to comply with such agreements, or
if such agreements expire or are otherwise terminated, we may
lose our rights in such patents, which would have a material
adverse affect on our business, financial condition and results
of operations. See Research and License Agreements.
We also rely on trade secrets and unpatentable know-how that we
seek to protect, in part, by confidentiality agreements. It is
our policy to require our employees, consultants, contractors,
manufacturers, outside scientific collaborators and sponsored
researchers and other advisors to execute confidentiality
agreements upon the commencement of employment or consulting
relationships with us. These agreements provide that all
confidential information developed or made known to the
individual during the course of the individuals
relationship with us is to be kept confidential and not
disclosed to third parties except in specific limited
circumstances. We also require signed confidentiality or
material transfer agreements from any company that is to receive
our confidential information. In the case of employees,
consultants and contractors, the agreements generally provide
that all inventions conceived by the individual while rendering
services to us shall be assigned to us as the exclusive
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property of Aastrom. There can be no assurance, however, that
these agreements will not be breached, that we would have
adequate remedies for any breach, or that our trade secrets or
unpatentable know-how will not otherwise become known or be
independently developed by competitors.
Our success will also depend in part on our ability to develop
commercially viable products without infringing the proprietary
rights of others. We have not conducted freedom of use patent
searches and no assurance can be given that patents do not exist
or could not be filed which would have an adverse affect on our
ability to market our products or maintain our competitive
position with respect to our products. If our technology
components, designs, products, processes or other subject matter
are claimed under other existing U.S. or foreign patents,
or are otherwise protected by third party proprietary rights, we
may be subject to infringement actions. In such event, we may
challenge the validity of such patents or other proprietary
rights or we may be required to obtain licenses from such
companies in order to develop, manufacture or market our
products. There can be no assurances that we would be able to
obtain such licenses or that such licenses, if available, could
be obtained on commercially reasonable terms. Furthermore, the
failure to either develop a commercially viable alternative or
obtain such licenses could result in delays in marketing our
proposed products or the inability to proceed with the
development, manufacture or sale of products requiring such
licenses, which could have a material adverse affect on our
business, financial condition and results of operations. If we
are required to defend ourselves against charges of patent
infringement or to protect our proprietary rights against third
parties, substantial costs will be incurred regardless of
whether we are successful. Such proceedings are typically
protracted with no certainty of success. An adverse outcome
could subject us to significant liabilities to third parties and
force us to curtail or cease our development and sale of our
products and processes.
Certain of our, and our licensors, research has been or is
being funded in part by the Department of Commerce and by a
Small Business Innovation Research Grant obtained from the
Department of Health and Human Services. As a result of such
funding, the U.S. Government has certain rights in the
technology developed with the funding. These rights include a
non-exclusive, paid-up, worldwide license under such inventions
for any governmental purpose. In addition, the government has
the right to require us to grant an exclusive license under any
of such inventions to a third party if the government determines
that: (i) adequate steps have not been taken to
commercialize such inventions, (ii) such action is
necessary to meet public health or safety needs, or
(iii) such action is necessary to meet requirements for
public use under federal regulations. Additionally, under the
federal Bayh Dole Act, a party which acquires an exclusive
license for an invention that was partially funded by a federal
research grant is subject to the following government rights:
(i) products using the invention which are sold in the
U.S. are to be manufactured substantially in the U.S.,
unless a waiver is obtained; (ii) the government may force
the granting of a license to a third party who will make and
sell the needed product if the licensee does not pursue
reasonable commercialization of a needed product using the
invention; and (iii) the U.S. Government may use the
invention for its own needs.
Research
and License Agreements
In March 1992, we entered into a License Agreement with the
University of Michigan, as contemplated by a Research Agreement
executed in August 1989 relating to the ex vivo
production of human cells. Pursuant to this License
Agreement, as amended: (i) we acquired exclusive worldwide
license rights to the patents and know-how for the production of
blood cells and bone marrow cells as described in the University
of Michigans research project or which resulted from
certain further research conducted through December 1994; and
(ii) we are obligated to pay to the University of Michigan
a royalty equal to 2% of the net sales of products which are
covered by the University of Michigans patents. Unless it
is terminated earlier at our option or due to a material breach
by us, the License Agreement will continue in effect until the
latest expiration date of the patents to which the License
Agreement applies.
In December 2002, we entered into an agreement with Corning
Incorporated that granted them an exclusive sublicense relating
to our cell transfection technology for increased efficiency in
loading genetic material into cells. We own the intellectual
property rights to methods, compositions and devices that
increase the frequency and efficiency of depositing particles
into cells to modify their genetic code. Under terms of the
agreement, Cornings Life Sciences business will utilize
our unique technology to enhance the development of their
molecular and cell culture applications in areas that are not
competitive to our core business interest. We retain exclusive
rights to the
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applications of the technologies involving cells for therapeutic
applications, and received an upfront payment in addition to
future royalties we may receive from Corning. Corning is
currently in the development stage for products subject to this
license.
Government
Regulation
Our research and development activities and the manufacturing
and marketing of our products are subject to the laws and
regulations of governmental authorities in the U.S. and other
countries in which our products will be marketed. Specifically,
in the U.S., the FDA, among other activities, regulates new
product approvals to establish safety and efficacy of these
products. Governments in other countries have similar
requirements for testing and marketing. In the U.S., in addition
to meeting FDA regulations, we are also subject to other federal
laws, such as the Occupational Safety and Health Act and the
Environmental Protection Act, as well as certain state laws.
Regulatory
Process in the United States
Our products are subject to regulation as biological products
under the Public Health Service Act and the Food, Drug and
Cosmetic Act. Different regulatory requirements may apply to our
products depending on how they are categorized by the FDA under
these laws. The FDA has indicated that it intends to regulate
products based on our TRC technology as a licensed biologic
through the Center for Biologics Evaluation and Research.
As current regulations exist, the FDA will require regulatory
approval for certain human cellular- or tissue-based products,
including our TRC cell products, through a BLA.
The FDA has published the GTP regulation which requires
registration of facilities that manufacture or process cellular
products and specific manufacturing practices to assure
consistent finished cellular products. We believe that the
automated platform manufacturing system we use will assist in
meeting these requirements.
Approval of new biological products is a lengthy procedure
leading from development of a new product through pre-clinical
and clinical testing. This process takes a number of years and
the expenditure of significant resources. There can be no
assurance that Aastroms product candidates will ultimately
receive regulatory approval.
Regardless of how our product candidates are regulated, the
Federal Food, Drug, and Cosmetic Act and other Federal statutes
and regulations govern or influence the research, testing,
manufacture, safety, labeling, storage, record-keeping,
approval, distribution, use, product reporting, advertising and
promotion of such products. Noncompliance with applicable
requirements can result in civil penalties, recall, injunction
or seizure of products, refusal of the government to approve or
clear product approval applications or to allow us to enter into
government supply contracts, withdrawal of previously approved
applications and criminal prosecution.
Product
Approval in the United States
In order to obtain FDA approval of a new medical product,
sponsors must submit proof of safety and efficacy. In most
cases, such proof entails extensive pre-clinical and clinical
tests. The testing, preparation of necessary applications and
processing of those applications by the FDA is expensive and may
take several years to complete. There can be no assurance that
the FDA will act favorably or in a timely manner in reviewing
submitted applications, and we may encounter significant
difficulties or costs in our efforts to obtain FDA approvals, in
turn, which could delay or preclude us from marketing any
products we may develop. The FDA may also require post-marketing
testing and surveillance of approved products, or place other
conditions on the approvals. These requirements could cause it
to be more difficult or expensive to sell the products, and
could therefore restrict the commercial applications of such
products. Product approvals may be withdrawn if compliance with
applicable regulations is not maintained or if problems occur
following commercialization. For patented technologies, delays
imposed by the governmental approval process may materially
reduce the period during which we will have the exclusive right
to exploit such technologies.
If human clinical trials of a proposed medical product are
required, the manufacturer or distributor of a drug or biologic
will have to file an IND submission with the FDA prior to
commencing human clinical trials. The submission must be
supported by data, typically including the results of
pre-clinical and laboratory testing. Following submission of the
IND, the FDA has 30 days to review the application and
raise safety and other clinical
9
trial issues. If we are not notified of objections within that
period, clinical trials may be initiated, and human clinical
trials may commence at a specified number of investigational
sites with the number of patients approved by the FDA. We have
submitted several INDs for our TRC cell products, and we have
conducted clinical studies under these INDs.
Our TRC products will be regulated by the FDA as a licensed
biologic, although there can be no assurance that the FDA will
not choose to regulate this product in a different manner in the
future. The FDA categorizes human cell- or tissue-based products
as either minimally manipulated or more than minimally
manipulated, and has determined that more than minimally
manipulated products require clinical trials to demonstrate
product safety and efficacy and the submission of a BLA for
marketing authorization. For products which may be regulated as
biologics, the FDA requires: (i) pre-clinical laboratory
and animal testing; (ii) submission to the FDA of an IND
application which must be approved prior to the initiation of
human clinical studies; (iii) adequate and well-controlled
clinical trials to establish the safety and efficacy of the
product for its intended use; (iv) submission to the FDA of
a BLA; and (v) review and approval of the BLA as well as
inspections of the manufacturing facility by the FDA prior to
commercial marketing of the product.
Aastrom conducts pre-clinical testing for internal use, and as
support for submissions to the FDA. Pre-clinical testing
includes various types of in-vitro laboratory evaluations of
TRC-based cell products as well as animal studies to assess the
safety and the functionality of the product prior to use in
human studies. Clinical trials are identified as phases (i.e.,
Phase I, Phase II and Phase III). Depending on
the type of pre-clinical
and/or
clinical data available, the trial sponsor will submit a request
to the FDA to initiate a specific phase study ( e.g., a
Phase I trial represents an initial study in a small group
of patients to test for safety and other relevant factors; a
Phase II trial represents a study in a larger number of
patients to assess the efficacy of a product: and,
Phase III studies are initiated to establish safety and
efficacy in an expanded patient population at multiple clinical
study sites). Aastrom conducts various phases of clinical trials
utilizing all available data, and does not necessary initiate
trials as a Phase I or II.
The results of the pre-clinical tests and clinical trials are
submitted to the FDA in the form of a BLA for marketing
approval. The testing, clinical trials and approval process is
likely to require substantial time and effort and there can be
no assurance that any approval will be granted on a timely
basis, if at all. Additional animal studies or clinical trials
may be requested during the FDA review period that may delay
marketing approval. After FDA approval for the initial
indications, further clinical trials may be necessary to gain
approval for the use of the product for additional indications.
The FDA requires that adverse affects be reported to the FDA and
may also require post-marketing testing to monitor for adverse
events, which can involve significant expense.
Under current requirements, facilities manufacturing biological
products for commercial distribution must be licensed. To
accomplish this, an establishment registration must be filed
with the FDA. In addition to the pre-clinical and clinical
studies, the BLA includes a description of the facilities,
equipment and personnel involved in the manufacturing process.
An establishment registration/license is granted on the basis of
inspections of the applicants facilities in which the
primary focus is on compliance with GMPs/GTPs and the ability to
consistently manufacture the product in the facility in
accordance with the BLA. If the FDA finds the inspection
unsatisfactory, it may decline to approve the BLA, resulting in
a delay in production of products.
As part of the approval process for human biological products,
each manufacturing facility must be registered and inspected by
the FDA prior to marketing approval. In addition, state agency
inspections and approvals may also be required for a biological
product to be shipped out of state.
Regulatory
Process in Europe
The new EU Directives (laws) have become effective, and have
influenced the requirements for manufacturing cell products and
the conduct of clinical trials. These changes have delayed or in
some cases temporarily halted clinical trials in the EU. The
recent changes to the European Union Medicinal Products Prime
Directive shifted patient-derived cells to the medicinal
products category. The EU is in the process of drafting a
regulation specific to cell and tissue products and when
approved, our products will be regulated under this Advanced
Therapy Medicinal Product regulation.
10
Clinical
Trials in the European Union
In order to obtain approval of a new medicinal product in the
EU, sponsors must submit proof of safety and efficacy to the
European Medicines Agency (EMEA). In most cases, such proof
entails extensive pre-clinical and clinical tests. The required
testing and preparation for necessary applications and
processing of those applications by the EMEA is expensive and
may take several years to complete. There can be no assurance
that the EMEA will act favorably or in a timely manner in
reviewing submitted applications, and we may encounter
significant difficulties or costs in our efforts to obtain EMEA
approvals. In turn, this could delay or preclude us from
marketing any products we may develop. The EMEA may also require
post-marketing testing and surveillance of approved products, or
place other conditions on the approvals. These requirements
could cause it to be more difficult or expensive to sell the
products, and could therefore restrict the commercial
applications of such products. Product approvals may be
withdrawn if compliance with applicable regulations are not
maintained or if problems occur following commercialization.
If human clinical trials of a proposed medicinal product are
required, the manufacturer or sponsor will have to file an IMPD
submission with the Competent Authority of each EU Member State
(MS) in which it intends to conduct human clinical trials. The
submission must be supported by data, typically including the
results of pre-clinical and laboratory testing. Following
submission of the IMPD, the MS Competent Authority has
90 days to review the application and raise safety and
other clinical trial issues. The EU Clinical Directive allows
the Competent Authority to extend this review period if it deems
it necessary for the safety of the patient or it needs
additional time to conduct a thorough review.
In August 2005, the Bad Oeynhausen site in Germany received
approval for its IMPD to conduct the vascular regeneration
trial. In October 2005, the Barcelona, Spain, site received IMPD
approval from the AEMPS for the non-union fracture study.
Product
Approval in the European Union
Under the current EU drug directive, our TRC cell products will
be regulated as a medicinal product. For products which are
regulated as a medicinal product, the EU Directive requires:
(i) pre-clinical laboratory and animal testing;
(ii) submission of an IMPD to the Competent Authorities of
the MS where the clinical trial will be conducted, which must be
approved prior to the initiation of human clinical studies;
(iii) adequate and well-controlled clinical trials to
establish the safety and efficacy of the product for its
intended use; (iv) submission to EMEA for an MA; and,
(v) review and approval of the MA. Although an MS is
currently allowed to independently approve medicinal products,
the trend for cellular products is for the EMEA to provide a
centralized review of the submission.
The EMEA is currently reviewing changes to the regulatory
requirements for somatic cellular products and Advanced Therapy
Medicinal Products which could have significant effects on the
requirements for our MA submissions. We do not know if or when
these changes will occur, if at all, or what effect they may
have on cellular products that may have previously been
approved, or submissions that are under review, when the
regulation is approved and becomes effective.
Some MSs currently do not require an MA for commercialization of
Tissue Engineered Products that use autologous somatic cellular
products (e.g., TRCs). Germany is one such MS which does not
require an MA to distribute autologous tissue products. The
status in Germany is likely to change when the Government issues
a revision to its Drug Laws. When the new revised law becomes
effective, provided that we have introduced a product into the
German market, we may be grandfathered for some
period of time before we would need to apply for a centralized
MA.
Competitive
Environment
The biotechnology and medical device industries are
characterized by rapidly evolving technology and intense
competition. Our competitors include major multinational medical
device companies, pharmaceutical companies, biotechnology
companies and stem cell companies operating in the fields of
tissue engineering, regenerative medicine, orthopedics,
vascular, cardiac and neural medicine. Many of these companies
are well-established and
11
possess technical, research and development, financial, and
sales and marketing resources significantly greater than ours.
In addition, many of our smaller potential competitors have
formed strategic collaborations, partnerships and other types of
joint ventures with larger, well established industry
competitors that afford these companies potential research and
development and commercialization advantages in the technology
and therapeutic areas currently being pursued by us. Academic
institutions, governmental agencies and other public and private
research organizations are also conducting and financing
research activities which may produce products directly
competitive to those being commercialized by us. Moreover, many
of these competitors may be able to obtain patent protection,
obtain FDA and other regulatory approvals and begin commercial
sales of their products before us.
Our potential commercial products address a broad range of
existing and emerging markets, in which cell-based therapy is a
new and as of yet, unproven, commercial strategy. In a large
part, we face primary competition from existing medical devices
and drug products. Some of our competitors have longer operating
histories and substantially greater resources. These include
companies such as Baxter, Biomet, Boston Scientific, Genzyme,
Johnson & Johnson, Miltenyi Biotec, Medtronic,
Smith & Nephew, Stryker, Synthes, Wright Medical and
Zimmer. A number of other competitors are active with a variety
of tissue-derived and tissue substitution products. These
competitors include both large companies with significantly
greater resources and smaller companies. Examples include
Exactech, Kensey Nash, Musculoskeletal Transplant Foundation,
Orthovita, Osteotech and Regeneration Technologies.
In the general area of cell-based therapies, including tissue
regeneration applications, we potentially compete with a variety
of companies, most of whom are specialty medical products or
biotechnology companies. Some of these, such as Baxter, Boston
Scientific, Genzyme, J&J/Cordis, Medtronic and Miltenyi
Biotec are well-established and have substantial technical and
financial resources compared to ours. However, as cell-based
products are only just emerging as viable medical therapies,
many of our most direct competitors are smaller biotechnology
and specialty medical products companies. These include
Arteriocyte, Athersys, Bioheart, Cytori Therapeutics, Gamida
Cell, Geron, Mesoblast, Osiris Therapeutics, StemCells, and
ViaCell.
General
We cannot project when we will generate positive cash flows from
our consolidated operations. In the next several years, we
expect that our revenue sources will consist of modest sales of
cell therapy kits at irregular intervals to academic research
centers, commercial evaluations, grant revenue, research
funding, licensing fees from potential future corporate
collaborators and interest income. To date, we have financed our
operations primarily through public and private sales of our
equity securities. As a development-stage company, we have never
been profitable and do not anticipate having net income unless
and until significant product sales commence. Achieving this
objective will require significant additional funding. Our
ability to achieve profitability on a sustained basis, if at
all, or to obtain the required funding to achieve our operating
objectives, or complete additional corporate partnering
transactions is subject to a number of risks and uncertainties.
Please see the section entitled Risk Factors.
Employees
As of August 31, 2006, we employed approximately 59
individuals on a full time equivalent basis. A significant
number of our management and professional employees have had
prior experience with pharmaceutical, biotechnology or medical
product companies. None of our employees are covered by
collective bargaining agreements, and management considers
relations with our employees to be good.
12
Executive
Officers of Aastrom
Our executive officers, and their respective ages as of
August 31, 2006, are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
George W. Dunbar
|
|
|
60
|
|
|
Chief Executive Officer, President
and Director
|
Robert J. Bard, J.D.,
R.A.C.
|
|
|
55
|
|
|
Vice President Regulatory/Clinical
Affairs and Quality Systems
|
Gerald D.
Brennan, Jr., J.D.
|
|
|
55
|
|
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Vice President Administrative and
Financial Operations and Chief Financial Officer
|
Brian S. Hampson
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|
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49
|
|
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Vice President Product Development
|
Janet M. Hock,
B.D.S., Ph.D.
|
|
|
62
|
|
|
Vice President Global Research and
Chief Scientific Officer
|
George W. Dunbar joined Aastrom as Chief Executive
Officer, President, and a member of the Companys Board of
Directors in July 2006. Over the last 15 years,
Mr. Dunbar served as Chief Executive Officer and Director
of Quantum Dot Corporation, Targesome, Inc., and Epic
Therapeutics; as Acting President and Chief Executive Officer of
StemCells, Inc. (formerly CytoTherapeutics); and as President
and Chief Executive Officer of Metra Biosystems, Inc. Prior to
that time, Mr. Dunbar held senior positions in licensing,
business development and marketing with The Ares-Serono Group
and Amersham International. In addition to serving as a board
member of companies where he also led the executive management
team, Mr. Dunbar has other significant board experience
serving both public and private companies. He currently serves
on the boards of Competitive Technologies, Sonus
Pharmaceuticals, and the MBA Advisory Board of the College of
Business at Auburn University. Previous boards of director
appointments include: DepoTech, LJL Biosystems, Metrika,
Molecular Probes, Quidel and The Valley Medical Center
Foundation. Mr. Dunbar received a B.S. in Electrical
Engineering and an MBA from Auburn University.
Robert J. Bard, J.D., R.A.C. joined Aastrom in
October 2002 as its Vice President Regulatory/Clinical
Affairs & Quality Systems, with over 30 years of
domestic and international regulatory experience in the
biotechnology sector. Prior to joining Aastrom, Mr. Bard
served in senior management capacities for a number of companies
in the medical industry, including: Gliatech, Inc., McKinley
Medical, LLLP, I-Flow Corp., IVAC Corp. and Ultra Medical
Devices, Inc., where he was responsible for regulatory
compliance, quality assurance and manufacturing operations for
biotech pharmaceuticals and medical devices. Mr. Bard
earned a law degree from the American College of Law, and has a
B.S. in Microbiology, with a minor in Biological Chemistry, from
the University of California-Los Angeles. In addition, he has
studied Pharmaceutical Sciences at Idaho State University and
Mechanical Engineering at California State University-Long
Beach. Mr. Bard is a member of the California Bar. He
completed his ISO 9001 Lead Assessor Training in 1995, is a
certified member of the Regulatory Affairs Professional Society,
and is an ASQ-certified Quality Engineer. Mr. Bard is also
the author of numerous professional and scientific papers and
articles.
Gerald D. Brennan, Jr., J.D. joined Aastrom in
July 2005 as its Vice President Administrative &
Financial Operations and Chief Financial Officer. He comes to
the Company from Great Lakes Chemical Corporation, where he
served as Director New Ventures, and previously served as Chief
Financial Officer of Great Lakes Fine Chemical Division and
Monsanto Pharma Tech. Prior to that time, Mr. Brennan was
Chief Financial Officer and Chief Operating Officer of Capcom
Coin-Op, Inc., and he served in various management positions at
Tupperware including Vice President of Distributor Operations
and Administration for Tupperware North America, President of
Tupperware Canada and General Counsel of Tupperware Worldwide.
He has also served as Tax Counsel at Premark and as a Tax
Manager at Coopers & Lybrand. Mr. Brennan holds a
BSBA in Accounting and Business Economics, from Marquette
University, and a JD from the University of Illinois.
Mr. Brennan is a member of the Illinois Bar, and is a
Certified Public Accountant in the State of Illinois.
Brian S. Hampson joined the Company in July 1993 as
Director, Product Engineering and became Vice President Product
Development in June 2000. He has been a principal leader in the
development and engineering of the AastromReplicell Cell
Production System. Previously, Mr. Hampson served as
Manager, In Vitro Systems at Charles River Laboratories and held
other positions after joining that company in January 1986.
While at Charles
13
River, he managed a number of programs to develop and
commercialize novel bioreactor systems to support large-scale
cell culture and biomolecule production. Prior to that,
Mr. Hampson held several engineering positions at Corning
Incorporated from September 1979 to January 1986, including
assignments with KC Biological, a wholly owned subsidiary of
Corning at the time. Mr. Hampson received his Bachelor of
Science and Master of Engineering degrees in Electrical
Engineering from Cornell University.
Janet M. Hock, B.D.S., Ph.D., joined Aastrom in
September 2004 as its Vice President Global Research, and also
became Chief Scientific Officer in May 2005. She was previously
on the faculty of Indiana University Schools of Medicine and
Dentistry (IU), where she was Professor, Department of Anatomy
and Cell Biology, School of Medicine, and Professor, Department
of Periodontics, School of Dentistry. Dr. Hock was also
program director and founder of the Indiana University Cancer
Center Bone Cancers Research program, and founder of Thetis
Consulting LLC, a scientific advisory firm focused on the
treatment of skeletal diseases and bone cancer. Prior to her
tenure at IU, she was employed by Eli Lilly and Company (Lilly)
to lead the discovery and development of anabolic drugs for the
treatment of osteoporosis. She served in various senior
technology development positions including: Senior Research
Advisor for Product Development, Head of the Bone Formation
Group, Director of the Skeletal Diseases Research Group, and
Product Team Research Advisor/Chief Scientific Officer.
Dr. Hocks responsibilities included product
development, preclinical pharmacology, drug discovery and
development, regulatory, patent strategy, and formation of
research alliances. During her leadership at Lilly,
Dr. Hock contributed to the successful clinical development
of two important new drug treatments for osteoporosis:
Evista®
and
Forteo®.
Dr. Hock holds a B.D.S. Degree in Dental Surgery (D.D.S.
equivalent) from the University of London, Guys Hospital
Dental School, UK, an L.D.S., R.C.S. Licentiate in Dental
Surgery, Royal College of Surgeons, UK, and a Ph.D. from the
University of London, UK, for thesis work done at the University
of Iowa and California Institute of Technology. In addition,
Dr. Hock holds an M.S. for Oral Diagnosis and a Clinical
Certificate in Periodontology from the University of Iowa. In
addition to her academic and industry roles, since 1977,
Dr. Hock has served the National Institutes of Health, the
U.S. Department of Veterans Affairs, the
U.S. Department of Defense and the U.S.D.A. in a variety of
capacities, including peer grant reviewer and committee chair.
She serves on the Scientific Advisory Board for the Indiana
University/Purdue University at Indianapolis (IUPUI) Center for
Regenerative Medicine and Biology, and the University of
Michigan Center for Oral Health Research. Dr. Hock also
serves on the editorial boards for several research journals.
Available
Information
Additional information about Aastrom is contained at our
website, www.aastrom.com. Information on our website is not
incorporated by reference into this report. We make available on
our website our Annual Report on
Form 10-K
and our Quarterly Reports on
Form 10-Q
as soon as reasonably practicable after those reports are filed
with the Securities and Exchange Commission.
14
Our business is subject to a number of uncertainties,
including those discussed below.
Our past
losses and expected future losses cast doubt on our ability to
operate profitably.
We were incorporated in 1989 and have experienced substantial
operating losses since inception. As of June 30, 2006, we
have incurred a cumulative net loss totaling approximately
$141 million. These losses have resulted principally from
costs incurred in the research and development of our cell
culture technologies and the AastromReplicell System, general
and administrative expenses, and the prosecution of patent
applications. We expect to incur significant operating losses at
least until, and probably after, product sales increase,
primarily owing to our research and development programs,
including pre-clinical studies and clinical trials, and the
establishment of marketing and distribution capabilities
necessary to support commercialization efforts for our products.
We cannot predict with any certainty the amount of future
losses. Our ability to achieve profitability will depend, among
other things, on successfully completing the development of our
product candidates, obtaining regulatory approvals, establishing
manufacturing, sales and marketing arrangements with third
parties, maintaining supplies of key manufacturing components,
and raising sufficient cash to fund our operating activities. In
addition, we may not be able to achieve or sustain profitability.
Failure
to obtain and maintain required regulatory approvals would
severely limit our ability to sell our products.
We must obtain the approval of the FDA before commercial sales
of our cell product candidates may commence in the U.S., which
we believe will ultimately be the largest market for our
products. We will also be required to obtain additional
approvals from various foreign regulatory authorities to
initiate sales activities of cell products in those
jurisdictions, such as the EU. If we cannot demonstrate the
safety, reliability and efficacy of our cell product candidates,
or of the cells produced in our device products, we may not be
able to obtain required regulatory approvals. If we cannot
demonstrate the safety and efficacy of our technologies and
product candidates, or if one or more patients die or suffer
severe complications, the FDA or other regulatory authorities
could delay or withhold regulatory approval of our product
candidates.
Finally, even if we obtain regulatory approval of a product,
that approval may be subject to limitations on the indicated
uses for which it may be marketed. Even after granting
regulatory approval, the FDA and regulatory agencies in other
countries continue to review and inspect marketed products,
manufacturers and manufacturing facilities, which may create
additional regulatory burdens. Later discovery of previously
unknown problems with a product, manufacturer or facility, may
result in restrictions on the product or manufacturer, including
a withdrawal of the product from the market. Further, regulatory
agencies may establish additional regulations that could prevent
or delay regulatory approval of our products.
Any
changes in the governmental regulatory classifications of our
products could prevent, limit or delay our ability to market or
develop our products.
The FDA establishes regulatory requirements based on the
classification of a product. Because our product development
programs are designed to satisfy the standards applicable to
biological licensure for our cellular products, any change in
the regulatory classification or designation would affect our
ability to obtain FDA approval of our products. The
AastromReplicell System is used to produce different cell
mixtures, and each of these cell mixtures (such as our TRCs) is,
under current regulations, regulated as a biologic product,
which requires a BLA.
New EU Directives (laws) have become effective, and have
influenced the requirements for manufacturing cell products and
the conduct of clinical trials. These changes have delayed or in
some cases temporarily halted clinical trials of cellular
products in the EU. Recent changes and annexes to the European
Union Medicinal Products Prime Directive shifted patient-derived
cells to the medicinal products category, which will require
MA(s) in order to market and sell these products. These new laws
have delayed some of our current planned clinical trials with
TRCs in the EU, and will require clinical trials with data
submission and review by one or more European regulatory bodies.
There is uncertainty about which clinical trial activities and
data are required, and because of the recent
15
nature of these new directives, laws and regulations, there is
no established precedent to understand the timeline or other
requirements for MA.
Our
inability to complete our product development activities
successfully would severely limit our ability to operate or
finance operations.
Commercialization in the U.S. and the EU of our cell product
candidates will require completion of substantial clinical
trials, and obtaining sufficient safety and efficacy results to
support required registration approval and market acceptance of
our cell product candidates. We may not be able to successfully
complete the development of our product candidates, or
successfully market our technologies or product candidates. We,
and any of our potential collaborators, may encounter problems
and delays relating to research and development, regulatory
approval and intellectual property rights of our technologies
and product candidates. Our research and development programs
may not be successful, and our cell culture technologies and
product candidates may not facilitate the production of cells
outside the human body with the expected result. Our
technologies and cell product candidates may not prove to be
safe and efficacious in clinical trials, and we may not obtain
the requisite regulatory approvals for our technologies or
product candidates and the cells produced in such products. If
any of these events occur, we may not have adequate resources to
continue operations for the period required to resolve the issue
delaying commercialization and we may not be able to raise
capital to finance our continued operation during the period
required for resolution of that issue.
We must
successfully complete our clinical trials to be able to market
certain of our products.
To be able to market therapeutic cell products in the U.S. and
in the EU, we must demonstrate, through extensive preclinical
studies and clinical trials, the safety and efficacy of our
processes and product candidates. If our clinical trials are not
successful, our products may not be marketable.
Our ability to complete our clinical trials in a timely manner
depends on many factors, including the rate of patient
enrollment. Patient enrollment can vary with the size of the
patient population, the proximity of suitable patients to
clinical sites, perceptions of the utility of cell therapy for
the treatment of certain diseases and the eligibility criteria
for the study. We have experienced delays in patient accrual in
our previous and current clinical trials. If we experience
future delays in patient accrual, we could experience increased
costs and delays associated with clinical trials, which would
impair our product development programs and our ability to
market our products. Furthermore, the FDA monitors the progress
of clinical trials and it may suspend or terminate clinical
trials at any time due to patient safety or other considerations.
Our research programs are currently directed at improving TRC
functionality for certain clinical indications, improving
product shelf life, and decreasing the cost of manufacturing our
TRC products. These production process changes may alter the
functionality of our TRCs, and require various levels of
experimental and clinical testing and evaluation. Any such
testing could lengthen the time before these products would be
commercially available.
Even if successful clinical results are reported for a product
from a completed clinical trial, this does not mean that the
results will be sustained over time, or are sufficient for a
marketable or regulatory approvable product.
Even if
we obtain regulatory approvals to sell our products, lack of
commercial acceptance could impair our business.
We will be seeking to obtain regulatory approvals to market our
TRC cell products for tissue repair and regeneration treatments.
Even if we obtain all required regulatory approvals, we cannot
be certain that our products and processes will be accepted in
the market place at a level that would allow us to operate
profitably. Our TRCs will face competition from existing,
and/or
potential other new treatments in the future which could limit
revenue potential. It may be necessary to increase the yield
and/or cell
type purity for certain of our AastromReplicell System cell
processes to gain commercial acceptance. Our technologies or
product candidates may not be employed in all potential
applications being investigated, and any reduction in
applications would limit the market acceptance of our
technologies and product candidates, and our potential revenues.
16
The
market for our products will be heavily dependent on third party
reimbursement policies.
Our ability to successfully commercialize our product candidates
will depend on the extent to which government healthcare
programs, such as Medicare and Medicaid, as well as private
health insurers, health maintenance organizations and other
third party payors will pay for our products and related
treatments. Reimbursement by third party payors depends on a
number of factors, including the payors determination that
use of the product is safe and effective, not experimental or
investigational, medically necessary, appropriate for the
specific patient and cost-effective. Reimbursement in the
U.S. or foreign countries may not be available or
maintained for any of our product candidates. If we do not
obtain approvals for adequate third party reimbursements, we may
not be able to establish or maintain price levels sufficient to
realize an appropriate return on our investment in product
development. Any limits on reimbursement from third party payors
may reduce the demand for, or negatively affect the price of,
our products. For example, in the past, published studies have
suggested that stem cell transplantation for breast cancer, that
constituted a significant portion of the overall stem cell
therapy market, at the time, may have limited clinical benefit.
The lack of reimbursement for these procedures by insurance
payors has negatively affected the marketability of our products
in this indication in the past.
Use of
animal-derived materials could harm our product development and
commercialization efforts.
Some of the manufacturing materials
and/or
components we use in, and are critical to, our TRC manufacturing
processes involve the use of animal-derived products, including
fetal bovine serum. Suppliers or regulatory authorities may
limit or restrict the availability of such compounds for
clinical and commercial use. For example, the occurrence of
so-called mad cow disease in New Zealand or in
Australia may lead to a restricted supply of the serum currently
required for the TRC manufacturing process. Any restrictions on
these compounds would impose a potential competitive
disadvantage for our products or prevent our ability to
manufacture TRC cell products. Regulatory authorities in the EU
are reviewing the safety issues related to the use of
animal-derived materials, which we currently use in our
production process. We do not know what actions, if any, the
authorities may take as to animal derived materials specific to
medicinal products distributed in the EU. Our inability to
develop or obtain alternative compounds would harm our product
development and commercialization efforts. There are certain
limitations in the supply of certain animal-derived materials,
which may lead to delays in our ability to complete clinical
trials or eventually to meet the anticipated market demand for
our cell products.
Given our
limited internal manufacturing, sales, marketing and
distribution capabilities, we need to develop increased internal
capability or collaborative relationships to manufacture, sell,
market and distribute our products.
We have only limited internal manufacturing, sales, marketing
and distribution capabilities. As market needs develop, we
intend to establish and operate commercial-scale manufacturing
facilities, which will need to comply with all applicable
regulatory requirements. We expect to develop new configurations
of our cell manufacturing system for these facilities to enable
processes and cost efficiencies associated with large-scale
manufacturing. Establishing these facilities will require
significant capital and expertise. Any delay in establishing, or
difficulties in operating, these facilities will limit our
ability to meet the anticipated market demand for our cell
products. We intend to get assistance to market our future cell
products through collaborative relationships with companies with
established sales, marketing and distribution capabilities. Our
inability to develop and maintain those relationships would
limit our ability to market, sell and distribute our products.
Our inability to enter into successful, long-term relationships
could require us to develop alternate arrangements at a time
when we need sales, marketing or distribution capabilities to
meet existing demand. We may market our TRCs through our own
sales force. Our inability to develop and retain a qualified
sales force could limit our ability to market, sell and
distribute our cell products.
We may
not 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 and cell
manufacturing facilities. We expect that our available cash and
interest income will be sufficient to finance currently planned
activities at least through the end of fiscal year 2007 (ending
June 30, 2007). However, in order to grow and expand our
business, and to introduce our new product candidates into the
marketplace, we will need to
17
raise additional funds. We will also need additional funds or a
collaborative partner, or both, to finance the research and
development activities of our product candidates for the
expansion of additional cell types. Accordingly, we are
continuing to pursue additional sources of financing.
Our future capital requirements will depend upon many factors,
including:
|
|
|
|
|
continued scientific progress in our research, clinical and
development programs
|
|
|
|
costs and timing of conducting clinical trials and seeking
regulatory approvals
|
|
|
|
competing technological and market developments
|
|
|
|
our ability to establish additional collaborative relationships
|
|
|
|
the effect of commercialization activities and facility
expansions, if and as required
|
Because of our long-term funding requirements, we intend to
access the public or private equity markets if conditions are
favorable to complete a financing, even if we do not have an
immediate need for additional capital at that time, or whenever
we require additional operating capital. This additional funding
may not be available to us on reasonable terms, or at all. If
adequate funds are not available in the future, we may be
required to further delay or terminate research and development
programs, curtail capital expenditures, and reduce business
development and other operating activities.
The
issuance of additional common stock for funding has the
potential for substantial dilution.
As noted above, we will need additional equity funding to
provide us with the capital to reach our objectives. At such
time, we may enter into financing transactions at prices, which
are at a substantial discount to market. Such an equity issuance
would cause a substantially larger number of shares to be
outstanding and would dilute the ownership interest of existing
stockholders.
Our stock
price has been volatile and future sales of substantial numbers
of our shares could have an adverse affect on the market price
of our shares.
The market price of shares of our common stock has been
volatile, ranging in closing price between $1.11 and $3.49
during the twelve month period ended June 30, 2006. The
price of our common stock may continue to fluctuate in response
to a number of events and factors, such as:
|
|
|
|
|
clinical trial results
|
|
|
|
the amount of our cash resources and our ability to obtain
additional funding
|
|
|
|
announcements of research activities, business developments,
technological innovations or new products by us or our
competitors
|
|
|
|
entering into or terminating strategic relationships
|
|
|
|
changes in government regulation
|
|
|
|
disputes concerning patents or proprietary rights
|
|
|
|
changes in our revenues or expense levels
|
|
|
|
public concern regarding the safety, efficacy or other aspects
of the products or methodologies we are developing
|
|
|
|
news or reports from other stem cell, cell therapy or tissue
engineering companies
|
|
|
|
reports by securities analysts
|
|
|
|
status of the investment markets
|
|
|
|
concerns related to management transitions
|
18
Any of these events may cause the price of our shares to fall,
which may adversely affect our business and financing
opportunities. In addition, the stock market in general and the
market prices for biotechnology companies in particular have
experienced significant volatility that often has been unrelated
to the operating performance or financial conditions of such
companies. These broad market and industry fluctuations may
adversely affect the trading price of our stock, regardless of
our operating performance or prospects.
Our stock
may be delisted from Nasdaq, which could affect its market price
and liquidity.
We are required to meet certain qualitative and financial tests
(including a minimum bid price for our common stock of $1.00) to
maintain the listing of our common stock on the Nasdaq Capital
Market. In May 2003 and in July 2004, we received notification
from Nasdaq of potential delisting as a result of our stock
trading below $1.00 for more than thirty consecutive business
days. While in each case our stock price recovered within the
permitted grace periods and Nasdaq notified us that we were
again in full compliance, we cannot provide any assurance that
our stock price would again recover within the specified times
if future closing bid prices below $1.00 triggered another
potential delisting. The qualitative tests we must meet address
various corporate governance matters, including Audit Committee
and Board composition. Over the last year, we have experienced
director resignations and are devoting increased resources to
Board member recruitment and retention. If we do not maintain
compliance with the Nasdaq requirements within specified periods
and subject to permitted extensions, our common stock may be
recommended for delisting (subject to any appeal we would file).
If our common stock were delisted, it could be more difficult to
buy or sell our common stock and to obtain accurate quotations,
and the price of our stock could suffer a material decline.
Delisting would also impair our ability to raise capital.
Failure
of third parties to manufacture component parts or provide
limited source supplies, or imposition of additional regulation,
would impair our new product development and our sales
activities.
We rely solely on third parties such as Astro, Moll and Cambrex
to manufacture or supply certain of our devices/manufacturing
equipment, as well as component parts and other materials used
in the cell product manufacturing process. We would not be able
to obtain alternate sources of supply for many of these items on
a short-term basis. If any of our key manufacturers or suppliers
fail to perform their respective obligations or if our supply of
components or other materials is limited or interrupted, we
would not be able to conduct clinical trials or market our
product candidates on a timely and cost-competitive basis, if at
all.
Finally, we may not be able to continue our present arrangements
with our suppliers, supplement existing relationships, establish
new relationships or be able to identify and obtain the
ancillary materials that are necessary to develop our product
candidates in the future. Our dependence upon third parties for
the supply and manufacture of these items could adversely affect
our ability to develop and deliver commercially feasible
products on a timely and competitive basis.
Manufacturing
our cell products in centralized facilities may increase the
risk that we will not have adequate quantities of our cell
products for clinical programs.
We rely on a third party manufacturer, Fraunhofer Institute for
Interfacial Engineering and Biotechnology in Stuttgart, Germany,
to supply of TRC-based cell products for certain EU clinical
trials. Reliance on third party manufacturers entails risks
including regulatory compliance and quality assurance and the
possible breach of the manufacturing agreement by the third
party. We are subject to similar regulatory and compliance risks
at our site in Ann Arbor, Michigan. Both sites are subject to
ongoing, periodic, unannounced inspection by regulatory agencies
to ensure strict compliance with cGMP regulations and other
governmental regulations and corresponding foreign standards.
Our present and future manufacturers might not be able to comply
with these regulatory requirements. We do not have redundant
cell manufacturing sites, in the event our cell manufacturing
facilities are damaged or destroyed, our clinical trial programs
and other business prospects would be adversely affected.
19
If we do
not keep pace with our competitors and with technological and
market changes, our products may become obsolete and our
business may suffer.
The markets for our products are very competitive, subject to
rapid technological changes, and vary for different candidates
and processes that directly compete with our products. Our
competitors may have developed, or could in the future develop,
new technologies that compete with our products or even render
our products obsolete. As an example, in the past, published
studies have suggested that hematopoietic stem cell therapy use
for bone marrow transplantation, following marrow ablation due
to chemotherapy, may have limited clinical benefit in the
treatment of breast cancer, which was a significant portion of
the overall hematopoietic stem cell transplant market. This
resulted in the practical elimination of this market for our
cell-based product for this application.
Our cell manufacturing system, the AastromReplicell System, is
designed to improve and automate the processes for producing
cells used in therapeutic procedures. Even if we are able to
demonstrate improved or equivalent results, the cost or process
of treatment and other factors may cause researchers and
practitioners to not use our products and we could suffer a
competitive disadvantage. Finally, to the extent that others
develop new technologies that address the targeted application
for our products, our business will suffer.
We have
experienced significant management turnover, and if we cannot
attract and retain key personnel, then our business will
suffer.
Our success depends in large part upon our ability to attract
and retain highly qualified scientific and management personnel.
We face competition for such personnel from other companies,
research and academic institutions and other entities. Further,
in an effort to conserve financial resources, we have
implemented reductions in our work force on two previous
occasions. As a result of these and other factors, we may not be
successful in hiring or retaining key personnel. Our inability
to replace any key employee could harm our operations.
On December 28, 2005, we announced that we would begin a
search for a new Chief Executive Officer to succeed
Dr. Armstrong, who announced his intention to transition
out of
day-to-day
management of the Company. On July 17, 2006 we announced
that George W. Dunbar had joined the Company as CEO, President
and a Director, and that Dr. Armstrong will continue in his
role as Chairman of the Board for the remainder of his term. We
also announced that James A Cour, former President and COO, had
left the Company to pursue other opportunities.
If our
patents and proprietary rights do not provide substantial
protection, then our business and competitive position will
suffer.
Our success depends in large part on our ability to develop or
license and protect proprietary products and technologies.
However, patents may not be granted on any of our pending or
future patent applications. Also, the scope of any of our issued
patents may not be sufficiently broad to offer meaningful
protection. In addition, our issued patents or patents licensed
to us could be successfully challenged, invalidated or
circumvented so that our patent rights would not create an
effective competitive barrier. Furthermore, we rely on
exclusive, world-wide licenses relating to the production of
human cells granted to us by the University of Michigan for
certain of our patent rights. If we materially breach such
agreements or otherwise fail to materially comply with such
agreements, or if such agreements expire or are otherwise
terminated by us, we may lose our rights under the patents held
by the University of Michigan. At the latest, these licenses
will terminate when the patent underlying the license expires.
The first of these underlying patents will expire on
March 21, 2012. We also rely on trade secrets and
unpatentable know-how that we seek to protect, in part, by
confidentiality agreements with our employees, consultants,
suppliers and licensees. These agreements may be breached, and
we might not have adequate remedies for any breach. If this were
to occur, our business and competitive position would suffer.
Intellectual
property litigation could harm our business.
Our success will also depend in part on our ability to develop
commercially viable products without infringing the proprietary
rights of others. Although we have not been subject to any filed
infringement claims, other patents could exist or could be filed
which would prohibit or limit our ability to market our products
or maintain our competitive position. In the event of an
intellectual property dispute, we may be forced to litigate.
Intellectual property litigation would divert managements
attention from developing our products and would force us to
incur
20
substantial costs regardless of whether we are successful. An
adverse outcome could subject us to significant liabilities to
third parties, and force us to curtail or cease the development
and sale of our products and processes.
The
government maintains certain rights in technology that we
develop using government grant money and we may lose the
revenues from such technology if we do not commercialize and
utilize the technology pursuant to established government
guidelines.
Certain of our and our licensors research have been or are
being funded in part by government grants. As a result of such
funding, the U.S. Government has established guidelines and
have certain rights in the technology developed with the grant.
If we fail to meet these guidelines, we would lose our exclusive
rights to these products, and we would lose potential revenue
derived from the sale of these products.
Potential
product liability claims could affect our earnings and financial
condition.
We face an inherent business risk of exposure to product
liability claims in the event that the use of the
AastromReplicell System
and/or TRCs
during clinical trials, or after commercialization, results in
adverse events. As a result, we may incur significant product
liability exposure, which could exceed existing insurance
coverage. We may not be able to maintain adequate levels of
insurance at reasonable cost
and/or
reasonable terms. Excessive insurance costs or uninsured claims
would increase our operating loss and affect our financial
condition.
Our
corporate documents and Michigan law contain provisions that may
make it more difficult for us to be acquired.
Our Board of Directors has the authority, without shareholder
approval, to issue additional shares of preferred stock and to
fix the rights, preferences, privileges and restrictions of
these shares without any further vote or action by our
shareholders. This authority, together with certain provisions
of our charter documents, may have the affect of making it more
difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire control of our company.
This affect could occur even if our shareholders consider the
change in control to be in their best interest.
We are
required to evaluate our internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act of
2002 and any adverse results from such evaluation could have a
negative market reaction.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
(Section 404), we are required to furnish a report by our
management on our internal control over financial reporting.
That report must contain, among other matters, an assessment of
the design and operating effectiveness of our internal controls
over financial reporting as of the end of the fiscal year. This
assessment must include disclosure of any material weaknesses in
our internal control over financial reporting identified by
management. That report must also contain a statement that our
independent registered public accounting firm has issued an
attestation report on managements assessment of such
internal controls and independent registered public accounting
firms assessment of the design and operating effectiveness
of our system of internal accounting controls over financial
reporting. If in the future we are unable to assert that our
internal control over financial reporting is effective as of the
end of the then current fiscal year (or, if our independent
registered public accounting firm is unable to attest that our
managements report is fairly stated or they are unable to
express an unqualified opinion on the design and operating
effectiveness of our internal controls), we could lose investor
confidence in the accuracy and completeness of our financial
reports, which would have a negative effect on our stock price
and our ability to raise capital.
Forward-looking
statements
This report contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act. These
forward-looking statements include statements regarding:
|
|
|
|
|
potential strategic collaborations with others
|
21
|
|
|
|
|
future capital needs
|
|
|
|
adequacy of existing capital to support operations for a
specified time
|
|
|
|
product development and marketing plan
|
|
|
|
clinical trial plans and anticipated results
|
|
|
|
anticipation of future losses
|
|
|
|
replacement of manufacturing sources
|
|
|
|
commercialization plans
|
|
|
|
revenue expectations and operating results
|
These statements are subject to risks and uncertainties,
including those set forth in this Risk Factors section, and
actual results could differ materially from those expressed or
implied in these statements. All forward-looking statements
included in this registration statement are made as of the date
hereof. We assume no obligation to update any such
forward-looking statement or to update any reason why actual
results might differ.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None
We lease approximately 23,700 square feet of office and
research and development space in Ann Arbor, Michigan under a
lease agreement. This lease was renegotiated in July 2006 and
increased the leased space to 30,230 square feet. This new
lease covers a period of 5 years, beginning on the date of
occupancy of the additional space. We believe that our
facilities are adequate for our current needs. Additional
facilities may be required to support expansion for research and
development abilities or to assume manufacturing operations that
are currently fulfilled through contract manufacturing
relationships. We also lease office space in Berlin, Germany,
for our German subsidiary, Aastrom Biosciences GmbH, and in
Barcelona, Spain, for our Spanish subsidiary, Aastrom
Biosciences, SL.
|
|
Item 3.
|
Legal
Proceedings
|
We are not currently party to any material legal proceedings,
although from time to time we may become involved in disputes in
connection with the operation of our business.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None
22
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity and Related Shareholder
Matters
|
Beginning on February 4, 1997 our common stock was quoted
on the Nasdaq National Market under the symbol ASTM.
Since June 11, 2002, our common stock has been quoted on
the Nasdaq Capital Market (formerly the Nasdaq SmallCap Market)
under the symbol ASTM. The following table sets
forth the high and low closing prices per share of common stock
as reported on the Nasdaq Capital Market:
Price
Range of Common Stock
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year ended June 30, 2005:
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
.97
|
|
|
$
|
.63
|
|
2nd Quarter
|
|
|
1.66
|
|
|
|
.84
|
|
3rd Quarter
|
|
|
4.05
|
|
|
|
1.37
|
|
4th Quarter
|
|
|
3.13
|
|
|
|
1.90
|
|
Year ended June 30, 2006:
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
|
3.49
|
|
|
|
2.19
|
|
2nd Quarter
|
|
|
2.37
|
|
|
|
1.94
|
|
3rd Quarter
|
|
|
2.24
|
|
|
|
1.65
|
|
4th Quarter
|
|
|
1.92
|
|
|
|
1.11
|
|
As of August 31, 2006, there were approximately 591 holders
of record of the common stock. We have never paid any cash
dividends on our common stock and we do not anticipate paying
such cash dividends in the foreseeable future. We currently
anticipate that we will retain all future earnings, if any, for
use in the development of our business.
The following table sets forth information as of June 30,
2006 with respect to compensation plans (including individual
compensation arrangements) under which equity securities are
authorized for issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities to
|
|
|
Weighted Average
|
|
|
Remaining Available
|
|
|
|
be Issued upon Exercise
|
|
|
Exercise Price of
|
|
|
for Future Issuance
|
|
|
|
of Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Under Equity
|
|
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Compensation Plans
|
|
|
Equity compensation plans approved
by security holders (employees and directors)(1)
|
|
|
3,892,670
|
|
|
$
|
1.74
|
|
|
|
3,645,945
|
|
Equity compensation plans not
approved by security holders (financings or services related)(2)
|
|
|
495,868
|
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2006
|
|
|
4,388,538
|
|
|
$
|
1.74
|
|
|
|
3,645,945
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes shares issuable under the 2004 Equity Incentive Plan. |
|
(2) |
|
The material features of these securities are described in
Note 3 of the Consolidated Financial Statements. |
23
|
|
Item 6.
|
Selected
Financial Data
|
The statement of operations data for the years ended
June 30, 2004, 2005 and 2006 and for the period from
March 24, 1989 (Inception) to June 30, 2006 and the
balance sheet data at June 30, 2005 and 2006, are derived
from, and are qualified by reference to, the audited
consolidated financial statements included in this report on
Form 10-K
and should be read in conjunction with those financial
statements and notes thereto. The statement of operations data
for the years ended June 30, 2002 and 2003, and the balance
sheet data at June 30, 2002, 2003 and 2004, are derived
from audited consolidated financial statements not included
herein. The data set forth below are qualified by reference to,
and should be read in conjunction with, the consolidated
financial statements and notes thereto and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 24, 1989
|
|
|
|
Year Ended June 30,
|
|
|
(Inception) to
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
June 30, 2006
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales and rentals
|
|
$
|
80,000
|
|
|
$
|
314,000
|
|
|
$
|
49,000
|
|
|
$
|
387,000
|
|
|
$
|
159,000
|
|
|
$
|
1,277,000
|
|
Research and development agreements
|
|
|
|
|
|
|
10,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
2,105,000
|
|
Grants
|
|
|
797,000
|
|
|
|
520,000
|
|
|
|
1,178,000
|
|
|
|
522,000
|
|
|
|
704,000
|
|
|
|
8,752,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
877,000
|
|
|
|
844,000
|
|
|
|
1,302,000
|
|
|
|
909,000
|
|
|
|
863,000
|
|
|
|
12,134,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales and rentals(1)
|
|
|
202,000
|
|
|
|
893,000
|
|
|
|
280,000
|
|
|
|
148,000
|
|
|
|
11,000
|
|
|
|
2,804,000
|
|
Research and development
|
|
|
5,428,000
|
|
|
|
5,647,000
|
|
|
|
6,289,000
|
|
|
|
7,206,000
|
|
|
|
9,484,000
|
|
|
|
110,127,000
|
|
Selling, general and administrative
|
|
|
3,528,000
|
|
|
|
4,017,000
|
|
|
|
5,390,000
|
|
|
|
5,972,000
|
|
|
|
9,101,000
|
|
|
|
48,590,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
9,158,000
|
|
|
|
10,557,000
|
|
|
|
11,959,000
|
|
|
|
13,326,000
|
|
|
|
18,596,000
|
|
|
|
161,521,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(8,281,000
|
)
|
|
|
(9,713,000
|
)
|
|
|
(10,657,000
|
)
|
|
|
(12,417,000
|
)
|
|
|
(17,733,000
|
)
|
|
|
(149,387,000
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
|
|
|
|
1,249,000
|
|
Interest income
|
|
|
342,000
|
|
|
|
134,000
|
|
|
|
169,000
|
|
|
|
594,000
|
|
|
|
1,258,000
|
|
|
|
7,223,000
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(267,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,939,000
|
)
|
|
$
|
(9,579,000
|
)
|
|
$
|
(10,488,000
|
)
|
|
$
|
(11,811,000
|
)
|
|
$
|
(16,475,000
|
)
|
|
$
|
(141,182,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common shares
|
|
$
|
(7,939,000
|
)
|
|
$
|
(9,579,000
|
)
|
|
$
|
(10,488,000
|
)
|
|
$
|
(11,811,000
|
)
|
|
$
|
(16,475,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share (basic
and diluted)
|
|
$
|
(.19
|
)
|
|
$
|
(.19
|
)
|
|
$
|
(.14
|
)
|
|
$
|
(.13
|
)
|
|
$
|
(.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding (basic and diluted)
|
|
|
42,121,000
|
|
|
|
50,984,000
|
|
|
|
73,703,000
|
|
|
|
93,541,000
|
|
|
|
106,314,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and
short-term investments
|
|
$
|
9,605,000
|
|
|
$
|
10,512,000
|
|
|
$
|
16,926,000
|
|
|
$
|
32,414,000
|
|
|
$
|
42,997,000
|
|
|
|
|
|
Working capital
|
|
|
10,597,000
|
|
|
|
11,273,000
|
|
|
|
17,274,000
|
|
|
|
32,275,000
|
|
|
|
41,126,000
|
|
|
|
|
|
Total assets
|
|
|
11,553,000
|
|
|
|
12,155,000
|
|
|
|
18,166,000
|
|
|
|
33,897,000
|
|
|
|
44,881,000
|
|
|
|
|
|
Deficit accumulated during the
development stage
|
|
|
(93,797,000
|
)
|
|
|
(103,376,000
|
)
|
|
|
(113,864,000
|
)
|
|
|
(125,675,000
|
)
|
|
|
(142,150,000
|
)
|
|
|
|
|
Total shareholders equity
|
|
|
10,803,000
|
|
|
|
11,575,000
|
|
|
|
17,608,000
|
|
|
|
33,028,000
|
|
|
|
42,342,000
|
|
|
|
|
|
|
|
|
(1)
|
|
Cost of product sales and rentals
for the years ended June 30, 2003, June 30, 2004 and
June 30, 2005 include a charge of $748,000, $253,000, and
$9,000 for excess inventories, respectively.
|
24
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
We are a development stage company focused on the development of
autologous cell products for use in regenerative medicine. Our
pre-clinical and clinical product development programs utilize
patient-derived bone marrow stem and progenitor cell
populations, and are being investigated for their ability to aid
in the regeneration of tissues such as vascular, bone, cardiac
and neural.
Our platform TRC technology is based on 1) our cell
products which are a unique cell mixture containing large
numbers of stromal, stem and progenitor cells, produced outside
of the body from a small amount of bone marrow taken from the
patient, and 2) the means to produce these products in an
automated process. TRC-based products have been used in over
225 patients, and are currently in active clinical trials
for bone regeneration (long bone fractures and spine fusion) and
vascular regeneration (diabetic patients with critical limb
ischemia) applications. We have reported positive interim
clinical trial results for TRCs suggesting both the clinical
safety and the ability of TRCs to induce tissue regeneration in
long bone fractures and jaw bone reconstruction. Recently, our
proprietary TRC cell product received an Orphan Drug Designation
from the FDA for use in the treatment of osteonecrosis of the
femoral head. In addition, we are developing plans for a
TRC-based therapy for cardiac regeneration.
Our primary business is to develop our TRC-based products for
use in multiple therapeutic areas. Currently, we intend to
pursue TRC-based cell products for the following therapeutic
areas:
|
|
|
|
|
Vascular tissue regeneration
|
|
|
|
Bone tissue regeneration
|
|
|
|
Cardiac tissue regeneration
|
|
|
|
Neural tissue regeneration
|
We have developed a patented manufacturing system to produce
human cells for clinical use. This automated cell manufacturing
system enables our single-pass perfusion cell
culture process. Single-pass perfusion is our patented
technology for growing large quantities of human cells. These
cells include adult stromal, stem and progenitor cell
populations, which are considered to be required in the
formation of tissues such as vascular, bone, cardiac and neural,
as well as the hematopoietic system.
Since our inception, we have been in the development stage and
engaged in research and product development, conducted
principally on our own behalf, but also in connection with
various collaborative research and development agreements with
others. Our initial business plan was to pursue the bone marrow
transplantation markets. At approximately the same time (late
fiscal year 1999) that we intended to commence our initial
pilot-scale product launch in the EU of our cell manufacturing
system, the AastromReplicell System, with the SC-I kit, data was
released at international meetings that resulted in the majority
of the patients who would otherwise have been candidates for the
SC-I product, to no longer require the use of the product. This
loss of market for the SC-I caused us to reorganize our
operations and suspend all external activities in October 1999,
pending the receipt of additional funding and the completion of
the reorganization process. We expanded the capabilities of the
AastromReplicell System to include dendritic cell production and
initiated pilot marketing activities for the DC-I, DCV-I and the
DCV-II products. However, only minimal and intermittent revenue
has been generated from these products, and as a result it is no
longer a priority area for us. Therefore, we have eliminated our
marketing efforts promoting the AastromReplicell System as a
stand-alone product. Rather our current focus is on utilizing
our TRC technology in our cell manufacturing facilities to
support various development programs for tissue regeneration. At
such time as we satisfy applicable regulatory approval
requirements, we expect the sales of our TRC-based products to
constitute nearly all of our product sales revenues.
We do not expect to generate positive cash flows from our
consolidated operations for at least the next several years and
then only if more significant TRC-based product sales commence.
Until that time, we expect that our revenue sources will consist
of only minor sales of our cell products such as TRCs, and our
dendritic cell and T-cell kits to academic research centers,
grant revenue and research funding, and potential licensing fees
or other financial support from potential future corporate
collaborators.
25
We do not have the sales
and/or
marketing resources that will be needed to fully commercialize
our therapeutic products. We intend to seek commercialization
partnerships with other companies who have these capabilities,
as well as to develop our own ability to either support these
relationships and, if necessary, to complete some pilot level of
sales and marketing activity ourselves.
To date, we have financed our operations primarily through
public and private sales of our equity securities, and we expect
to continue obtaining required capital in a similar manner. As a
development-stage company, we have never been profitable and do
not anticipate having net income unless and until significant
product sales commence. This is not likely to occur until we
obtain significant additional funding, complete the required
clinical trials for regulatory approvals, and receive the
necessary approvals to market our products. Through
June 30, 2006, we have accumulated a net loss of
approximately $141 million. We cannot provide any assurance
that we will be able to achieve profitability on a sustained
basis, if at all, obtain the required funding, obtain the
required regulatory approvals, or complete additional corporate
partnering or acquisition transactions.
Critical
Accounting Policies
There are several accounting policies that we believe are
significant to the presentation of our consolidated financial
statements. Note 1 to our consolidated financial statements
Overview and Summary of Significant Accounting
Policies summarizes each of our significant accounting
policies. The most significant accounting policies include those
related to revenue recognition, accounts receivable and
inventories.
Revenue recognition We generate revenue from
grants and research agreements, collaborative agreements,
product sales and licensing arrangements. Revenue from grants
and research agreements is recognized on a cost reimbursement
basis consistent with the performance requirements of the
related agreements. Revenue from collaborative agreements is
recognized when the scientific or clinical results stipulated in
the agreement have been met and there are no other ongoing
obligations on our part. We recognize revenue from product sales
when title to the product transfers and there are no remaining
obligations that will affect the customers final
acceptance of the sale. If there are remaining obligations,
including training and installation, we do not recognize revenue
until completion of these obligations. We recognize revenue from
licensing fees under licensing agreements and rental revenue
when there are no future performance obligations remaining with
respect to such fees. Payments received before all obligations
are fulfilled are classified as deferred revenue.
Revenues include rental revenue of $37,000, $0, $0 and $93,000,
for the years ended June 30, 2004, 2005, 2006 and for the
period from Inception to June 30, 2006, respectively. This
revenue was generated from AastromReplicell System rental
agreements that have since expired or have been terminated.
Based upon our current business strategy we do not expect to
generate rental revenues in future periods.
Accounts receivable We make estimates
evaluating collectibility of accounts receivable. We
continuously monitor collections and payments from our customers
and maintain an allowance for estimated credit losses based on
any specific customer collection issues we have identified.
While such credit issues have not been significant, there can be
no assurance that we will continue to experience the same level
of credit losses in the future. As of June 30, 2006, our
allowance for doubtful accounts was $55,000.
Inventories We value our inventories that
consist primarily of our cell manufacturing system, the
AastromReplicell System, and our disposable cell production
cassettes and base medium, at the lower of cost (specific
identification using the first in, first out method) or market.
We regularly review inventory quantities on hand and record a
provision to write down excess inventories to their estimated
net realizable value.
|
|
|
|
|
AastromReplicell System (ARS) Inventories
Based upon market conditions and our historical experience with
the ARS product line, the carrying value of our aggregate ARS
inventories were reduced if such inventories were held in excess
of twelve months without sale because the probability-weighted
selling price of the aggregate inventories declines after
inventory has been on-hand for more than twelve months. We
continued to reduce the aggregate carrying value of ARS
inventories over the ensuing six months if the inventories were
not sold. The carrying value of ARS inventories under evaluation
at potential customer sites were not reduced so long as the
estimated selling price (less selling costs) exceeded the
carrying value of the inventories under evaluation. Pursuant to
this accounting policy we recorded provisions to reduce the
|
26
|
|
|
|
|
carrying value of the ARS inventories by $253,000 and $9,000 in
fiscal years ending June 30, 2004 and 2005, respectively.
Additionally, in fiscal year 2005, we recorded a charge of
$90,000 to research and development expense for excess ARS
inventories that were re-deployed for clinical use. As of
June 30, 2005, the carrying value of our ARS inventories
was reduced to zero.. We did not acquire any additional ARS
inventory in subsequent periods. Based upon our current business
strategy, we do not expect to generate revenues from the sale of
ARS inventories in future periods.
|
|
|
|
|
|
Cell Cassette and Base Medium Inventories We
maintain cell cassette and base medium inventories for sale to
existing customers and use at production sites. We evaluate the
net realizable value of these inventories considering expected
future sales quantities, prices and timing, and considering the
limited shelf life of these inventories.
|
Stock-Based Compensation Expense Effective
July 1, 2005, we adopted SFAS 123R using the modified
prospective method and therefore have not restated prior
periods results. Under the fair value recognition
provisions of SFAS 123R, we recognize stock-based
compensation, net of an estimated forfeiture rate, and therefore
only recognize compensation cost for those option grants and
restricted stock awards and units expected to vest over the
service period. Prior to our adoption of SFAS 123R, we
accounted for share-based payments under APB 25 and its
interpretations.
Calculating stock-based compensation expense requires the input
of highly subjective assumptions. We apply the Black-Scholes
option-pricing model to determine the fair value of our stock
options. Inherent in this model are assumptions related to
expected stock-price volatility, option life, risk-free interest
rate and dividend yield. We estimate the volatility of our
common stock at the date of grant based on its historical
volatility. We estimate the expected life of options granted
based on the simplified method provided for in the Securities
and Exchange Commission Staff Accounting
Bulletin No. 107 for plain vanilla
options. The risk-free interest rate is based on the
U.S. Treasury zero-coupon yield curve on the grant date for
a maturity similar to the expected life of the options. The
dividend rate is based on our historical rate, which we
anticipate to remain at zero. The assumptions used in
calculating the fair value of stock options represent our best
estimates, but these estimates involve inherent uncertainties
and the application of management judgment. As a result, if
factors change and we use different assumptions, our stock-based
compensation expense could be materially different in the
future. In addition, we are required to estimate the expected
forfeiture rate and only recognize expense for those stock
options and restricted stock awards and units expected to vest.
We estimate the forfeiture rate based on historical experience
of our stock-based awards. If our actual forfeiture rate is
different from our estimate, we would report the effect of any
change in estimated forfeiture rate in the period of change.
The summary of significant accounting policies should be read in
conjunction with our consolidated financial statements and
related notes and this discussion of our results of operations.
Results
of Operations
Total revenues were $863,000 in 2006, $909,000 in 2005, and
$1,302,000 in 2004. Product sales and rentals revenues decreased
to $159,000 in 2006 from $387,000 in 2005 and increased from
$49,000 in 2004. Total revenues decreased in 2006 from 2005
primarily from the reduced volume of therapy kit sales for
clinical trials and research by others, and revenue in 2005
included $120,000 from the sale of an AastromReplicell System.
The increase in product sales and rentals revenues from 2004 to
2005 is primarily the result of increased therapy kit sales for
clinical trials and research by others. Revenues include rentals
revenue of $37,000, $0, $0 and $93,000, for the years ended
June 30, 2004, 2005, 2006 and for the period from Inception
to June 30, 2006, respectively. These revenues were
generated from AastromReplicell System rental agreements that
have since expired or have been terminated. Based upon our
current business strategy, we are not marketing the
AastromReplicell System as a stand-alone product. Our current
focus is on utilizing our TRC technology in cell manufacturing
facilities to support our tissue regeneration development
programs. At such time as we satisfy applicable regulatory
approval requirements, we expect the sales of our TRC and our
related cell-based products will constitute nearly all of our
product sales revenues.
Revenues for 2004 also include $75,000 in research and
development agreements. This revenue is the result of a $50,000
fee from our sublicense agreement with Corning Inc. and a fee of
$25,000 from a development agreement
27
with a European institution. No revenue was generated from
research and development agreements in 2005 and 2006.
Grant revenues increased to $704,000 in 2006 from $522,000 in
2005 and decreased from $1,178,000 in 2004. Grant revenues in
2006 increased from 2005 as a result of increased activity on
grants from the National Institutes of Health. Grant revenues in
2005 decreased from 2004 due to fewer grants, resulting in less
grant activity. Grant revenues accounted for 82% of total
revenues for 2006, 57% for 2005 and 90% for 2004 and are
recorded on a cost-reimbursement basis. Grant revenues may vary
in any period based on timing of grant awards, grant-funded
activities, level of grant funding and number of grants awarded.
Total costs and expenses were $18,596,000 in 2006, $13,326,000
in 2005 and $11,959,000 in 2004. The increase in costs and
expenses during the periods reflect the continued expansion of
our research and development activities including additional
clinical trial costs; the adoption of SFAS 123R; the
implementation of a bonus performance plan; and certain costs
associated with the resignation of our former Chief Executive
Officer.
Cost of product sales and rentals were $11,000 in 2006, $139,000
in 2005 and $27,000 in 2004. The fluctuation in cost of product
sales and rentals is due to the changes in the volume of product
sales. The non-cash provision for excess AastromReplicell System
inventories was $0 in 2006, $9,000 in 2005 and $253,000 in 2004.
As of June 30, 2005, the carrying value of our
AastromReplicell System inventories was reduced to zero and we
purchased no new ARS inventories. Based upon our current
business strategy, we do not expect to generate revenues from
the sale of AastromReplicell System inventories in future
periods.
Costs and expenses include an increase in research and
development expenses to $9,484,000 in 2006 from $7,206,000 in
2005 and $6,289,000 in 2004. These increases reflect the
continued expansion of our research and development activities,
including additional staffing requirements, to support future
regulatory submissions, on-going and planned tissue regeneration
clinical trials in the U.S. and EU and the development of
facilities for product manufacturing and distribution processes.
Research and development expenses for 2006 also include a
non-cash charge of $300,000 relating to stock compensation
recognized following our adoption of SFAS 123R on
July 1, 2005, which requires us to measure the fair value
of all employee share-based payments and recognize that value as
an operating expense. Research and development expenses for
2005, includes a non-cash charge of $101,000 relating to a stock
option awarded to a consultant.
Selling, general and administrative expenses increased in 2006
to $9,101,000 from $5,972,000 in 2005 and $5,390,000 in 2004.
The increase from 2005 to 2006 is due to additional employee
costs of approximately $1,873,000 that include: salaries and
fringe benefits for additional staffing requirements, bonuses
paid to certain employees, an accrual for the management
performance bonus plan, an accrual for payments relating to the
former Chief Executive Officers revised employment
agreement, and recruitment expenses relating to Board of
Director members, the European Marketing Director and the search
for the new Chief Executive Officer. The amount of compensation
expense in 2006 resulting from our former CEOs revised
employment agreement was $589,000, and the accrual for our
management performance bonus plan was $600,000. This increase
also reflects additional consulting and marketing activities and
increased legal costs associated with patent protection. This
increase also includes a non-cash charge of $734,000 relating to
stock-based compensation recognized in accordance with
SFAS 123R. The increase in selling, general and
administrative expenses from 2004 to 2005 is due to additional
consulting, pre-marketing activities and costs required for
financial internal controls compliance and certification. Salary
and related employee benefits also increased in 2005 as a result
of hiring an additional executive. Additionally, in 2005 there
was a non-cash charge of $59,000 related to a stock option
grant. These increases were partially offset by decreased legal
expenses. Selling, general and administrative costs in 2004 also
includes a non-cash charge of $53,000 relating to certain
warrants issued for public and investor relations services and a
$372,000 non-cash charge related to an employee
performance-based stock option that vested.
Interest income was $1,258,000 in 2006, $594,000 in 2005 and
$169,000 in 2004. The fluctuations in interest income are due
primarily to corresponding changes in the levels of cash, cash
equivalents and short-term investments during the periods and
improving yields from our investments.
Our net loss was $16,475,000, or $.15 per common share in
2006, $11,811,000, or $.13 per common share in 2005, and
$10,488,000, or $.14 per common share in 2004. These
increases in net loss are primarily the result of
28
increased costs and expenses as discussed above offset on per
share basis by an increase in the weighted average number of
common shares outstanding resulting from additional equity
financings described in the Liquidity and Capital
Resources discussion below. We expect to report additional
significant net losses until such time as substantial TRC-based
product sales commence.
Our major ongoing research and development programs are focused
on the development of our autologous cell products
TRC-based products for use in regenerative medicine.
Our pre-clinical and clinical product development programs
utilize patient-derived bone marrow stem and progenitor cell
populations, and are being investigated for their ability to aid
in the regeneration of tissues such as vascular, bone, cardiac
and neural. We are also completing other research and
development activities to improve TRC functionality for certain
clinical indications, to improve shelf life, and to decrease the
cost of manufacturing our TRC products. Research and development
expenses outside of the TRC program consist primarily of
immunotherapy programs, engineering and cell manufacturing.
The following table summarizes our research and development
expenses for each of the fiscal years in the three year period
ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
R&D Project
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
TRCs
|
|
$
|
4,133,000
|
|
|
$
|
5,916,000
|
|
|
$
|
8,347,000
|
|
Other
|
|
|
2,156,000
|
|
|
|
1,290,000
|
|
|
|
1,137,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,289,000
|
|
|
$
|
7,206,000
|
|
|
$
|
9,484,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Because of the uncertainties of clinical trials and the evolving
regulatory requirements applicable to TRCs, estimating the
completion dates or cost to complete our major research and
development program would be highly speculative and subjective.
The risks and uncertainties associated with developing our
products, including significant and changing governmental
regulation and the uncertainty of future clinical study results,
are discussed in greater detail in the Any changes in the
governmental regulatory classifications of our products could
prevent, limit or delay our ability to market and develop our
products, Our inability to complete our product
development activities successfully would severely limit our
ability to operate or finance operations, and We
must successfully complete our clinical trials to be able to
market certain of our products, sections under the heading
Risk Factors following Item 1 of this report.
The lengthy process of seeking regulatory approvals for our
product candidates, and the subsequent compliance with
applicable regulations, will require the expenditure of
substantial resources. Any failure by us to obtain, or any delay
in obtaining, regulatory approvals could cause our research and
development expenditures to increase and, in turn, have a
material adverse effect on our results of operations. We cannot
be certain when any net cash inflow from products validated
under our major research and development project, if any, will
commence.
We have not generated any net taxable income since our inception
and therefore have not paid any federal income taxes since
inception. We issued shares of common stock in prior years,
which resulted in multiple ownership changes under relevant
taxation rules (Section 382 of the Internal Revenue Code).
Consequently, pursuant to these taxation rules, the utilization
of net operating loss and tax credit carryforwards will be
significantly limited in future periods, even if we generate
taxable income. Such limitations may result in our carryforwards
expiring before we can utilize them. At June 30, 2006, we
have generated cumulative Federal tax net operating loss and tax
credit carryforwards of, $69,000,000 and $935,000, respectively,
which will expire in various periods between 2007 and 2027, if
not utilized. Our ability to utilize our net operating loss and
tax credit carryforwards may become subject to further annual
limitation in the event of future changes in ownership under the
taxation rules.
Liquidity
and Capital Resources
We have financed our operations since inception primarily
through public and private sales of our equity securities,
which, from inception through June 30, 2006, have totaled
approximately $184 million and, to a lesser degree, through
grant funding, payments received under research agreements and
collaborations, interest earned on
29
cash, cash equivalents, and short-term investments, and funding
under equipment leasing agreements. These financing sources have
generally allowed us to maintain adequate levels of cash and
other liquid investments.
Our combined cash, cash equivalents and short-term investments
totaled $42,997,000 at June 30, 2006, an increase of
$10,583,000 from June 30, 2005. During the year ended
June 30, 2006, the primary source of cash, cash equivalents
and short-term investments was from equity transactions, with
net proceeds of $24,755,000, of which $23,886,000 was raised in
April 2006, in a registered direct placement of
15,943,750 shares of common stock to a select group of
institutional investors at a price of $1.60 per share.
These shares are registered pursuant to a registration statement
that we filed with the U.S. Securities and Exchange
Commission. The remaining equity financing was obtained under
multiple transactions in which we sold our common shares in
connection with option and warrant exercises and through our
stock option plans and Direct Stock Purchase Plan. The primary
uses of cash, cash equivalents and short-term investments during
the year ended June 30, 2006 included $13,518,000 to
finance our operations and working capital requirements, and
$789,000 in capital equipment additions for cell manufacturing
and laboratory equipment.
Our combined cash, cash equivalents and short-term investments
totaled $32,414,000 at June 30, 2005, an increase of
$15,488,000 from June 30, 2004. During the year ended
June 30, 2005, we raised net proceeds of $27,071,000
through the sale of our equity securities. The primary uses of
cash, cash equivalents and short-term investments during the
year ended June 30, 2005 included $11,065,000 to finance
our operations and working capital requirements, and $586,000 in
capital equipment additions.
We expect that our total capital expenditures for the fiscal
year ending June 30, 2007 to be approximately $1,292,000.
The primary purpose of these expenditures will be for the
construction of a core cell manufacturing facility, located in
Ann Arbor, Michigan, and the acquisition of cell manufacturing
and laboratory equipment. We expect our monthly cash utilization
to average approximately $1.8 million per month during
fiscal year 2007.
Our future cash requirements will depend on many factors,
including continued scientific progress in our research and
development programs, the scope and results of clinical trials,
the time and costs involved in obtaining regulatory approvals,
the costs involved in filing, prosecuting and enforcing patents,
competing technological and market developments and the cost of
product commercialization. We do not expect to generate a
positive cash flow from operations for at least the next several
years due to the expected spending for research and development
programs and the cost of commercializing our product candidates.
We intend to seek additional funding through research and
development agreements or grants, distribution and marketing
agreements and through public or private debt or equity
financing transactions. Successful future operations are subject
to several technical and risk factors, including our continued
ability to obtain future funding, satisfactory product
development, obtaining regulatory approval and market acceptance
for our products. We expect that our available cash and expected
interest income will be sufficient to finance currently planned
activities at least through the end of fiscal year 2007 (ending
June 30, 2007). These estimates are based on certain
assumptions which could be negatively impacted by the matters
discussed under this heading and under the caption Risk
Factors, included herein. In order to grow and expand our
business, and to introduce our product candidates into the
marketplace, we will need to raise additional funds. We will
also need additional funds or a collaborative partner, or both,
to finance the research and development activities of our
product candidates for the expansion of additional cell types.
We expect that our primary sources of capital for the
foreseeable future will be through collaborative arrangements
and through the public or private sale of our equity or debt
securities. There can be no assurance that such collaborative
arrangements, or any public or private financing, will be
available on acceptable terms, if at all, or can be sustained.
Several factors will affect our ability to raise additional
funding, including, but not limited to, market volatility of our
common stock, continued stock market listing and economic
conditions affecting the public markets generally or some
portion or the entire technology sector. If our common stock is
delisted from the Nasdaq Stock Market, the liquidity of our
common stock could be impaired, and prices paid by investors to
purchase our shares of our common stock could be lower than
might otherwise prevail.
If adequate funds are not available, we may be required to
delay, reduce the scope of, or eliminate one or more of our
research and development programs, which may have a material
adverse affect on our business. See Risk Factors and
Notes to Consolidated Financial Statements included
herein.
30
Long-Term
Contractual Obligations and Commitments
The following table sets forth Aastroms contractual
obligations along with cash payments due each period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less then
|
|
|
1 3
|
|
|
3 5
|
|
|
More then
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Purchase order commitments
|
|
$
|
398,000
|
|
|
$
|
398,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
398,000
|
|
|
$
|
398,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 20, 2006, the Company renegotiated its lease
with Dominos Farms Office Park, LLC, increasing the leased
space to 30,230 square feet. This new lease covers a period
of five years, beginning on the date of occupancy of the
additional space, which we anticipate will be in March 2007. The
aggregate minimum rent commitment under the new five year lease
is approximately $4,878,000. This commitment which did not exist
as of June 30, 2006 is excluded from the above table.
New
Accounting Standards
In June 2006, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109, (FIN 48). FIN 48
clarifies the accounting for uncertainties in income taxes
recognized in a companys financial statements in
accordance with Statement 109 and prescribes a recognition
threshold and measurement attributable for financial disclosure
of tax positions taken or expected to be taken on a tax return.
Additionally, Interpretation 48 provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
Interpretation 48 is effective for fiscal years beginning after
December 15, 2006 Because we have not reported any income
tax expense, we do not expect adoption will materially impact
our financial position, results of operations, or cash flows.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
As of June 30, 2006, our cash and cash equivalents included
money market securities and short-term investments consisting of
short-term corporate debt securities with original maturities of
less than twelve months. Due to the short duration of our
investment portfolio, an immediate 10% change in interest rates
would not have a material effect on the fair market value of our
portfolio, therefore, we would not expect our operating results
or cash flows to be affected to any significant degree by the
effect of a sudden change in market interest rates.
Our sales to customers in foreign countries are denominated in
U.S. dollars or Euros. Our vendors, employees and clinical
sites in countries outside the U.S. are typically paid in
Euros. However, such expenditures have not been significant to
date. Accordingly, we are not directly exposed to significant
market risks from currency exchange rate fluctuations. We
believe that the interest rate risk related to our accounts
receivable is not significant. We manage the risk associated
with these accounts through periodic reviews of the carrying
value for non-collectibility and establishment of appropriate
allowances. We do not enter into hedging transactions and do not
purchase derivative instruments.
31
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
33
|
|
|
|
|
34
|
|
|
|
|
35
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
56
|
|
32
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Aastrom Biosciences, Inc.:
We have completed integrated audits of Aastrom Biosciences,
Inc.s 2006 and 2005 consolidated financial statements and
of its internal control over financial reporting as of
June 30, 2006 and an audit of its 2004 consolidated
financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Our opinions, based on our audits, are presented below.
Consolidated
Financial Statements and Financial Statement
Schedule
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Aastrom Biosciences, Inc. and its
subsidiaries (a development stage company) at June 30, 2006
and 2005, and the results of their operations and their cash
flows for each of the three years in the period ended
June 30, 2006, and for the period from March 24, 1989
(Inception) to June 30, 2006, in conformity with accounting
principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule
listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. These financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit of financial statements includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 1 to the consolidated financial
statements, the Company adopted Statement of Financial
Accounting Standards No. 123R, Share-Based
Payment, on July 1, 2005.
Internal
Control Over Financial Reporting
Also, in our opinion, Managements Assessment, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A, that the Company
maintained effective internal control over financial reporting
as of June 30, 2006 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of June 30, 2006, based
on criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
September 13, 2006
33
AASTROM
BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,408,000
|
|
|
$
|
9,034,000
|
|
Short-term investments
|
|
|
18,006,000
|
|
|
|
33,963,000
|
|
Receivables, net
|
|
|
193,000
|
|
|
|
139,000
|
|
Inventories
|
|
|
116,000
|
|
|
|
1,000
|
|
Other current assets
|
|
|
421,000
|
|
|
|
528,000
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
33,144,000
|
|
|
|
43,665,000
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
753,000
|
|
|
|
1,216,000
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
33,897,000
|
|
|
$
|
44,881,000
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
expenses
|
|
$
|
533,000
|
|
|
$
|
1,084,000
|
|
Accrued employee benefits
|
|
|
336,000
|
|
|
|
1,455,000
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
869,000
|
|
|
|
2,539,000
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
(Notes 5 and 6)
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Common Stock, no par value; shares
authorized 250,000,000; shares issued and
outstanding 102,328,785 and 119,439,612, respectively
|
|
|
158,703,000
|
|
|
|
184,492,000
|
|
Deficit accumulated during the
development stage
|
|
|
(125,675,000
|
)
|
|
|
(142,150,000
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
33,028,000
|
|
|
|
42,342,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
33,897,000
|
|
|
$
|
44,881,000
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
34
AASTROM
BIOSCIENCES, INC.
(a development stage company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 24, 1989
|
|
|
|
Year Ended June 30,
|
|
|
(Inception) to
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
June 30, 2006
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales and rentals
|
|
$
|
49,000
|
|
|
$
|
387,000
|
|
|
$
|
159,000
|
|
|
$
|
1,277,000
|
|
Research and development agreements
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
2,105,000
|
|
Grants
|
|
|
1,178,000
|
|
|
|
522,000
|
|
|
|
704,000
|
|
|
|
8,752,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,302,000
|
|
|
|
909,000
|
|
|
|
863,000
|
|
|
|
12,134,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales and rentals
|
|
|
27,000
|
|
|
|
139,000
|
|
|
|
11,000
|
|
|
|
565,000
|
|
Cost of product sales and
rentals provision for excess inventories
|
|
|
253,000
|
|
|
|
9,000
|
|
|
|
|
|
|
|
2,239,000
|
|
Research and development
|
|
|
6,289,000
|
|
|
|
7,206,000
|
|
|
|
9,484,000
|
|
|
|
110,127,000
|
|
Selling, general and administrative
|
|
|
5,390,000
|
|
|
|
5,972,000
|
|
|
|
9,101,000
|
|
|
|
48,590,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
11,959,000
|
|
|
|
13,326,000
|
|
|
|
18,596,000
|
|
|
|
161,521,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(10,657,000
|
)
|
|
|
(12,417,000
|
)
|
|
|
(17,733,000
|
)
|
|
|
(149,387,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
12,000
|
|
|
|
|
|
|
|
1,249,000
|
|
Interest income
|
|
|
169,000
|
|
|
|
594,000
|
|
|
|
1,258,000
|
|
|
|
7,223,000
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(267,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
169,000
|
|
|
|
606,000
|
|
|
|
1,258,000
|
|
|
|
8,205,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(10,488,000
|
)
|
|
$
|
(11,811,000
|
)
|
|
$
|
(16,475,000
|
)
|
|
$
|
(141,182,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE (Basic and
Diluted)
|
|
$
|
(.14
|
)
|
|
$
|
(.13
|
)
|
|
$
|
(.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding (Basic and Diluted)
|
|
|
73,703,000
|
|
|
|
93,541,000
|
|
|
|
106,314,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
35
AASTROM
BIOSCIENCES, INC.
(a development stage company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Development
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Stage
|
|
|
Equity
|
|
|
BALANCE, MARCH 24, 1989
(Inception)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net loss and comprehensive loss Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102,408,000
|
)
|
|
|
(102,408,000
|
)
|
Issuance of common stock for cash,
services and license rights
|
|
|
|
|
|
|
|
|
|
|
1,195,124
|
|
|
|
2,336,000
|
|
|
|
|
|
|
|
2,336,000
|
|
Issuance of Series A through
Series E Preferred Stock for cash, net of issuance costs of
$342,000
|
|
|
9,451,766
|
|
|
|
34,218,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,218,000
|
|
Issuance of Series E Preferred
Stock at $17.00 per share
|
|
|
205,882
|
|
|
|
3,500,000
|
|
|
|
|
|
|
|
(3,500,000
|
)
|
|
|
|
|
|
|
|
|
Exercise of stock options and
warrants, and issuance of stock under Employee Stock Purchase
Plan
|
|
|
|
|
|
|
|
|
|
|
3,027,983
|
|
|
|
942,000
|
|
|
|
|
|
|
|
942,000
|
|
Issuance of Stock Purchase Rights
for cash in September 1995 and March 1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
|
|
|
|
|
3,500,000
|
|
Principal payment received under
shareholder note receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,000
|
|
|
|
|
|
|
|
31,000
|
|
Initial public offering of common
stock at $7.00 per share, net of issuance costs of
$2,865,000
|
|
|
|
|
|
|
|
|
|
|
3,250,000
|
|
|
|
19,885,000
|
|
|
|
|
|
|
|
19,885,000
|
|
Conversion of preferred stock
|
|
|
(11,865,648
|
)
|
|
|
(55,374,000
|
)
|
|
|
21,753,709
|
|
|
|
55,374,000
|
|
|
|
|
|
|
|
|
|
Compensation expense related to
stock options and warrants granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
989,000
|
|
|
|
|
|
|
|
989,000
|
|
Issuance of 5.5% Convertible
Preferred Stock at $5.00 per share, net of issuance costs
of $1,070,000
|
|
|
2,200,000
|
|
|
|
9,930,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,930,000
|
|
Issuance of 1998 Series I
Convertible Preferred Stock at $1,000 per share, net of
issuance costs of $460,000
|
|
|
5,000
|
|
|
|
4,540,000
|
|
|
|
40,404
|
|
|
|
149,000
|
|
|
|
|
|
|
|
4,689,000
|
|
Issuance of 1999 Series III
Convertible Preferred Stock at $1,000 per share, net of
issuance costs of $280,000
|
|
|
3,000
|
|
|
|
2,720,000
|
|
|
|
49,994
|
|
|
|
90,000
|
|
|
|
|
|
|
|
2,810,000
|
|
Issuance of common stock, net of
issuance costs of $600,000
|
|
|
|
|
|
|
|
|
|
|
35,378,811
|
|
|
|
34,726,000
|
|
|
|
|
|
|
|
34,726,000
|
|
Dividends and yields on preferred
stock
|
|
|
|
|
|
|
466,000
|
|
|
|
148,568
|
|
|
|
502,000
|
|
|
|
(968,000
|
)
|
|
|
|
|
Repurchase and retirement of Common
Shares outstanding
|
|
|
|
|
|
|
|
|
|
|
(32,171
|
)
|
|
|
(73,000
|
)
|
|
|
|
|
|
|
(73,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JUNE 30, 2003
|
|
|
|
|
|
|
|
|
|
|
64,812,422
|
|
|
|
114,951,000
|
|
|
|
(103,376,000
|
)
|
|
|
11,575,000
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,488,000
|
)
|
|
|
(10,488,000
|
)
|
Exercise of stock purchase warrants
|
|
|
|
|
|
|
|
|
|
|
236,534
|
|
|
|
121,000
|
|
|
|
|
|
|
|
121,000
|
|
Exercise of stock options and
issuance of stock under Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
45,919
|
|
|
|
24,000
|
|
|
|
|
|
|
|
24,000
|
|
Issuance of stock under Direct
Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
5,453
|
|
|
|
5,000
|
|
|
|
|
|
|
|
5,000
|
|
Compensation expense related to
stock options and warrants granted granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425,000
|
|
|
|
|
|
|
|
425,000
|
|
Issuance of common stock, net of
issuance costs of $1,294,000
|
|
|
|
|
|
|
|
|
|
|
16,272,863
|
|
|
|
15,946,000
|
|
|
|
|
|
|
|
15,946,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JUNE 30, 2004
|
|
|
|
|
|
|
|
|
|
|
81,373,191
|
|
|
|
131,472,000
|
|
|
|
(113,864,000
|
)
|
|
|
17,608,000
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,811,000
|
)
|
|
|
(11,811,000
|
)
|
Exercise of stock purchase warrants
|
|
|
|
|
|
|
|
|
|
|
2,043,826
|
|
|
|
2,873,000
|
|
|
|
|
|
|
|
2,873,000
|
|
Exercise of stock options and
issuance of stock under Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
1,593,442
|
|
|
|
897,000
|
|
|
|
|
|
|
|
897,000
|
|
Issuance of stock under Direct
Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
23,452
|
|
|
|
38,000
|
|
|
|
|
|
|
|
38,000
|
|
Compensation expense related to
stock options granted granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
|
|
|
|
160,000
|
|
Issuance of common stock, net of
issuance costs of $5,629,000
|
|
|
|
|
|
|
|
|
|
|
17,294,874
|
|
|
|
23,263,000
|
|
|
|
|
|
|
|
23,263,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JUNE 30, 2005
|
|
|
|
|
|
|
|
|
|
|
102,328,785
|
|
|
|
158,703,000
|
|
|
|
(125,675,000
|
)
|
|
|
33,028,000
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,475,000
|
)
|
|
|
(16,475,000
|
)
|
Exercise of stock purchase warrants
|
|
|
|
|
|
|
|
|
|
|
205,883
|
|
|
|
253,000
|
|
|
|
|
|
|
|
253,000
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
528,083
|
|
|
|
473,000
|
|
|
|
|
|
|
|
473,000
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
342,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock under Direct
Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
90,294
|
|
|
|
143,000
|
|
|
|
|
|
|
|
143,000
|
|
Compensation expense related to
stock options and restricted stock awards and units granted
granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,034,000
|
|
|
|
|
|
|
|
1,034,000
|
|
Issuance of common stock, net of
issuance costs of $1,624,000
|
|
|
|
|
|
|
|
|
|
|
15,943,750
|
|
|
|
23,886,000
|
|
|
|
|
|
|
|
23,886,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JUNE 30, 2006
|
|
|
|
|
|
$
|
|
|
|
|
119,439,612
|
|
|
$
|
184,492,000
|
|
|
$
|
(142,150,000
|
)
|
|
$
|
42,342,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
36
AASTROM
BIOSCIENCES, INC.
(a development stage company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 24, 1989
|
|
|
|
Year Ended June 30,
|
|
|
(Inception) to
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
June 30, 2006
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,488,000
|
)
|
|
$
|
(11,811,000
|
)
|
|
$
|
(16,475,000
|
)
|
|
$
|
(141,182,000
|
)
|
Adjustments to reconcile net loss
to net cash used for operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
125,000
|
|
|
|
167,000
|
|
|
|
326,000
|
|
|
|
4,064,000
|
|
Loss on property held for resale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,000
|
|
Amortization of discounts and
premiums on investments
|
|
|
|
|
|
|
(68,000
|
)
|
|
|
(135,000
|
)
|
|
|
(746,000
|
)
|
Stock compensation expense
|
|
|
425,000
|
|
|
|
160,000
|
|
|
|
1,034,000
|
|
|
|
2,618,000
|
|
Inventories write downs and reserves
|
|
|
253,000
|
|
|
|
9,000
|
|
|
|
|
|
|
|
2,239,000
|
|
Stock issued pursuant to license
agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,300,000
|
|
Provision for losses on accounts
receivable
|
|
|
4,000
|
|
|
|
9,000
|
|
|
|
39,000
|
|
|
|
204,000
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
100,000
|
|
|
|
42,000
|
|
|
|
15,000
|
|
|
|
(388,000
|
)
|
Inventories
|
|
|
164,000
|
|
|
|
264,000
|
|
|
|
115,000
|
|
|
|
(2,336,000
|
)
|
Other current assets
|
|
|
(86,000
|
)
|
|
|
(148,000
|
)
|
|
|
(107,000
|
)
|
|
|
(507,000
|
)
|
Accounts payable and accrued
expenses
|
|
|
(24,000
|
)
|
|
|
151,000
|
|
|
|
551,000
|
|
|
|
1,084,000
|
|
Accrued employee benefits
|
|
|
2,000
|
|
|
|
160,000
|
|
|
|
1,119,000
|
|
|
|
1,455,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for operating
activities
|
|
|
(9,525,000
|
)
|
|
|
(11,065,000
|
)
|
|
|
(13,518,000
|
)
|
|
|
(130,085,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organizational costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73,000
|
)
|
Purchase of short-term investments
|
|
|
|
|
|
|
(25,938,000
|
)
|
|
|
(43,900,000
|
)
|
|
|
(131,962,000
|
)
|
Maturities of short-term investments
|
|
|
|
|
|
|
8,000,000
|
|
|
|
28,078,000
|
|
|
|
98,745,000
|
|
Property and equipment purchases
|
|
|
(157,000
|
)
|
|
|
(586,000
|
)
|
|
|
(789,000
|
)
|
|
|
(4,447,000
|
)
|
Proceeds from sale of property held
for resale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing
activities
|
|
|
(157,000
|
)
|
|
|
(18,524,000
|
)
|
|
|
(16,611,000
|
)
|
|
|
(37,337,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,647,000
|
|
Net proceeds from issuance of
common stock
|
|
|
16,096,000
|
|
|
|
27,071,000
|
|
|
|
24,755,000
|
|
|
|
122,501,000
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,000
|
)
|
Payments received for stock
purchase rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
Payments received under shareholder
notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,000
|
|
Principal payments under capital
lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,174,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
16 ,096,000
|
|
|
|
27,071,000
|
|
|
|
24,755,000
|
|
|
|
176,456,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
|
|
|
6,414,000
|
|
|
|
(2,518,000
|
)
|
|
|
(5,374,000
|
)
|
|
|
9,034,000
|
|
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD
|
|
|
10,512,000
|
|
|
|
16,926,000
|
|
|
|
14,408,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
|
|
$
|
16,926,000
|
|
|
$
|
14,408,000
|
|
|
$
|
9,034,000
|
|
|
$
|
9,034,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
267,000
|
|
Equipment acquired under capital
lease obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,174,000
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
37
|
|
1.
|
Organization
and Summary of Significant Accounting Policies
|
Aastrom Biosciences, Inc. was incorporated in March 1989
(Inception), began employee-based operations in 1991, and is in
the development stage. The Company operates its business in one
reportable segment research and product development
involving the development of autologous cell products for use in
regenerative medicine.
Successful future operations are subject to several technical
and risk factors, including satisfactory product development,
obtaining regulatory approval and market acceptance for the
Companys products and the Companys continued ability
to obtain future funding.
The Company is subject to certain risks related to the operation
of its business and development of its products and product
candidates. While management believes available cash, cash
equivalents and short-term investments are adequate to finance
currently planned activities at least until the end of fiscal
year 2007 (ending June 30, 2007), the Company will need to
raise additional funds in order to complete its product
development programs, complete clinical trials needed to market
its products, and commercialize product candidates. The Company
cannot be certain that such funding will be available on
favorable terms, if at all. Some of the factors that will impact
the Companys ability to raise additional capital and its
overall success include: the rate and degree of progress for its
product development, the rate of regulatory approval to proceed
with clinical trial programs, the requirements for marketing
authorization from regulatory bodies in the U.S., EU and other
countries, the liquidity and market volatility of the
Companys equity securities, regulatory and manufacturing
requirements and uncertainties, technological developments by
competitors, and other factors. If the Company cannot raise such
funds, it may not be able to develop or enhance products, take
advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements, which would negatively
impact the Companys business, financial condition and
results of operations.
Significant Revenue Relationships One
collaborator accounted for 15% of total revenues for the period
from Inception to June 30, 2006. However, for the fiscal
year ended June 30, 2006, there was no revenue recognized
from this source. Grant revenues consist of grants received from
federal and state agencies.
Suppliers Some of the key components used to
manufacture the Companys Tissue Repair Cell-based products
come from single or limited sources of supply.
Principles of Consolidation The consolidated
financial statements include the accounts of Aastrom and its
wholly-owned subsidiaries, Aastrom Biosciences GmbH, located in
Berlin, Germany, Aastrom Biosciences, SL, located in Barcelona,
Spain, and Aastrom Biosciences, Ltd. Located in Dublin, Ireland
(collectively, the Company). All significant inter-company
transactions and accounts have been eliminated in consolidation.
As of June 30, 2006, all subsidiaries had limited
operations and are not currently a significant component of the
consolidated financial statements.
Cash and Cash Equivalents Cash and cash
equivalents include cash and highly liquid short-term
investments with original maturities of three months or less.
Short-Term Investments and Restricted
Investments Short-term investments consist of
highly rated corporate debt securities with original maturities
of over three months and less than one year. Short-term
investments are classified as
available-for-sale,
and are presented at market value, with unrealized gains and
losses on investments reflected as a component of accumulated
other comprehensive income within shareholders equity.
Interest earned on
available-for-sale
securities is included in interest income. Discounts or premiums
arising at acquisition of these investments are amortized over
the remaining term of the investment and reported as interest
income. The Company has not experienced unrealized gains or
losses on its investments.
Included in other current assets at both June 30, 2005 and
June 30, 2006 are $91,000, of bank certificates of deposit
which serve as collateral for certain potential European Value
Added Taxes.
38
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Diversity of Credit Risk The Company invests
its excess cash in U.S. government securities and highly
rated corporate debt securities and has established guidelines
relative to diversification and maturities in an effort to limit
risk. These guidelines are periodically reviewed and modified to
take advantage of trends in yields and interest rates. The
Company has not experienced any significant losses on its cash
equivalents or short-term investments.
Accounts Receivable The Company makes
estimates evaluating collectibility of accounts receivable. The
Company continuously monitors collections and payments from its
customers and maintains an allowance for estimated credit losses
based on any specific customer collection issues that are
identified. While such credit issues have not been significant,
there can be no assurance that the Company will continue to
experience the same level of credit losses in the future. The
allowance for doubtful accounts was $16,000 and $55,000 at
June 30, 2005 and 2006, respectively.
Inventories The Company values its
inventories that consist primarily of our cell manufacturing
system, the AastromReplicell System, and our disposable cell
production cassettes and base medium, at the lower of cost
(specific identification using the first in, first out method)
or market. The Company regularly reviews inventory quantities on
hand and records a provision to write down excess inventories to
their estimated net realizable value.
|
|
|
|
|
AastromReplicell System (ARS) Inventories
Based upon market conditions and the Companys historical
experience with the ARS product line, the carrying value of its
aggregate ARS inventories was reduced if such inventories were
held in excess of twelve months without sale because the
probability-weighted selling price of the aggregate inventories
declines after inventory has been on-hand for more than twelve
months. The Company continued to reduce the aggregate carrying
value of ARS inventories over the ensuing six months if the
inventories were not sold. The carrying value of ARS inventories
under evaluation at potential customer sites were not reduced so
long as the estimated selling price (less selling costs)
exceeded the carrying value of the inventories under evaluation.
Pursuant to this accounting policy the Company recorded
provisions to reduce the carrying value of the ARS inventories
by $253,000 and $9,000 in fiscal years ending June 30, 2004
and 2005, respectively. Additionally, in fiscal year 2005, the
Company recorded a charge of $90,000 to research and development
expense for excess ARS inventories that were re-deployed for
clinical use. As of June 30, 2005, the carrying value of
the Companys ARS inventories was reduced to zero and the
Company did not acquire any additional ARS inventories in
subsequent periods. Based upon our current business strategy,
the Company does not expect to generate revenues from the sale
of ARS inventories in future periods.
|
|
|
|
Cell Cassette and Base Medium Inventories The
Company maintains cell cassette and base medium inventories for
sale to existing customers and use at production sites. The
Company evaluates the net realizable value of these inventories
considering expected future sales quantities, prices and timing,
and considering the limited shelf life of these inventories.
|
Property and Equipment Property and equipment
is recorded at cost and depreciated or amortized using the
straight-line method over the estimated useful life of the asset
(primarily three to five years) or the underlying lease term for
leasehold improvements, whichever is shorter. Depreciation
expense was $125,000, $167,000, $326,000 and $4,064,000 for the
years ended June 30, 2004, 2005, 2006 and for the period
from Inception to June 30, 2006, respectively. During 2005
the Company acquired equipment that it intends to use in the
future in a specialized facility under the Companys
control, for the production of human cells. The cost of this
equipment was $111,000 and is included in property and equipment
as equipment in process at June 30, 2006. The equipment
will be depreciated over its useful life beginning when the
equipment is placed into service. When assets are disposed of,
the cost and accumulated depreciation are removed from the
accounts. Repairs and maintenance are charged to expense as
incurred.
Revenue Recognition Revenue is generated from
grants and research agreements, collaborative agreements,
product sales and rentals. Revenue from grants and research
agreements is recognized on a cost
39
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reimbursement basis consistent with the performance requirements
of the related agreement. Revenue from collaborative agreements
is recognized when the scientific or clinical results stipulated
in the agreement have been met and there are no ongoing
obligations on the Companys part. Revenue from product
sales is recognized when title to the product transfers and
there are no remaining obligations that will affect the
customers final acceptance of the sale. If there are
remaining obligations, including training and installation
(which the Company believes to be significant), revenue is not
recognized until the completion of these obligations. Revenue
from licensing fees under licensing agreements and rental
revenue is recognized when there are no future performance
obligations remaining with respect to such revenues. Payments
received before all obligations are fulfilled are classified as
deferred revenue.
Revenues include rental revenue of $37,000, $0, $0 and $93,000,
for the years ended June 30, 2004, 2005, 2006 and for the
period from Inception to June 30, 2006, respectively. This
revenue was generated from AastromReplicell System rental
agreements that have since expired or have been terminated.
Based upon the Companys current business strategy we do
not expect to generate rental revenues in future periods.
Research and Development Costs Research and
development costs are expensed as incurred. Such costs and
expenses related to programs under collaborative agreements with
other companies totaled $418,000 and $527,000 for the years
ended June 30, 2004 and 2005, respectively and $2,590,000
for the period from Inception to June 30, 2006. There were
no such costs and expenses for the year ended June 30, 2006.
Stock Compensation On July 1, 2005, the
Company adopted the provisions of Financial Accounting Standards
Board Statement No. 123R, Share-Based
Payment (SFAS 123R). SFAS 123R revised
SFAS 123, Accounting for Stock Based
Compensation and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees.
SFAS 123R requires companies to measure and recognize
compensation expense for all employee stock-based payments at
fair value over the service period underlying the arrangement.
Therefore, the Company is now required to record the grant-date
fair value of its graded vesting employee stock-based payments
(i.e., stock options and other equity-based compensation) in the
statement of operations. The Company adopted FAS 123R using
the modified prospective method, whereby the fair
value of all previously-granted employee stock-based
arrangements that remained unvested at July 1, 2005 and all
grants made on or after July 1, 2005 have been included in
the Companys determination of stock-based compensation
expense for the year ended June 30, 2006. The compensation
costs charged as operating expense for grants under the plan
were approximately $1,034,000 for the year ended June 30,
2006. No tax benefit was recognized related to share-based
compensation expense since the Company has never reported
taxable income and has established a full valuation allowance to
offset all of the potential tax benefits associated with our
deferred tax assets. In addition, no amounts of share-based
compensation cost were capitalized as part of fixed assets or
inventories for the periods presented.
During fiscal year 2004 and 2005 the Company recorded and
reported its employee stock-based compensation pursuant to
APB 25 and its related interpretations, pursuant to which
stock-based compensation was recorded for grants of
performance-based equity awards to certain employees but no
compensation expense was recorded for most grants because the
awards provided for time-based vesting and the exercise price
equaled the fair value of the underlying common stock on the
date of grant. The Company has not restated its operating
results for the years ended June 30, 2004 and 2005 to
reflect charges for the fair value of employee stock-based
arrangements. See Note 3.
Income Taxes Income taxes are accounted for
in accordance with SFAS No. 109, Accounting for
Income Taxes. Deferred tax assets are recognized for
deductible temporary differences and tax credit carryforwards
and deferred tax liabilities are recognized for taxable
temporary differences. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred
tax assets will not be realized.
40
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net Loss Per Share Net loss per common share
is computed using the weighted-average number of common shares
outstanding during the period. Common equivalent shares are not
included in the per share calculation where the effect of their
inclusion would be anti-dilutive. The aggregate number of common
equivalent shares that have been excluded from the computations
of net loss per common share for the periods ended June 30,
2004, 2005 and 2006 is approximately 10,104,000, 9,340,000 and
8,939,000, respectively.
Use of Estimates The preparation of financial
statements in accordance with generally accepted accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses
during the reported period. Actual results could differ from
those estimates.
Financial Instruments The Companys
financial instruments include cash equivalents, short-term
investments, accounts receivable and accounts payable for which
the current carrying amounts approximate fair market value based
upon their short-term nature.
Long-Lived Assets The Company reviews its
long-lived assets for impairment whenever an event or change in
circumstances indicates that the carrying values of an asset may
not be recoverable. If such an event or change in circumstances
occurs and potential impairment is indicated because the
carrying values exceed the estimated future undiscounted cash
flows of the asset, the Company would measure the impairment
loss as the amount by which the carrying value of the asset
exceeds its fair value. No significant impairment losses have
been identified by the Company for any of the periods presented
in the accompanying financial statements.
New Accounting Standards In June 2006, the
Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement
No. 109, (FIN 48). FIN 48
clarifies the accounting for uncertainties in income taxes
recognized in a companys financial statements in
accordance with Statement 109 and prescribes a recognition
threshold and measurement attributable for financial disclosure
of tax positions taken or expected to be taken on a tax return.
Additionally, Interpretation 48 provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
Interpretation 48 is effective for fiscal years beginning after
December 15, 2006. Because the Company has not reported any
income tax expense it does not expect adoption will materially
impact its financial position, results of operations or cash
flows.
|
|
2.
|
Selected
Balance Sheet Information
|
Receivables Receivables consist of amounts
due to the Company for product sales and rentals and research
services provided under terms of government grants, and are
presented net of allowances for doubtful accounts of $16,000 and
$55,000 at June 30, 2005 and 2006, respectively.
Restricted Investments Included in other
current assets at both June 30, 2005 and 2006 are $91,000
of bank certificates of deposit which serve as collateral for
certain potential European Value Added Taxes.
41
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property and Equipment Property and equipment
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
Machinery and equipment
|
|
$
|
1,405,000
|
|
|
$
|
1,957,000
|
|
Office equipment
|
|
|
807,000
|
|
|
|
1,029,000
|
|
Leasehold improvements
|
|
|
622,000
|
|
|
|
622,000
|
|
Equipment in process
|
|
|
111,000
|
|
|
|
111,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,945,000
|
|
|
|
3,719,000
|
|
Less accumulated depreciation and
amortization
|
|
|
(2,192,000
|
)
|
|
|
(2,503,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
753,000
|
|
|
$
|
1,216,000
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
Accounts payable
|
|
$
|
216,000
|
|
|
$
|
356,000
|
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
Clinical studies
|
|
|
48,000
|
|
|
|
169,000
|
|
Manufacturing and engineering
|
|
|
53,000
|
|
|
|
273,000
|
|
Professional services
|
|
|
124,000
|
|
|
|
98,000
|
|
Other
|
|
|
92,000
|
|
|
|
188,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
533,000
|
|
|
$
|
1,084,000
|
|
|
|
|
|
|
|
|
|
|
Accrued Employee Benefits Accrued employee
benefits consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
Accrued vacation pay
|
|
$
|
210,000
|
|
|
$
|
251,000
|
|
Relocation expenses
|
|
|
104,000
|
|
|
|
|
|
Performance bonuses
|
|
|
|
|
|
|
600,000
|
|
Payment to stay to former CEO
|
|
|
|
|
|
|
589,000
|
|
Other
|
|
|
22,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
336,000
|
|
|
$
|
1,455,000
|
|
|
|
|
|
|
|
|
|
|
Employee
Stock-Based Compensation
Stock Option and Equity Incentive Plans The
Company has various stock option plans (Option Plans) and
agreements that provide for the issuance of nonqualified and
incentive stock options to acquire up to 3,645,945 shares
of common stock. Such options may be granted by the
Companys Board of Directors to certain of the
Companys employees, directors and consultants. Options
granted under these plans expire no later than ten years from
the date of grant and generally become exercisable ratably over
a four-year period following the date of grant.
42
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Following shareholder approval of the 2001 Stock Option Plan the
Company agreed that it would not grant additional options under
the 1992 Stock Option Plan or the 1996 Outside Director Stock
Option Plan. Any shares that are issuable upon expiration or
cancellation of options previously granted under the 1992 Stock
Option Plan or the 1996 Outside Director Stock Option Plan will
not be available for future grants.
In November 2004, the shareholders approved the 2004 Equity
Incentive Plan (the 2004 Plan). The 2004 Plan
provides incentives through the grant of stock options
(including indexed options), stock appreciation rights,
restricted stock purchase rights, restricted stock awards,
restricted stock units and deferred stock units. The exercise
price of stock options granted under the 2004 Plan shall not be
less than the fair market value of the shares on the date of
grant. The 2004 Plan replaced the 2001 Stock Option Plan and no
new awards will be granted under the 2001 Stock Option Plan.
However, any shares that are issuable upon expiration or
cancellation of options previously granted under the 2001 Stock
Option Plan will be available for future grants under the 2004
Plan.
On November 1, 2005, a new equity compensation policy for
outside directors was approved. Each non-employee director will
receive periodic grants of stock options and restricted stock
awards. A stock option grant to purchase 30,000 shares will
be made at the start of an elected three year term with an
exercise price equal to the fair market value of the common
stock on the date of grant, and will vest in equal annual
increments over a period of three years. New non-employee
directors appointed to less than a three year term will receive
a grant for a pro rated amount of the 30,000 shares,
reflecting the period of time until they are expected to be
subject to election by the shareholders. Each non-employee
director will also receive an annual grant of shares of
restricted common stock with an aggregate value of $15,000, with
the number of shares being computed based on the price of the
common stock ten days prior to the date of grant. The restricted
shares vest one year after the date of grant.
43
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the combined activity under the
equity incentive plans for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
Weighted Average
|
|
|
Options
|
|
|
|
Options
|
|
|
Available
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
|
Outstanding
|
|
|
for Grant
|
|
|
Per Share
|
|
|
at Period End
|
|
|
March 24, 1989 (Inception)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options authorized
|
|
|
|
|
|
|
8,049,927
|
|
|
|
|
|
|
|
|
|
Options terminated with approval
of 2001 Plan
|
|
|
|
|
|
|
(1,062,286
|
)
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
(2,947,074
|
)
|
|
|
2,847,074
|
|
|
$
|
3.48
|
|
|
|
|
|
Options granted
|
|
|
9,144,615
|
|
|
|
(9,044,615
|
)
|
|
$
|
1.80
|
|
|
|
|
|
Options exercised
|
|
|
(1,851,782
|
)
|
|
|
|
|
|
$
|
.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2003
|
|
|
4,345,759
|
|
|
|
790,100
|
|
|
$
|
1.58
|
|
|
|
1,925,884
|
|
Options authorized
|
|
|
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
Options terminated with approval
of 2001 Plan
|
|
|
|
|
|
|
(3,333
|
)
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
(203,333
|
)
|
|
|
203,333
|
|
|
$
|
.41
|
|
|
|
|
|
Options granted
|
|
|
819,000
|
|
|
|
(819,000
|
)
|
|
$
|
1.60
|
|
|
|
|
|
Options exercised
|
|
|
(5,000
|
)
|
|
|
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2004
|
|
|
4,956,426
|
|
|
|
2,171,100
|
|
|
$
|
1.33
|
|
|
|
3,118,094
|
|
Options authorized
|
|
|
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
Options abandoned with approval of
2004 Plan
|
|
|
|
|
|
|
(734,425
|
)
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
(727,159
|
)
|
|
|
296,612
|
|
|
$
|
1.16
|
|
|
|
|
|
Options granted
|
|
|
1,410,750
|
|
|
|
(676,325
|
)
|
|
$
|
1.33
|
|
|
|
|
|
Options exercised
|
|
|
(1,554,064
|
)
|
|
|
|
|
|
$
|
.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2005
|
|
|
4,085,953
|
|
|
|
4,056,962
|
|
|
$
|
1.55
|
|
|
|
1,782,871
|
|
Options abandoned due to approval
of 2004 Plan
|
|
|
|
|
|
|
(77,217
|
)
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
(323,217
|
)
|
|
|
323,217
|
|
|
$
|
2.17
|
|
|
|
|
|
Options granted
|
|
|
289,900
|
|
|
|
(289,900
|
)
|
|
$
|
2.55
|
|
|
|
|
|
Restricted stock awards and units
granted
|
|
|
|
|
|
|
(374,217
|
)
|
|
|
|
|
|
|
|
|
Restricted stock awards and units
canceled
|
|
|
|
|
|
|
7,100
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(528,083
|
)
|
|
|
|
|
|
$
|
.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2006
|
|
|
3,524,553
|
|
|
|
3,645,945
|
|
|
$
|
1.67
|
|
|
|
2,361,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about stock option
plans as of June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Exercise
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
Price of
|
|
|
|
Options
|
|
|
Contractual
|
|
|
Weighted Average
|
|
|
Number
|
|
|
Exercisable
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Life Years
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Options
|
|
|
$ .31 - $ .99
|
|
|
929,939
|
|
|
|
7.4
|
|
|
$
|
.66
|
|
|
|
535,936
|
|
|
$
|
.64
|
|
$1.05 - $2.27
|
|
|
1,609,206
|
|
|
|
6.9
|
|
|
$
|
1.42
|
|
|
|
970,199
|
|
|
$
|
1.26
|
|
$2.44 - $2.95
|
|
|
780,000
|
|
|
|
5.0
|
|
|
$
|
2.92
|
|
|
|
698,289
|
|
|
$
|
2.92
|
|
$3.19 - $3.65
|
|
|
205,408
|
|
|
|
6.6
|
|
|
$
|
3.19
|
|
|
|
157,283
|
|
|
$
|
3.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,524,553
|
|
|
|
|
|
|
$
|
1.67
|
|
|
|
2,361,707
|
|
|
$
|
1.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
Employee Stock-Based Compensation Expense
As described in Note 1, effective July 1, 2005, we
adopted FAS 123R and began recognizing compensation expense
for the fair value of equity grants to employees and directors.
The fair value of each employee and director grant of options to
purchase common stock is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants for the year ended
June 30, 2006: 1) risk-free interest rate of 4.3%;
2) expected dividend yield of 0%; 3) expected holding
period of 6.6 years based on the simplified method provided
for in Securities and Exchange Commission Staff Accounting
Bulletin No. 107 for plain vanilla
options; 4) expected volatility of 106%. The fair
value of restricted stock award and unit grants is measured
based upon the quoted market price of the Companys common
stock on the date of grant. Stock-compensation expense related
to options and restricted stock awards and units is reported net
of estimated forfeitures of 10%.
The estimated risk-free interest rate is based on the
U.S. Treasury zero-coupon yield curve on the grant date for
a maturity similar to the expected life of the options. The
dividend rate is based on the Companys historical rate.
The Company estimates the expected life of options granted based
on the simplified method provided for in the Securities and
Exchange Commission Staff Accounting Bulletin No. 107
for plain vanilla options. The Company estimates the
volatility of its common stock at the date of grant based on
historical volatility. The Company estimates the forfeiture rate
based on historical experience of its stock-based awards.
Compensation costs reported as operating expense for the option
grants under the 2004 Plan were approximately $724,000 for the
year ended June 30, 2006.
During the year ended June 30, 2006 we granted
374,217 shares of restricted stock awards and units and
289,900 options to purchase common stock, to directors of the
Company and to employees. Restricted stock awards are granted to
U.S. employees, while restricted stock units, which entitle
the recipient to receive common stock upon vesting, are granted
to international employees. Restricted stock awards and units
are treated the same with respect to stock-based compensation
expense. The weighted average grant-date fair value of shares of
restricted stock awards and units granted during the year ended
June 30, 2006 was $2.35. As of June 30, 2006,
7,100 shares of restricted stock awards and units were
forfeited and no shares have vested. The compensation costs
charged as operating expenses for restricted stock for the year
ended June 30, 2006 were $310,000.
45
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of option activity under the plan as of June 30,
2006, and changes during the year then ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
Options
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value
|
|
|
Outstanding at July 1, 2005
|
|
|
4,085,953
|
|
|
$
|
1.55
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
289,900
|
|
|
$
|
2.55
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(528,083
|
)
|
|
$
|
.90
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(323,217
|
)
|
|
$
|
2.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006
|
|
|
3,524,553
|
|
|
$
|
1.67
|
|
|
|
6.5
|
|
|
$
|
860,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2006
|
|
|
2,361,707
|
|
|
$
|
1.72
|
|
|
|
5.6
|
|
|
$
|
564,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the status of the Companys non-vested shares
as of June 30, 2006 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
Non-Vested Options
|
|
Shares
|
|
|
Fair Value
|
|
|
Non-vested at July 1, 2005
|
|
|
1,890,071
|
|
|
$
|
1.29
|
|
Granted
|
|
|
289,900
|
|
|
$
|
2.55
|
|
Vested
|
|
|
(812,473
|
)
|
|
$
|
1.18
|
|
Forfeited
|
|
|
(204,652
|
)
|
|
$
|
1.77
|
|
|
|
|
|
|
|
|
|
|
Non-vested at June 30, 2006
|
|
|
1,162,846
|
|
|
$
|
1.59
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 there was approximately $892,000 of
total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under the plan.
That cost is expected to be recognized over a weighted-average
period of 2.5 years.
2005
and 2004 Employee Stock-Based Compensation
Expense
During fiscal year 2004 and 2005 the Company recorded and
reported its employee stock-based grants under the recognition
and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees and
related Interpretations. The following table illustrates the
effect on net loss and net loss per share if the Company had
applied the fair value recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation for
the years ended June 30, 2004 and 2005:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
Reported net loss
|
|
$
|
(10,488,000
|
)
|
|
$
|
(11,811,000
|
)
|
Add: Stock-based employee
compensation expense included in reported net loss
|
|
|
372,000
|
|
|
|
160,000
|
|
Deduct: Stock-based employee
compensation expense determined under fair value based method
for all awards
|
|
|
(1,352,000
|
)
|
|
|
(721,000
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(11,468,000
|
)
|
|
$
|
(12,372,000
|
)
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(.14
|
)
|
|
$
|
(.13
|
)
|
Pro forma
|
|
$
|
(.16
|
)
|
|
$
|
(.13
|
)
|
46
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of options was estimated at the date of grant
using the Black-Scholes option pricing model with the following
assumptions:
|
|
|
|
|
|
|
June 30,
|
|
|
2004
|
|
2005
|
|
Dividend rate
|
|
None
|
|
None
|
Expected stock price volatility
|
|
60%
|
|
72%
|
Risk-free interest rate
|
|
3.1% 3.9%
|
|
3.5% 3.9%
|
Expected life of options
|
|
5 years
|
|
5 years
|
The weighted average fair value of options granted during the
years ended June 30, 2004 and 2005 was $1.60 and
$1.33 per share, respectively.
During fiscal year 2001, pursuant to Financial Accounting
Standards Board Interpretation Number 44 to APB 25
(Interpretation No. 44) as it related to an effective
re-pricing of options to purchase 759,000 shares of common
stock issued by the Company in December 1999 to certain
employees. Under this rule, a charge to expense was required for
subsequent increases in the market price of the Companys
common stock above $2.41 per share. Such charges continued
until such options were exercised, forfeited or otherwise
expired. During fiscal year 2004, there was no charge to expense
because the Companys common stock price did not exceed
$2.41 per share. During fiscal year 2005, the Company
recorded a $59,000 charge to selling, general and administrative
expenses related to these options. These options were exercised
during fiscal year 2005.
Employee Stock Purchase Plan The Company had
an employee stock purchase plan under which eligible employees
could purchase common stock, at a discount to the market price,
through payroll deductions of up to 10% of the employees
base compensation, subject to certain limitations, during
sequential
24-month
offering periods. Each offering period was divided into four
consecutive six-month purchase periods beginning on March 1
and September 1 of each year. Unless otherwise provided by
the Board of Directors prior to the commencement of an offering
period, the price at which stock was purchased under the plan
for such offering period was equal to 85% of the lesser of the
fair market value of the common stock on the first day of such
offering period or the last day of the purchase period of such
offering period. During the years ended June 30, 2004 and
2005, 40,919 shares and 39,017 shares, respectively,
of common stock were purchased under this plan. From Inception
to June 30, 2006, 231,491 shares were purchased under
this plan. The Employee Stock Purchase plan was terminated
effective March 1, 2005.
Non-Employee
Stock-Based Compensation Expense
Stock Purchase Warrants Issued for Services
In August 2003, the Company issued warrants to two individuals
who performed public and investor relations services. Under the
terms of this agreement, the holders were entitled to purchase
up to 100,000 shares of common stock for $0.50 through
August 4, 2004. As a result of this agreement the Company
recorded $53,000 in selling, general and administrative expenses
during the year ended June 30, 2004 which represented the
fair value of the warrants. At June 30, 2006 and 2005, none
of these warrants were outstanding.
The fair value of all warrants issued in fiscal year 2004 were
determined at the date of grant using the Black-Scholes
option-pricing model at an expected stock price volatility of
120% and a risk-free interest rate of 1.26%. These warrants were
issued in private transactions.
Stock Purchase Warrants In July 2003, the
Company issued 5,058,824 shares of common stock to multiple
private placement investors, for gross proceeds of approximately
$4,300,000. As part of this transaction, the Company issued
warrants to the private placement investors, exercisable for
4 years, or until July 9, 2007, to purchase up to
1,264,706 shares of common stock at $1.23, as well as
warrants to purchase up to 1,011,765 shares of
47
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
common stock at $1.50 per share prior to October 31,
2003. These later warrants expired unexercised. In addition,
warrants to purchase 303,529 shares of common stock were
issued to a private placement agent, exercisable for
4 years, or until July 9, 2007, at a price of $1.23.
At June 30, 2006, warrants to purchase up to
808,824 shares of common stock pursuant to these warrant
agreements remained outstanding.
In April 2004, the Company issued 8,000,000 shares of
common stock through a registered direct offering to
institutional investors, for gross proceeds of approximately
$9,100,000. As part of this transaction, the Company issued
warrants to the institutional investors, exercisable for
5 years, or until April 5, 2009, subject to mandatory
exercise at the Companys option, in certain circumstances
of stock price escalation after April 5, 2006, to purchase
up to 2.4 million shares of common stock at an exercise
price of $1.65 per share. In addition, the Company issued
warrants to the placement agent, exercisable for 5 years,
or until April 5, 2009, subject to mandatory exercise at
the Companys option, in certain circumstances of stock
price escalation after April 5, 2005, to purchase up to
560,000 shares of common stock at an exercise price of
$1.65 per share. At June 30, 2006, warrants to
purchase up to 2.4 million shares of common stock pursuant
to these warrant agreements remained outstanding.
In October 2004, the Company issued 8,264,463 shares of
common stock through a registered direct offering to
institutional investors, for aggregate gross cash proceeds of
approximately $10,000,000. As part of this transaction, the
Company issued warrants to the institutional investors,
exercisable from April 28, 2005 through October 27,
2008, to purchase up to 2,066,116 shares of common stock at
an exercise price of $1.74 per share. In addition, the
Company issued warrants to the placement agent, exercisable from
April 28, 2005 through October 27, 2008, to purchase
up to 495,868 shares of common stock at an exercise price
of $1.74 per share. At June 30, 2006, warrants to
purchase up to 1,838,843 shares of common stock pursuant to
these warrant agreements remained outstanding.
Common Shares Reserved As of
June 30, 2006, the Company has reserved shares of common
stock for future issuance as follows:
|
|
|
|
|
Issuance under stock option and
stock purchase plans
|
|
|
13,530,216
|
|
Issuance under stock purchase
warrants
|
|
|
5,047,667
|
|
|
|
|
|
|
|
|
|
18,577,883
|
|
|
|
|
|
|
No cash dividends have been declared or paid by the Company
since its inception.
A reconciliation of income taxes computed using the federal
statutory rate to the taxes reported in our consolidated
statements of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Loss before income taxes
|
|
$
|
10,488,000
|
|
|
$
|
11,811,000
|
|
|
$
|
16,475,000
|
|
Federal statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
Taxes computed at federal
statutory rate
|
|
|
(3,566,000
|
)
|
|
|
(4,015,000
|
)
|
|
|
(5,600,000
|
)
|
State taxes, net of federal taxes
|
|
|
|
|
|
|
(354,000
|
)
|
|
|
|
|
Increase (decrease) in taxes from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation
|
|
|
145,000
|
|
|
|
(80,000
|
)
|
|
|
110,000
|
|
Other, net
|
|
|
5,000
|
|
|
|
(85,000
|
)
|
|
|
10,000
|
|
Valuation allowance
|
|
|
3,416,000
|
|
|
|
4,534,000
|
|
|
|
5,480,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred tax assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
Net operating loss carryforwards
|
|
$
|
21,200,000
|
|
|
$
|
25,500,000
|
|
Research and development credit
carryforwards
|
|
|
685,000
|
|
|
|
935,000
|
|
Inventories
|
|
|
435,000
|
|
|
|
435,000
|
|
Property and equipment
|
|
|
130,000
|
|
|
|
120,000
|
|
Employee benefits
|
|
|
|
|
|
|
550,000
|
|
Other, net
|
|
|
100,000
|
|
|
|
190,000
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
22,550,000
|
|
|
|
27,730,000
|
|
Valuation allowance
|
|
|
(22,550,000
|
)
|
|
|
(27,730,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Due to the historical losses incurred by the Company, a full
valuation allowance for deferred tax assets has been provided.
If the Company achieves profitability, these deferred tax assets
may be available to offset future income taxes.
The Company has issued shares of common stock in prior years,
which resulted in multiple ownership changes under
Section 382 of the Internal Revenue Code. Consequently, the
utilization of net operating loss and tax credit carryforwards
is significantly limited. Such limitations may result in these
carryforwards expiring before the Company utilizes them. At
June 30, 2006 the Company estimates the maximum Federal tax
net operating loss and tax credit carryforwards, which could be
utilized, were $69,000,000 and $935,000, respectively, which
will expire from 2007 through 2027, if not utilized. The
Companys ability to utilize its net operating loss and tax
credit carryforwards may become subject to further annual
limitation in the event of future change in ownership events.
|
|
5.
|
Licenses,
Royalties and Collaborative Agreements and Commitments
|
University of Michigan In August 1989, the
Company entered into a research agreement with the University of
Michigan (the University). In March 1992, and as provided for
under the research agreement, the Company also entered into a
license agreement for the technology developed under the
research agreement. The license agreement, as amended, provides
for a royalty to be paid to the University equal to 2% of net
sales of products containing the licensed technology sold by the
Company. Such royalties have totaled approximately $5,000 since
inception.
Corning Incorporated In December 2002, the
Company entered into an agreement with Corning Incorporated that
granted them an exclusive sublicense relating to the
Companys cell transfection technology. Under the terms of
the agreement, the Company retains exclusive rights to the
applications of the technologies involving cells for therapeutic
applications. The sublicense agreement also provided for the
Company to receive an up-front fee of $10,000 and a one-time fee
of $50,000 due thirty days after the one-year anniversary of the
effective date of the agreement. The upfront fee was received in
fiscal year 2003 and the anniversary fee was received in fiscal
year 2004. These fees were recorded as research and development
agreements revenue. In addition, the agreement provides for
future royalty payments on net sales of licensed products sold
under the sublicense amounting to 5% of such sales up to
$50 million. However, the Company does not expect to
receive material revenue from this source for several years, if
ever.
Musculoskeletal Transplant Foundation In June
2003, the Company entered into a strategic alliance with
Musculoskeletal Transplant Foundation (MTF) to jointly develop
and commercialize innovative treatments for the regeneration of
tissues such as bone and cartilage. Under the terms of the
alliance, the companies will develop products that are based on
combinations of MTFs matrices and Aastroms TRCs.
49
AASTROM
BIOSCIENCES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Manufacture, Supply and Other Agreements The
Company has entered into various agreements relating to the
manufacture of its products and the supply of certain
components. If the manufacturing or supply agreements expire or
are otherwise terminated, the Company may not be able to
identify and obtain ancillary materials that are necessary to
develop its product and such expiration and termination could
have a material affect on the Companys business.
|
|
6.
|
Operating
Lease and Purchase Order Commitments
|
As of June 30, 2006, the Company leases its office and
research facility under a
month-to-month
operating lease. Rent expense for the years ended June 30,
2004, 2005 and 2006, was $616,000, $626,000 and $626,000,
respectively, and $6,331,000 for the period from Inception to
June 30, 2006.
As of July 20, 2006, the Company renegotiated its lease
with Dominos Farms Office Park, LLC, increasing the leased
space to 30,230 square feet. This new lease covers a period
of five years, beginning on the date of occupancy of the
additional space, which the Company anticipates will be in March
2007. The aggregate minimum rent commitment under the new five
year lease is approximately $4,878,000.
As of June 30, 2006, the Company had open purchase order
commitments totaling $398,000.
The Company has a 401(k) savings plan that allows participating
employees to contribute up to 15% of their salary, subject to
annual limits and minimum qualifications. The Board may, at its
sole discretion, approve Company matching contributions to the
plan. The Company has made contributions of $121,000, $137,000
and $160,000 for the years ended June 30, 2004, 2005 and
2006, respectively and $673,000 for the period from Inception to
June 30, 2006.
|
|
8.
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2006
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
Fiscal Year
|
|
|
Revenues
|
|
$
|
180,000
|
|
|
$
|
117,000
|
|
|
$
|
238,000
|
|
|
$
|
328,000
|
|
|
$
|
863,000
|
|
Loss from operations
|
|
|
(3,974,000
|
)
|
|
|
(4,339,000
|
)
|
|
|
(4,799,000
|
)
|
|
|
(4,801,000
|
)
|
|
|
(17,733,000
|
)
|
Net loss
|
|
|
(3,488,000
|
)
|
|
|
(4,142,000
|
)
|
|
|
(4,549,000
|
)
|
|
|
(4,296,000
|
)
|
|
|
(16,475,000
|
)
|
Net loss per common share
|
|
|
(.03
|
)
|
|
|
(.04
|
)
|
|
|
(.04
|
)
|
|
|
(.04
|
)
|
|
|
(.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2005
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
Fiscal Year
|
|
|
Revenues
|
|
$
|
187,000
|
|
|
$
|
374,000
|
|
|
$
|
252,000
|
|
|
$
|
96,000
|
|
|
$
|
909,000
|
|
Loss from operations
|
|
|
(2,709,000
|
)
|
|
|
(2,550,000
|
)
|
|
|
(3,553,000
|
)
|
|
|
(3,605,000
|
)
|
|
|
(12,417,000
|
)
|
Net loss
|
|
|
(2,649,000
|
)
|
|
|
(2,453,000
|
)
|
|
|
(3,349,000
|
)
|
|
|
(3,360,000
|
)
|
|
|
(11,811,000
|
)
|
Net loss per common share
|
|
|
(.03
|
)
|
|
|
(.03
|
)
|
|
|
(.03
|
)
|
|
|
(.03
|
)
|
|
|
(.13
|
)
|
The summation of quarterly earnings per share computations may
not equate to the year-end computation as the quarterly
computations are performed on a discrete basis.
On July 17, 2006, Aastrom announced that George W. Dunbar
had joined the Company as Chief Executive Officer, President and
a Director to replace Dr. R. Douglas Armstrong, who will
continue as Chairman of the Board for the remainder of his term.
Pursuant to Dr. Armstrongs revised employment
agreement, he is entitled to $638,000 as payment to stay,
including the $589,000 that is reported as an operating expense
for the year ended June 30, 2006. In July 2006,
Dr. Armstrong also entered into a consulting agreement,
pursuant to which he is entitled to approximately $42,000,
unless the agreement is extended.
50
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
There are none to report.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
As required by
Rule 13a-15(b)
under the Securities Exchange Act of 1934, as amended, we
conducted an evaluation under the supervision and with the
participation of our management, including the Companys
Chief Executive Officer and Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period
covered by this report. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our
current disclosure controls and procedures were effective in
ensuring that all information required to be disclosed in
reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission
rules and forms.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in Rule 13(a) 15(f) under the Exchange Act).
Our internal control over financial reporting is a process
designed under the supervision of our Chief Executive Officer
and Chief Financial Officer to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of our financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States of America. Management evaluated the effectiveness
of our internal control over financial reporting using the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal
Control Integrated Framework. Management, under the
supervision and with the participation of the Companys
Chief Executive Officer and Chief Financial Officer, assessed
the effectiveness of our internal control over financial
reporting as of June 30, 2006 and concluded that it was
effective.
Our independent registered public accounting firm,
PricewaterhouseCoopers LLP, has audited the effectiveness of our
internal control over financial reporting and managements
assessment of the effectiveness of our internal control over
financial reporting as of June 30, 2006, and has expressed
unqualified opinions thereon in their report which appears under
Item 8.
Changes
in Internal Control over Financial Reporting
During our fourth quarter of fiscal 2006 there were no changes
made in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
Not applicable.
51
PART III
Certain information required by Part III is omitted from
this Report, and is incorporated by reference to our definitive
Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A in connection with
our 2006 Annual Meeting of Shareholders to be held on
November 2, 2006.
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant
|
The information relating to our directors is incorporated by
reference to the Proxy Statement as set forth under the caption
Election of Directors. Information relating to our
executive officers is set forth in Part I of this Report
under the caption Executive Officers of Aastrom.
Information with respect to delinquent filings pursuant to
Item 405 of
Regulation S-K
is incorporated by reference to the Proxy Statement as set forth
under the caption Section 16(a) Beneficial Ownership
Reporting Compliance.
|
|
Item 11.
|
Executive
Compensation
|
The information relating to executive compensation is
incorporated by reference to the Proxy Statement under the
caption Executive Compensation and Other Matters.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and
Management
|
The information relating to ownership of our equity securities
by certain beneficial owners and management is incorporated by
reference to the Proxy Statement as set forth under the caption
Stock Ownership of Certain Beneficial Owners and
Management.
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
The information relating to certain relationships and related
transactions is incorporated by reference to the Proxy Statement
under the captions Certain Transactions and
Compensation Committee Interlocks and Insider
Participation in Compensation Decisions.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information relating to certain relationships and related
transactions is incorporated by reference to the Proxy Statement
under the caption Ratification of Appointment of
Independent Registered Public Accounting Firm.
52
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedule
|
(a) The following documents are filed as part of this
Report:
1. Financial Statements (see Item 8).
2. All information is included in the Financial Statements
or Notes thereto.
3. Exhibits:
See Exhibit Index.
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Aastrom Biosciences, Inc.
George W. Dunbar
Chief Executive Officer and President
(Principal Executive Officer)
Date: September 13, 2006
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below on September 13,
2006 by the following persons in the capacities indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
/s/ George
W. Dunbar
George
W. Dunbar
|
|
Chief Executive Officer, President
and Director
(Principal Executive Officer)
|
|
|
|
/s/ Gerald
D.
Brennan, Jr.
Gerald
D. Brennan, Jr.
|
|
Vice President Administrative and
Financial
Operations and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
/s/ R.
Douglas
Armstrong, Ph.D.
R.
Douglas Armstrong, Ph.D.
|
|
Chairman
|
|
|
|
/s/ Susan
L. Wyant, Pharm.
D
Susan
L. Wyant, Pharm. D
|
|
Lead Director
|
|
|
|
/s/ Timothy
M. Mayleben
Timothy
M. Mayleben
|
|
Director
|
|
|
|
/s/ Alan
L. Rubino
Alan
L. Rubino
|
|
Director
|
|
|
|
/s/ Nelson
M. Sims
Nelson
M. Sims
|
|
Director
|
|
|
|
/s/ Stephen
G. Sudovar
Stephen
G. Sudovar
|
|
Director
|
|
|
|
/s/ Robert
L.
Zerbe, M.D.
Robert
L. Zerbe, M.D.
|
|
Director
|
54
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
Number
|
|
Notes
|
|
|
|
|
3
|
.1
|
|
|
|
|
|
Restated Articles of Incorporation
of Aastrom, as amended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
.2
|
|
|
H
|
|
|
Bylaws, as amended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.1#
|
|
|
A
|
|
|
Form of Indemnification Agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.2#
|
|
|
A
|
|
|
Amended and Restated 1992
Incentive and Non-Qualified Stock Option Plan and forms of
agreements thereunder.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.3#
|
|
|
A
|
|
|
1996 Outside Directors Stock
Option Plan and forms of agreements thereunder.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.20#
|
|
|
A
|
|
|
Form of Employment Agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.21
|
|
|
A
|
|
|
License Agreement, dated
July 17, 1992, between J.G. Cremonese and Aastrom and
related addenda thereto dated July 14, 1992 and
July 7, 1993.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.26
|
|
|
A
|
|
|
License Agreement, dated
March 13, 1992, between Aastrom and the University of
Michigan and amendments thereto dated March 13, 1992,
October 8, 1993 and June 21, 1995.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.27#
|
|
|
A
|
|
|
Employee Proprietary Information
and Invention Agreement, effective June 1, 1991, between
Aastrom and R. Douglas Armstrong.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.72#
|
|
|
B
|
|
|
Aastrom Biosciences 2001 Stock
Option Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.76
|
|
|
C
|
|
|
Master Supply Agreement with Astro
Instrumentation, LLC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.77
|
|
|
E
|
|
|
Supply Agreement between Aastrom
and Moll Industries, Inc., dated December 16, 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.78#
|
|
|
F
|
|
|
Employment Agreement with James
Cour dated June 11, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.79#
|
|
|
F
|
|
|
Employment Agreement with Janet
Hock dated September 1, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.80#
|
|
|
F
|
|
|
Employment Agreement with R.
Douglas Armstrong dated August 27, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.81#
|
|
|
F
|
|
|
Amended and Restated Employment
Agreement with Brian Hampson dated August 27, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.82#
|
|
|
F
|
|
|
2004 Equity Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.83#
|
|
|
G
|
|
|
Employment Agreement with Robert
Bard dated March 1, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.84#
|
|
|
H
|
|
|
Form of Option and Restricted
Stock Award Agreements for Grants under 2004 Equity Incentive
Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.85
|
|
|
H
|
|
|
Employee Compensation Guidelines.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.86#
|
|
|
H
|
|
|
Employment Agreement with Gerald
D. Brennan, Jr. dated June 10, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.87
|
|
|
H
|
|
|
Amendment dated December 5,
2002 to License Agreement with the University of Michigan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.88#
|
|
|
I
|
|
|
Revised Employment Agreement with
R. Douglas Armstrong dated December 27, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.89#
|
|
|
I
|
|
|
Revised Employment Agreement with
James A. Cour dated January 12, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.90#
|
|
|
J
|
|
|
Employment Agreement with George
W. Dunbar dated July 17, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.91#
|
|
|
J
|
|
|
Consulting Agreement with R.
Douglas Armstrong dated July 17, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.92#
|
|
|
J
|
|
|
Separation Agreement with James A.
Cour dated July 14, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
Subsidiaries of Registrant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
.1
|
|
|
|
|
|
Consent of Independent Registered
Public Accounting Firm.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
Rules 13a-14(a)
and
14d-14(a)
Certifications.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
Section 1350 Certifications.
|
|
|
|
A |
|
Incorporated by reference to Aastroms Registration
Statement on
Form S-1
(No. 333-15415),
declared effective on February 3, 1997. |
|
B |
|
Incorporated by reference to Aastroms Annual Report on
Form 10-K
for the year ended June 30, 2002. |
|
C |
|
Incorporated by reference to Aastroms Annual Report on
Form 10-K
for the year ended June 30, 2003. |
|
D |
|
Incorporated by reference to Aastroms Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005. |
|
E |
|
Incorporated by reference to Aastroms Annual Report on
Form 10-K
for the year ended June 30, 2004. |
|
F |
|
Incorporated by reference to Aastroms Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2004. |
|
G |
|
Incorporated by reference to Aastroms Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2005. |
|
H |
|
Incorporated by reference to Aastroms Annual Report on
Form 10-K
for the year ended June 30, 2005. |
|
I |
|
Incorporated by reference to Aastroms Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2005. |
|
J |
|
Incorporated by reference to Aastroms Current Report on
Form 8-K
filed on July 18, 2006. |
|
# |
|
Management contract or compensatory plan or arrangement covering
executive officers or directors of Aastrom. |
55
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Allowance for Doubtful
Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
31,000
|
|
|
$
|
7,000
|
|
|
$
|
16,000
|
|
Additions charged to income
|
|
|
4,000
|
|
|
|
9,000
|
|
|
|
39,000
|
|
Write-offs, net of recoveries
|
|
|
(28,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
7,000
|
|
|
$
|
16,000
|
|
|
$
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Reserve for Obsolescence and
Excess Inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
950,000
|
|
|
$
|
1,203,000
|
|
|
$
|
1,173,000
|
|
Additions charged to income
|
|
|
253,000
|
|
|
|
9,000
|
|
|
|
|
|
Reductions(1)
|
|
|
|
|
|
|
(39,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
1,203,000
|
|
|
$
|
1,173,000
|
|
|
$
|
1,173,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects the elimination of reserve upon the sale of the related
inventories. |
56
Exhibit 3.1
Exhibit 3.1
RESTATED ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC PROFIT CORPORATIONS
1. The present name of the corporation is:
Aastrom Biosciences, Inc.
2. The identification number assigned by the Bureau is:
529-456
3. All former names of the corporation are:
Ann Arbor Stromal, Inc.
4. The date of filing the original Articles of Incorporation was:
March 24, 1989
The following Restated Articles of Incorporation supersede the Articles of Incorporation as
amended and shall be the Articles of Incorporation for the corporation:
ARTICLE I:
The name of the corporation is:
Aastrom Biosciences, Inc.
ARTICLE II:
The purpose or purposes for which the corporation is formed are:
To engage in any activity within the purpose for which corporations may
be organized under the Michigan Corporation Act.
ARTICLE III:
The total authorized shares:
Common Shares 200,000,000 Preferred Shares 5,000,000
A statement of all or any of the relative rights, preferences and limitations of the shares of
each class is as follows:
See Rider attached hereto and made a part hereof.
ARTICLE IV:
1. The address of the registered office is:
Dominos Farms Lobby L, 24 Frank Lloyd Wright Drive, Ann Arbor, Michigan
48105.
2. The mailing address of the registered office, if different than above:
P.O. Box 376, Ann Arbor, Michigan 48106.
3. The name of the resident agent:
Michael Durski
ARTICLE V:
(OPTIONAL. DELETE IF NOT APPLICABLE)
ARTICLE VI:
(OPTIONAL. DELETE IF NOT APPLICABLE)
ARTICLE VII:
(ADDITIONAL PROVISIONS, IF ANY, MAY BE INSERTED HERE; ATTACH ADDITIONAL PAGES IF NEEDED.)
See Rider attached hereto and made a part hereof.
RIDER TO ARTICLE III
PART A: COMMON STOCK
Section 1. Voting Rights.
a. One Vote Per Share. The holders of shares of Common Stock shall be entitled to one
vote for each share so held with respect to all matters voted on by the holders of shares of Common
Stock of the Corporation.
b. Two-Thirds Consent. Consent of the holders of a least two-thirds (2/3) of the
outstanding shares of Common Stock shall be required for (i) any action which results in a
consolidation or merger which would be treated as a liquidation, dissolution or winding up of the
Corporation under Section 2 of this Part A of this Article III, or which results in the
liquidation, sale or assignment of all or substantially all of the assets of the Corporation; (ii)
any amendment to these Articles of Incorporation; or (iii) any amendment by the shareholders of the
Corporation of the Bylaws of the Corporation (the Board of Directors of the Corporation, as
provided in Section 3 of Article VII, shall have the authority to amend the Bylaws of the
Corporation without the consent of the shareholders of the Corporation).
2
Section 2. Liquidation Rights. Subject to preferences applicable to any
outstanding shares of Preferred Stock, all distributions made or funds paid to the holders of
Common Stock upon the occurrence of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation shall be made on the basis of the number of shares of
Common Stock held by each of them. A consolidation or merger of the Corporation with or into
another corporation or entity shall be regarded as a liquidation, dissolution or winding up of the
Corporation within the meaning of this Section 2 unless such consolidation or merger is not
intended to effect a change in the ownership or control of the Corporation or of its assets and is
not intended to alter materially the business or assets of the Corporation, including, by way of
example and without limiting the generally of the foregoing: (i) a consolidation or merger which
merely changes the identity, form or place of organization of the Corporation, or which is between
or among the Corporation and any of its direct or indirect subsidiaries, or (ii) following such
merger or consolidation, shareholders of the Corporation immediately prior to such event own not
less than 51% of the voting power of such corporation immediately after such merger or
consolidation on a pro rata basis.
Section 3. Dividends. Dividends may be paid on the Common Stock as and when
declared by the Board of Directors, subject to preferences applicable to any outstanding shares of
Preferred Stock.
PART B. PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series. The Board of
Directors of the Corporation is hereby authorized, within the limitations and restrictions stated
in these Restated Articles of Incorporation, to fix or alter the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued
series of Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them, and to increase or decrease the number of shares of any series
subsequent to the issue of shares of that series but not below the number of shares of such series
then outstanding. In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
RIDER TO ARTICLE VII
1. Director Liability. A director of the Corporation shall not be personally liable
to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a
director. However, this provision does not eliminate or limit the liability of a director for any
of the following:
(a) any breach of the directors duty of loyalty to the Corporation or its shareholders;
(b) any acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law;
3
(c) a violation of Section 551(1) of the Michigan Business Corporation Act, as amended (the
MBCA);
(d) a transaction from which the director derived an improper personal benefit; or
(e) an act or omission occurring before the date these Articles of Incorporation became
effective in accordance with the pertinent provisions of the MBCA.
Any repeal, amendment or other modification of this Article VII shall not adversely affect any
right or protection of a director of the Corporation existing at the time of such repeal, amendment
or other modification.
If the MBCA is amended, after this Article becomes effective, to authorize corporate action
further eliminating or limiting personal liability of directors, then the liability of directors
shall be eliminated or limited to the fullest extent permitted by the MBCA as so amended.
2. Control Share Acquisitions. Chapter 7B of the MBCA, known as the Stacy, Bennett,
and Randall shareholder equity act, does not apply to control share acquisitions of shares of the
Corporation.
3. Amendment of Bylaws. In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors of the Corporation is expressly authorized to make, alter or
repeal the Bylaws of the Corporation.
4
Exhibit 21
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Aastrom Biosciences, Ltd.
Aastrom Biosciences GmbH
Aastrom Biosciences SL
Exhibit 23.1
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(Nos. 333-121006, 333-115505, 333-81340, 333-51556, 333-38886 and 333-25021) and Form S-3 (Nos.
333-123570, 333-108963, 333-108989, 333-108964 and 333-107579) of Aastrom Biosciences, Inc. (a
development stage company) of our report dated September 13, 2006, relating to the financial
statements, financial statement schedule, managements assessment of the effectiveness of internal
control over financial reporting and the effectiveness of internal control over financial
reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
September 13, 2006
Exhibit 31
EXHIBIT 31
CERTIFICATION
I, George W. Dunbar, certify that:
|
1. |
|
I have reviewed this Form 10-K of Aastrom Biosciences, Inc.; |
|
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
3. |
|
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared; and
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; and
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting.
|
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
|
|
|
|
|
|
|
|
|
/s/ George W. Dunbar |
|
|
|
|
|
|
|
|
|
George W. Dunbar
Chief Executive Officer and President |
CERTIFICATION
I, Gerald D. Brennan, Jr., certify that:
|
1. |
|
I have reviewed this Form 10-K of Aastrom Biosciences, Inc.; |
|
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
3. |
|
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared; and
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; and
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting.
|
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
Date: September 13, 2006
|
|
|
|
|
|
|
|
|
/s/ Gerald D. Brennan, Jr. |
|
|
|
|
|
|
|
|
|
Gerald D. Brennan, Jr.
Vice President Administrative and Financial
Operations and Chief Financial Officer |
Exhibit 32
EXHIBIT 32
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Aastrom Biosciences, Inc. (the Company) on Form 10-K
for the year ended June 30, 2006, as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, George W. Dunbar, Chief Executive Officer and President of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Section 906), that:
|
(1) |
|
The Report fully complies with the requirements of section 13(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m); and |
|
|
(2) |
|
The information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company. |
Date: September 13, 2006
|
|
|
|
|
|
|
|
|
/s/George W. Dunbar |
|
|
|
|
|
|
|
|
|
George W. Dunbar
Chief Executive Officer and President |
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Aastrom Biosciences, Inc. (the Company) on Form 10-K
for the year ended June 30, 2006, as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Gerald D. Brennan, Jr., Vice President Administrative and Financial
Operations and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 906), that:
|
(1) |
|
The Report fully complies with the requirements of section 13(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m); and |
|
|
(2) |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
Date: September 13, 2006
|
|
|
|
|
|
|
|
|
/s/Gerald D. Brennan, Jr. |
|
|
|
|
|
|
|
|
|
Gerald D. Brennan, Jr. |
|
|
|
|
Vice President Administrative and Financial |
|
|
|
|
Operations and Chief Financial Officer |