e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2006,
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission file number 0-22025
AASTROM BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Michigan
|
|
94-3096597 |
|
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. employer
identification no.) |
|
|
|
24 Frank Lloyd Wright Dr.
P.O. Box 376 |
|
|
Ann Arbor, Michigan
|
|
48106 |
|
|
|
(Address of principal executive offices)
|
|
(Zip code) |
(734) 930-5555
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 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
Indicate the number of shares outstanding of each of the issuers classes of common stock as
of the latest practicable date.
|
|
|
COMMON STOCK, NO PAR VALUE
|
|
119,804,474 |
(Class)
|
|
Outstanding at November 1, 2006 |
AASTROM BIOSCIENCES, INC.
Quarterly Report on Form 10-Q
September 30, 2006
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2006 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
9,034 |
|
|
$ |
11,724 |
|
Short-term investments |
|
|
33,963 |
|
|
|
27,283 |
|
Receivables, net |
|
|
139 |
|
|
|
104 |
|
Inventories |
|
|
1 |
|
|
|
|
|
Other current assets |
|
|
528 |
|
|
|
819 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
43,665 |
|
|
|
39,930 |
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET |
|
|
1,216 |
|
|
|
1,223 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
44,881 |
|
|
$ |
41,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
1,084 |
|
|
$ |
912 |
|
Accrued employee benefits |
|
|
1,455 |
|
|
|
1,229 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
2,539 |
|
|
|
2,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
Common stock, no par value; shares
authorized 250,000,000; shares issued and outstanding 119,439,612 and 119,594,603, respectively |
|
|
184,492 |
|
|
|
185,219 |
|
Deficit accumulated during the development stage |
|
|
(142,150 |
) |
|
|
(146,207 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
42,342 |
|
|
|
39,012 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
44,881 |
|
|
$ |
41,153 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
3
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 24, 1989 |
|
|
|
Three months ended |
|
|
(Inception) to |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales and rentals |
|
$ |
15 |
|
|
$ |
12 |
|
|
$ |
1,289 |
|
Research and development agreements |
|
|
|
|
|
|
|
|
|
|
2,105 |
|
Grants |
|
|
165 |
|
|
|
92 |
|
|
|
8,844 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
180 |
|
|
|
104 |
|
|
|
12,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales and rentals |
|
|
5 |
|
|
|
|
|
|
|
565 |
|
Cost of product sales and rentals
provision for
obsolete and excess
inventory |
|
|
|
|
|
|
|
|
|
|
2,239 |
|
Research and development |
|
|
1,953 |
|
|
|
2,304 |
|
|
|
112,431 |
|
Selling, general and administrative |
|
|
2,016 |
|
|
|
2,384 |
|
|
|
50,974 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
3,974 |
|
|
|
4,688 |
|
|
|
166,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
|
(3,794 |
) |
|
|
(4,584 |
) |
|
|
(153,971 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
1,249 |
|
Interest income |
|
|
306 |
|
|
|
527 |
|
|
|
7,750 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
(267 |
) |
|
|
|
|
|
|
|
|
|
|
Total other income |
|
|
306 |
|
|
|
527 |
|
|
|
8,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(3,488 |
) |
|
$ |
(4,057 |
) |
|
$ |
(145,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPUTATION OF NET LOSS PER SHARE
APPLICABLE TO COMMON SHARES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(3,488 |
) |
|
$ |
(4,057 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
(Basic and Diluted) |
|
$ |
(.03 |
) |
|
$ |
(.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding (Basic and Diluted) |
|
|
102,483 |
|
|
|
119,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
4
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 24, 1989 |
|
|
|
Three months ended |
|
|
(Inception) to |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,488 |
) |
|
$ |
(4,057 |
) |
|
$ |
(145,239 |
) |
Adjustments to reconcile net loss to net cash used
for operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
68 |
|
|
|
103 |
|
|
|
4,167 |
|
Loss on property held for resale |
|
|
|
|
|
|
|
|
|
|
110 |
|
Amortization of discounts and
premiums on investments |
|
|
(49 |
) |
|
|
(41 |
) |
|
|
(787 |
) |
Stock compensation expense |
|
|
195 |
|
|
|
571 |
|
|
|
3,189 |
|
Inventory write downs and reserves |
|
|
|
|
|
|
|
|
|
|
2,239 |
|
Stock issued pursuant to license agreement |
|
|
|
|
|
|
|
|
|
|
3,300 |
|
Provision for losses on accounts receivable |
|
|
|
|
|
|
|
|
|
|
204 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
24 |
|
|
|
35 |
|
|
|
(353 |
) |
Inventories |
|
|
95 |
|
|
|
1 |
|
|
|
(2,335 |
) |
Other current assets |
|
|
(453 |
) |
|
|
(291 |
) |
|
|
(798 |
) |
Accounts payable and accrued expenses |
|
|
339 |
|
|
|
(172 |
) |
|
|
912 |
|
Accrued employee benefits |
|
|
101 |
|
|
|
(226 |
) |
|
|
1,229 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used for operating activities |
|
|
(3,168 |
) |
|
|
(4,077 |
) |
|
|
(134,162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Organizational costs |
|
|
|
|
|
|
|
|
|
|
(73 |
) |
Purchase of short-term investments |
|
|
|
|
|
|
(14,779 |
) |
|
|
(146,741 |
) |
Maturities of short-term investments |
|
|
12,000 |
|
|
|
21,500 |
|
|
|
120,245 |
|
Property and equipment purchases |
|
|
(415 |
) |
|
|
(110 |
) |
|
|
(4,557 |
) |
Proceeds from sale of property held for resale |
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
11,585 |
|
|
|
6,611 |
|
|
|
(30,726 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of preferred stock |
|
|
|
|
|
|
|
|
|
|
51,647 |
|
Net proceeds from issuance of common stock |
|
|
282 |
|
|
|
156 |
|
|
|
122,657 |
|
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
(49 |
) |
Payments received for stock purchase rights |
|
|
|
|
|
|
|
|
|
|
3,500 |
|
Payments received under shareholder notes |
|
|
|
|
|
|
|
|
|
|
31 |
|
Principal payments under capital lease obligations |
|
|
|
|
|
|
|
|
|
|
(1,174 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
282 |
|
|
|
156 |
|
|
|
176,612 |
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS |
|
|
8,699 |
|
|
|
2,690 |
|
|
|
11,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD |
|
|
14,408 |
|
|
|
9,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT
END OF PERIOD |
|
$ |
23,107 |
|
|
$ |
11,724 |
|
|
$ |
11,724 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
5
AASTROM BIOSCIENCES, INC.
(A development stage company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
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, 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, short-term investments and interest income are adequate to finance currently planned
activities beyond 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 these products. 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 level of success achieved in clinical trials, 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 its business, financial condition and results of
operations.
2. Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by us
without audit according to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles in the United States of
America have been omitted pursuant to such rules and regulations. The financial statements reflect,
in the opinion of management, all adjustments (consisting only of normal, recurring adjustments)
necessary to state fairly the financial position and results of operations as of and for the
periods indicated. The results of operations for the three months ended September 30, 2006, are not necessarily indicative of the results to be expected for the
full year or for any other period.
6
These financial statements should be read in conjunction with the audited financial statements
and the notes thereto included in our 2006 Annual Report on Form 10-K for the year ended June 30,
2006, as filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of Aastrom and its wholly-owned
subsidiaries, Aastrom Biosciences GmbH, located in Berlin, Germany, Aastrom Biosciences, Ltd.,
located in Dublin, Ireland and Aastrom Biosciences, S.L., located in Barcelona, Spain
(collectively, the Company). All significant inter-company transactions and accounts have been
eliminated in consolidation. These subsidiaries have limited operations and are not significant to
the consolidated financial statements.
3. Share-Based Compensation
On July 1, 2005, the Company adopted the provisions of Financial Accounting Standards Board
Statement No. 123R, Share-Based Payment (SFAS
123R) using the modified prospective method.
There were no significant changes to our various stock option plans from that disclosed in our
Annual Report on Form 10-K for the fiscal year ended June 30, 2006, except that on November 2, 2006
the Companys shareholders approved an amendment to the Companys 2004 Equity Incentive Plan
(Plan). The amendment includes the addition of 8 million shares to the Plan reserve and the
addition of certain performance criteria to the Plan to permit the deductibility of
performance-based compensation.
During the quarter ended September 30, 2006 we granted 39,400 shares of restricted common
stock and 4,251,000 options to purchase common stock, to employees and directors of the Company.
Of the options granted during the period, 4,248,000 were granted with exercise prices equal to the
fair value of the Companys stock at the grant date and such options vest over four years and have
lives of ten years. Options to purchase 500,000 shares of stock were granted to an officer of the
Company that also had exercise prices equal to the fair value of the Companys stock at the grant
date and a life of ten years. However, the vesting provision of these options are based on the
Company achieving certain milestones as set by the Companys Board of Directors The performance
conditions required to be met for these options to vest are related to progress in the Companys
clinical trial programs and were agreed to by the Company and the officer in November 2006.
Also, during the quarter ended September 30, 2006, certain options held by a former officer of
the Company were accelerated as of July 14, 2006, which resulted in compensation expense recognized
for this modification of $35,000. Also, upon the separation from employment of this officer,
90,000 of unvested stock options were forfeited.
The net compensation costs charged as operating expense for the stock-based award activity
related to employees and directors (including the impact of the forfeitures and modification
described above in the quarter ended September 30, 2006) were
approximately $195,000 and $571,000 for the three months ended September 30, 2005 and September 30, 2006,
respectively.
7
The fair value of each stock option grant for the reported periods is estimated on the date of
the grant using the Black-Scholes option-pricing model using the assumptions noted in the following
table.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
|
2005 |
|
2006 |
Stock Option Plans: |
|
|
|
|
|
|
|
|
Expected dividend rate |
|
|
0 |
% |
|
|
0 |
% |
Expected stock price volatility |
|
|
102 |
% |
|
|
120 |
% |
Risk free interest rate |
|
|
4.0 |
% |
|
|
4.9 |
% |
Estimated forfeiture rate |
|
|
10 |
% |
|
|
10 |
% |
Expected life (years) |
|
|
6.6 |
|
|
|
6.6 |
|
The weighted average grant-date fair value of shares of restricted common stock granted during
the three months ended September 30, 2006 was $1.17.
A summary of option activity under the plan as of September 30, 2006, and changes during the
three months then ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
Options |
|
Shares |
|
Exercise Price |
|
Contractual Term |
|
Intrinsic Value |
Outstanding at July 1, 2006 |
|
|
3,524,553 |
|
|
$ |
1.67 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
4,251,200 |
|
|
$ |
1.26 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(7,500 |
) |
|
$ |
.52 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(113,563 |
) |
|
$ |
1.31 |
|
|
|
|
|
|
|
|
|
Outstanding at September
30, 2006 |
|
|
7,654,690 |
|
|
$ |
1.45 |
|
|
|
8.1 |
|
|
$ |
535,000 |
|
Exercisable at September
30, 2006 |
|
|
2,519,304 |
|
|
$ |
1.68 |
|
|
|
5.2 |
|
|
$ |
401,000 |
|
A summary of the status of the Companys non-vested shares as of September 30, 2006 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
Nonvested Options |
|
Shares |
|
Grant Date Fair Value |
Nonvested at July 1, 2006 |
|
|
1,162,846 |
|
|
$ |
1.59 |
|
Granted |
|
|
4,251,200 |
|
|
$ |
1.26 |
|
Vested |
|
|
(191,660 |
) |
|
$ |
1 .40 |
|
Forfeited |
|
|
(90,000 |
) |
|
$ |
.73 |
|
Nonvested at September 30, 2006 |
|
|
5,132,386 |
|
|
$ |
1.34 |
|
8
In November 2006, the Company granted 2,650,400 options to employees and directors under
various stock option agreements. These options were granted with an exercise price equal to the
fair value of the Companys stock at the grant date.
As of September 30, 2006 there was approximately $4,137,000 of total unrecognized compensation
cost related to nonvested share-based compensation arrangements (options and restricted shares)
granted under the plan. That cost is expected to be recognized over a weighted-average period of
3.5 years.
The Companys former Chief Executive Officer terminated his employment on July 17, 2006, at
which time he entered into a consulting arrangement with the Company. On July 17, 2006, this
former officer held 243,750 of unvested options. The terms of the stock option plan under which
these options were granted allowed for continued vesting in these options as long as he provided
such consulting services to the Company subsequent to his employment. Accordingly, beginning on
July 17, 2006, the Company began to account for this former officers unvested options in
accordance with EITF 96-18, Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
4. Shareholders Equity
During the quarter ended September 30, 2006, the Company issued 131,241 shares of common stock
as part of the employee stock option plans and the Direct Stock Purchase Plan, for net cash
proceeds of $156,000 and issued 39,400 shares of restricted common stock to employees under the
2004 Equity Incentive Plan.
5. Net Loss Per Common Share
Net loss per common share is computed using the weighted-average number of common shares
outstanding during the period. Common equivalent shares, consisting of options, warrants for the
purchase of common stock and unvested restricted shares of common stock, 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 September 30, 2005 and 2006 is approximately 9,500,000 and
13,002,795, respectively.
6. 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 shareholders equity.
There were no unrealized gains or losses as of September 30, 2005 or 2006. Interest earned on available-for-sale securities
is included in interest income.
9
Included in other current assets at both June 30, 2006 and September 30, 2006 are $91,000 and
$92,000, respectively, of bank certificates of deposit which serve as collateral for certain
potential European Value Added Taxes.
7. Recent Accounting Pronouncements
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No.
108 (SAB 108). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views
regarding the process by which misstatements in financial statements are evaluated for purposes of
determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal
years ending after November 15, 2006, and early application is encouraged. The Company does not
believe SAB 108 will have a material impact on results from operations or financial position.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 157 (SFAS No. 157), Fair Value Measurements which clarifies
the principle that fair value should be based on the assumptions market participants would use when
pricing an asset or liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. Under the standard, fair value measurements would be
separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective the first
quarter of fiscal year 2008 with early adoption permitted. The Company does not believe SFAS No.
157 will have a material impact on their financial statements.
10
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview of Aastrom
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 230
patients, and are currently in active clinical trials for bone regeneration (long bone fractures
and spine fusions) 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. 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 tissue
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 and its supporting stroma.
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
11
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.
Our current focus is on utilizing our TRC technology in our manufacturing facilities to
produce autologous cell-based products for use in regenerative medicine. 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 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 regulatory approvals, and
receive the necessary approvals to market our products. Through, September 30, 2006, we have
accumulated a net loss of approximately $145 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
12
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 has
completed enrollment of all 36 patients, and we are now conducting the twelve-month follow-up of
these patients who were treated 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 and, Lutheran Medical Center, Brooklyn, NY, In September 2006, we reported additional interim
results from 23 patients enrolled in this trial, including 12 patients who completed the total
trial observation period of 12 months by August 2006. Of the 12 patients who have completed the
twelve-month follow-up period, 10 showed
13
bone bridging at the fracture site, indicating
radiographic evidence of healing. After being treated with our TRC-based cell product, callus
formation (the first sign of healing and return
of blood flow), was observed in 22 of these 23 patients by six months. No TRC-related adverse
events were reported. Data collection will be completed in July 2007.
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 observation. 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.
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 proof-of-concept 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. We are continuing the required follow-up of these patients.
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 several limited commercial evaluation agreements under this type of
arrangement.
14
Critical Accounting Policies
There are several accounting policies that we believe are significant to the presentation of
our consolidated financial statements. The most significant accounting policy relates to
stock-based compensation expense.
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 for the first quarter ended September 30, 2006 were $104,000, which consisted
of grant revenues and product sales, compared to total revenues of $180,000 for the same period in
fiscal year 2006. Product sales for the quarter ended September 30, 2006 decreased to $12,000,
compared to product sales of $15,000 for the quarter ended September 30, 2005. Grant revenues
decreased to $92,000 for the quarter ended September 30, 2006 compared to $165,000 for the quarter
ended September 30, 2005. The decrease in grant revenues is the result of decreased activities on
grant programs and the completion of our
15
activity on the collaborative grant with the Defense
Advanced Research Projects Agency (DARPA) in June 2006; however, we continue to pursue grant-funded
programs. Grant revenues are recorded on a cost-reimbursement basis and accounted for 88% of total
revenues
for the quarter ended September 30, 2006 and 92% of total revenues for the quarter ended
September 30, 2005. Grant revenues may vary in any period based on timing of grant awards,
grant-funded activities, level of grant funding and number of grant awards received.
Total costs and expenses increased to $4,688,000 for the quarter ended September 30, 2006,
compared to $3,974,000 for the quarter ended September 30, 2005.
Costs and expenses include an increase in research and development expenses to $2,304,000 for
the quarter ended September 30, 2006 from $1,953,000 for the quarter ended September 30, 2005.
This increase reflects continued expansion of our research and development activities 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. Research and development
expenses also included a non-cash charge relating to share-based compensation expense of $108,000
for the quarter ended September 30, 2006 compared to $78,000 for the quarter ended September 30,
2005.
Selling, general and administrative costs increased for the quarter ended September 30, 2006
to $2,384,000 from $2,016,000 for the quarter ended September 30, 2005. This increase is due to
additional employee costs that include: an accrual relating to the former Chief Executive Officers
revised employment agreement and an accrual and severance payments relating to the former President
and Chief Operating Officers employment agreement. In addition, selling, general and
administrative expenses for the quarter ended September 30, 2006, included a non-cash charge
relating to share-based compensation expense of $463,000 compared to $118,000 for the quarter ended
September 30, 2005.
Interest income was $527,000 for the quarter ended September 30, 2006 compared to $306,000 for
the quarter ended September 30, 2005. The fluctuations in interest income are due primarily to
corresponding changes in the level of cash, cash equivalents and short-term investments during the
periods and improved yields from our investments.
Aastroms net loss was $4,057,000 or $.03 per common share for the quarter ended September 30,
2006 compared to $3,488,000, or $.03 per common share for the quarter ended September 30, 2005.
The increase in net loss is primarily the result of increased costs and expenses offset on a per
share basis by an increase in the weighted average number of common shares outstanding.
Our major ongoing research and development programs are focused on the development of bone
marrow-derived adult stem and progenitor cells TRCs for use in orthopedic indications (bone
fractures, spine fusion, and osteonecrosis) and for use in vascular system regeneration, as well as
cardiac and neural regeneration. Clinical trials using TRCs are underway in both the U.S. and the
EU to evaluate bone formation in patients with long bone fractures, and clinical trials are
underway in the EU to evaluate bone formation in spine fusion. An EU clinical trial for the
treatment of limb ischemia resulting from peripheral vascular
16
disease is also enrolling patients.
All of these potential product applications use TRCs created by our proprietary process and
platform technologies. We are also completing other research and development activities using our
TRCs that are intended to improve the 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 the first fiscal
quarters ended September 30, 2005 and September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
R&D Project |
|
2005 |
|
|
2006 |
|
TRCs |
|
$ |
1,698,000 |
|
|
$ |
2,027,000 |
|
Other |
|
|
255,000 |
|
|
|
277,000 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,953,000 |
|
|
$ |
2,304,000 |
|
|
|
|
|
|
|
|
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 of this report. The potentially 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.
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 September 30, 2006, have totaled approximately
$185 million and, to a lesser degree, through grant funding, payments received under research
agreements and collaborations, interest earned on 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.
17
Our combined cash, cash equivalents and short-term investments totaled $39,007,000 at
September 30, 2006, a decrease of $3,990,000 from June 30, 2006. During the quarter ended
September 30, 2006, the primary source of cash, cash equivalents and short-term investments
was from equity transactions from the employee stock option plans and the Direct Stock
Purchase Plan, with net proceeds of $156,000. The primary uses of cash, cash equivalents and
short-term investments during the quarter ended September 30, 2006 included $4,077,000 to finance
our operations and working capital requirements, and $110,000 in capital equipment additions for
cell manufacturing and laboratory equipment.
We expect that our total capital expenditures for the fiscal year ended June 30, 2007 to be
approximately $1,292,000 primarily for the acquisition of cell manufacturing and laboratory
equipment. We expect our monthly cash utilization to average approximately $1.8 million for 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 positive cash flow from operations for at
least the next several years due to 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 both technical and business risks, including our continued ability to obtain future funding,
satisfactory product development, obtaining regulatory approval and market acceptance for our
products among others.
We expect that our available cash, cash equivalents, short-term investments and expected
interest income will be sufficient to finance currently planned activities beyond 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 cell product candidates for additional indications. 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 debt or equity securities. There can be no assurance that
such collaborative arrangements, or any public or private funding, will be available on acceptable
terms, if at all. Several factors will affect our ability to raise additional funding, including,
but not limited to, market volatility of our common stock, continued market listing of our common
stock and economic conditions affecting the public markets. If our common stock is delisted from
The Nasdaq SmallCap Market, the liquidity of our common stock could be impaired, and prices for the
shares of our common stock could be lower than might otherwise prevail.
18
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 in our 2006 Annual Report on Form 10-K and Notes to Consolidated Financial Statements
and Risk Factors included herein.
Risk Factors
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 September 30, 2006, we have incurred a cumulative net loss totaling approximately
$145 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, including certain countries
in 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
19
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. Each of these cell mixtures (such
as our TRCs) is, under current regulations, regulated as a biologic product, which requires a
Biological License Application.
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 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 Marketing Authorizations 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 nature of these new directives, laws and regulations, there is no established precedent to
understand the timeline or other requirements for Marketing Authorization.
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.
20
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.
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
21
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
22
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, cash
equivalents, short-term investments and interest income will be sufficient to finance currently
planned activities beyond 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 raise additional funds. We will also need additional funds or a collaborative
partner, or both, to finance the research and development activities of our cell product candidates
for additional indications. 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.
23
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 $2.37 during the twelve month period ended September 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 |
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 18 months, 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
24
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 our 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 could be 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 or are subject to regulatory restrictions, our
clinical trial programs and other business prospects would be adversely affected.
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
25
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 would continue in his role as
Chairman of the Board for the remainder of his term which concluded on November 2, 2006. 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
26
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 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.
27
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 |
|
|
|
|
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 quarterly report 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.
28
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2006, our cash and cash equivalents included money market securities and
short-term investments included 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 on our securities
portfolio.
Our sales to customers in foreign countries are denominated in 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 in connection with our internal controls and policies. We
do not enter into hedging transactions and do not purchase derivative instruments.
Item 4. 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, of 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.
Changes in Internal Control over Financial Reporting
During our first quarter of fiscal 2007, 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.
29
PART II OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we receive threats or may be subject to litigation matters incidental to our
business. However, we are not currently a party to any material pending legal proceedings.
Item 1A. Risk Factors
We have provided updated risk factors in the section labeled Risk Factors in Part I, Item 2
to allow readers to understand the material risks and uncertainties affecting our businesses and
to qualify forward-looking statements we make. These updates do not include any material changes
in the type or magnitude of the risks we discussed in our most recent Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
See Exhibit Index.
30
SIGNATURES
Pursuant to the requirements 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.
|
|
Date: November 9, 2006 |
/s/ George W. Dunbar
|
|
|
George W. Dunbar |
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Date: November 9, 2006 |
/s/ Gerald D. Brennan, Jr.
|
|
|
Gerald D. Brennan, Jr. |
|
|
Vice President Administrative & Financial
Operations, Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|
31
EXHIBIT INDEX
|
|
|
Exhibit Number |
|
Description |
|
|
|
3.1
|
|
Restated Articles of Incorporation of the Company, as amended |
|
|
|
3.2 *
|
|
Bylaws, as amended |
|
|
|
10.90**
|
|
Employment Agreement with George W. Dunbar dated July 17, 2006 |
|
|
|
10.91**
|
|
Consulting Agreement with R. Douglas Armstrong dated July 17, 2006 |
|
|
|
10.92**
|
|
Separation Agreement with James Cour dated July 14, 2006 |
|
|
|
31
|
|
Rules 13a-14(a) and 14(d)-14a Certifications |
|
|
|
32
|
|
Section 1350 Certifications |
|
|
|
* |
|
Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal
year ended June 30, 2005. |
|
** |
|
Incorporated by reference to the Companys Current Report on Form 8-K filed on July 18,
2006. |
32
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 |
|
|
250,000,000 |
|
|
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;
(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.
3
Exhibit 31
Exhibit 31
CERTIFICATION
I, George W. Dunbar, certify that:
|
1. |
|
I have reviewed this Quarterly Report on Form 10-Q 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: November 9, 2006 |
|
|
|
|
|
/s/ George W. Dunbar
George W. Dunbar
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
CERTIFICATION
I, Gerald D. Brennan, Jr., certify that:
|
1. |
|
I have reviewed this Quarterly Report on Form 10-Q 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: November 9, 2006 |
|
|
|
|
|
/s/ Gerald D. Brennan, Jr.
Gerald D. Brennan, Jr.
Vice President Administrative & Financial
Operations, Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
Exhibit 32
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Aastrom Biosciences, Inc. (the Company) on Form
10-Q for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission
on the date hereof (the Report), I, George W. Dunbar, President and Chief Executive 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.
|
|
|
November 9, 2006 |
|
|
|
|
|
/s/ George W. Dunbar
George W. Dunbar
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Aastrom Biosciences, Inc. (the Company) on Form
10-Q for the quarter ended September 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.
|
|
|
November 9, 2006 |
|
|
|
|
|
/s/ Gerald D. Brennan, Jr.
Gerald D. Brennan, Jr.
Vice President Administrative & Financial
Operations, Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|