e10vkt
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
July 1, 2010 to December 31,
2010
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Commission File Number 0-22025
Aastrom Biosciences,
Inc.
(Exact name of registrant as
specified in its charter)
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Michigan
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94-3096597
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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24 Frank
Lloyd Wright Drive,
P. O. Box 376,
Ann Arbor, MI 48106
(Address
of principal executive offices, including zip
code)
Registrants telephone number, including area code:
(734) 930-5555
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Class
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Name of Each Exchange on Which
Registered
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Common Stock (No par value)
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The NASDAQ Stock Market, Inc.
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405) is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer - o
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Accelerated
filer - o
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Non-accelerated
filer - o
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Smaller reporting
company - þ
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants Common
Stock, no par value (Common Stock), held by
non-affiliates of the registrant (based on the closing sales
price of the Common Stock as reported on the NASDAQ Capital
Market) on June 30, 2010 was approximately $39,461,131.
This computation excludes shares of Common Stock held by
directors, officers and each person who holds 5% or more of the
outstanding shares of Common Stock, since such persons may be
deemed to be affiliates of the registrant. This determination of
affiliate status is not necessarily a conclusive determination
for other purposes.
As of March 24, 2011, 38,618,037 shares of Common
Stock, no par value, were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
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Document
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Form 10-K Reference
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Proxy Statement for the Annual Meeting of Shareholders
scheduled for June 7, 2011
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Items 10, 11, 12, 13 and 14 of
Part III
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AASTROM
BIOSCIENCES, INC.
TRANSITION
REPORT ON
FORM 10-K
TABLE OF
CONTENTS
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Except for the historical information presented, the matters
discussed in this Report, including our product development and
commercialization goals and expectations, our plans and
anticipated timing and results of clinical development
activities, potential market opportunities, revenue expectations
and the potential advantages and applications of our products
and product candidates under development, include
forward-looking statements that involve risks and uncertainties.
Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not
limited to, those discussed under the caption Risk
Factors. Unless the context requires otherwise, references
to we, us, our and
Aastrom refer to Aastrom Biosciences, Inc.
PART I
Change in
Fiscal Year End
On November 11, 2010, our Board of Directors approved the
change in our fiscal year end from June 30 to December 31.
As a result of this change, this Transition Report on
Form 10-K
includes financial information for the six month transition
period from July 1, 2010 to December 31, 2010
(Transition Period). References in this Transition Report on
Form 10-K
to fiscal year 2010 or fiscal 2010 refer to the period of
July 1, 2009 through June 30, 2010 and references to
fiscal year 2009 or fiscal 2009 refer to the period of
July 1, 2008 through June 30, 2009. All amounts
presented for the six months ended December 31, 2009 are
unaudited. Subsequent to this Transition Report on
Form 10-K,
our annual reports on
Form 10-K
will cover the calendar year from January 1 to December 31,
with historical periods remaining unchanged.
General
Information
We are developing expanded patient specific mixed cellular
therapies for use in the treatment of severe, chronic ischemic
cardiovascular diseases. Our innovative cell-based therapies
repair or regenerate damaged or diseased tissues. Our
proprietary cell-manufacturing technology enables the
manufacture of mixed-cell therapies expanded from a
patients own bone marrow and delivered directly to damaged
tissues. Preclinical and interim clinical data suggest that
ixmyelocel-T (the new generic name for our cell therapy approved
in March 2011) may be effective in treating patients with
severe, chronic ischemic cardiovascular diseases such as
critical limb ischemia (CLI). Preliminary data utilizing
ixmyelocel-T in dilated cardiomyopathy (DCM) have shown
safety as well as provided indications of efficacy. Nearly
200 patients have been treated in recent clinical trials
using ixmyelocel-T (over 400 patients safely treated since
our inception) with no treatment related serious adverse events.
Our
Technology Platform
Our technology is a patient specific, expanded mixed cell
therapy developed using our proprietary, automated processing
system, which utilizes single-pass perfusion technology to
produce human cell products for clinical use. This system, the
Aastrom Replicell System, is our proprietary manufacturing
technology for expanding what we believe to be the most
important populations of cells. The manufacture of our expanded,
patient specific mixed cell therapy products is done under
current Good Manufacturing Practices (cGMP) and current Good
Tissue Practices (cGTP) guidelines required by the
U.S. Food and Drug Administration (FDA).
Our expanded, patient specific mixed cellular therapies have
several features that we believe are critical for success in
treating patients with severe, chronic cardiovascular diseases:
Safe our bone marrow-derived, expanded,
patient specific cellular therapy leverages decades of
scientific and medical experience, as bone marrow and bone
marrow-like therapies have been used safely and efficaciously in
medicine for decades.
Autologous (patient specific) we start with
the patients own cells, which are accepted by the
patients immune system allowing the cells to differentiate
and integrate into existing functional tissues, and may provide
long-term engraftment and repair.
3
Expanded we begin with a small amount of bone
marrow from a patient (approximately 50 ml) and
significantly expand the number of certain cell types, primarily
CD90+
mesenchymal cells,
CD14+
monocytes and activated macrophages to far more than are present
in the patients own bone marrow (approximately
30 300 times the number of these cells in the
starting bone marrow aspirate).
A mixed population of cells we believe our
proprietary mixture of cell types, which are normally found in
bone marrow, but at different quantities, possess the activities
required for tissue repair.
Minimally invasive our procedure for taking
bone marrow (an aspirate) can be performed in an
out-patient setting and takes approximately 15 minutes. For
diseases such as CLI, the administration of our therapy can be
performed in an out-patient setting in a one-time, approximately
20 minute procedure. We are also pursuing a minimally invasive
approach to cell delivery in other severe, chronic ischemic
cardiovascular diseases such as DCM.
Our cell therapies are produced at our cell manufacturing
facility in the United States, located at our headquarters in
Ann Arbor, Michigan.
The following graphic summarizes the cell treatment process:
Clinical
Development Programs
Our clinical development programs are focused on advancing
therapies for unmet medical needs in severe, chronic ischemic
cardiovascular diseases. We are currently completing our Phase
2b clinical trial in CLI and we expect it to advance to a Phase
3 development program in 2011. Our CLI development program has
received Fast Track Designation from the FDA. Our DCM program is
in early Phase 2 clinical development and is focused on
achieving proof of concept in this indication. Our DCM
development program has received Orphan Disease Designation from
the FDA.
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The following summarizes the status of each of our clinical
programs:
Results to date in our clinical trials may not be indicative of
results obtained from subsequent patients enrolled in those
trials or from future clinical trials. Further, our future
clinical trials may not be successful or we may not be able to
obtain the required Biologic License Application (BLA) approval
to commercialize our products in the United States in a timely
fashion, or at all. See Risk Factors.
Critical
Limb Ischemia
Background
CLI is the most serious and advanced stage of peripheral
arterial disease (PAD). PAD is a chronic atherosclerotic disease
that progressively restricts blood flow in the limbs and can
lead to serious medical complications. This disease is often
associated with other clinical conditions including
hypertension, cardiovascular disease, hyperlipidemia, diabetes,
obesity and stroke. CLI is used to describe patients with the
most severe forms of PAD: those with chronic ischemia-induced
pain (even at rest), ulcers, tissue loss or gangrene in the
limbs, often leading to amputation and death. CLI leads to more
than 160,000 amputations per year. The one-year and four-year
mortality rates for no-option CLI patients that progress to
amputation are approximately 25% and 70%, respectively. Our
expanded, patient specific mixed cell therapy has shown
significant promise in the treatment of CLI.
Clinical
Results
Our U.S. Phase 2b RESTORE-CLI program is a multi-center,
randomized, double-blind, placebo controlled clinical trial.
This clinical trial is designed to evaluate the safety and
efficacy of ixmyelocel-T in the treatment of patients with CLI.
It is the largest multi-center, randomized, double-blind,
placebo-controlled cellular therapy study ever conducted in CLI
patients. We completed enrollment of this trial in February 2010
with a total of 86 patients at 18 sites across the United
States, with the last patient being treated in March 2010. These
patients are being followed for a period of 12 months
following treatment. In addition to assessing the safety of our
product, efficacy endpoints include amputation-free survival,
time to first occurrence of treatment failure (defined as major
amputation, all-cause mortality, doubling in wound size and de
novo gangrene), major amputation rates, level of amputation,
complete wound healing, patient quality of life, and pain scores.
Results to date include two planned interim analyses. In June
2010, we reported results at the Society of Vascular Surgery
Meeting. This interim analysis included the six month results
for 46 patients enrolled in the trial. The results included
the finding that amputation free survival, defined as time to
major amputation or death, was statistically significant in
favor of our therapy (p=0.038). Additionally, statistical
analysis revealed a significant increase in time to treatment
failure (e.g., major amputation, doubling in wound size de novo
gangrene, or death) (log-rank test, p=0.0053). Other endpoints
measured (e.g., major amputation rate, complete wound healing,
change in Wagner wound scale) showed encouraging trends, but had
not reached statistical significance at the interim analysis.
The primary purpose of the interim analysis was to assess
performance of our therapy and, if positive, to help plan the
Phase 3 program. In June 2010 we held discussions with the FDA,
which confirmed the appropriateness of using amputation free
survival as a primary endpoint for our planned Phase 3 program.
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In November 2010, we presented six-month data on all patients
enrolled in the trial at the
VEITHsymposiumtm
non-CME satellite session. Results of this analysis showed that
the study achieved both its primary safety endpoint and primary
efficacy endpoint of time to first occurrence of treatment
failure. The findings related to time to first occurrence of
treatment failure were statistically significant (p=0.0132).
Further analyses show a clinically meaningful reduction of 56%
in treatment failure events. Analysis of the data for
amputation-free survival, a secondary endpoint which the study
was not powered to demonstrate, showed a clinically meaningful
reduction in event rates of 24%, but did not show statistical
significance (p=0.5541).
We continue to make progress towards the Phase 3 clinical
development program in CLI. In October 2010, we announced that
the FDA had granted Fast Track Designation for the use of our
cellular therapy for the CLI indication. The Fast Track program
is designed to facilitate the development and expedite the
review of new drugs and biologics, intended to treat serious or
life-threatening conditions that demonstrate the potential to
address unmet medical needs. During June 2010 discussions with
the FDA, Aastrom was encouraged to use the Special Protocol
Assessment (SPA) process for the Phase 3 program. In October
2010, we submitted two SPA requests to the FDA, one for a
no option patient population and another for a
poor option patient population. The no option SPA
request focuses on patients that have exhausted all other
treatment options with the exception of amputation. The poor
option SPA request focuses on patients that have not yet
exhausted all other treatment options; however the options
available are associated with poor outcomes. We expect to have
the no option and poor option agreements on the SPAs
completed in the second and third quarter of 2011, respectively.
Dilated
Cardiomyopathy
Background
DCM is a severe, chronic cardiovascular disease that leads to
enlargement of the heart, reducing the pumping function of the
heart to the point that blood circulation is impaired. Patients
with DCM typically present with symptoms of congestive heart
failure, including limitations in physical activity and
shortness of breath. There are two types of DCM: ischemic and
non-ischemic. Ischemic DCM, the most common form, is associated
with atherosclerotic cardiovascular disease. Among other causes,
non-ischemic DCM can be triggered by toxin exposure, virus or
genetic diseases. Patient prognosis depends on the stage and
cause of the disease but is typically characterized by a high
mortality rate. Other than heart transplantation or ventricular
assist devices, there are currently no effective treatment
options for end-stage patients with this disease. According to
the book, Heart Failure: A Combined Medical and Surgical
Approach (2007), DCM affects 200,000-400,000 patients
in the United States alone.
In February 2007, the FDA granted Orphan Drug Designation to our
investigational therapy for the treatment of DCM. Our DCM
development program is currently in Phase 2 and we have two
ongoing U.S. Phase 2 trials investigating surgical and
catheter-based delivery for our product in the treatment of DCM.
Surgical
Trial Program DCM
In May 2008, the FDA activated our investigational new drug
application (IND) for surgical delivery of our therapy. The
40-patient U.S. IMPACT-DCM clinical trial began with the
treatment of the first patient in November 2008. This
multi-center, randomized, controlled, prospective, open-label,
Phase 2 study was designed to include 20 patients with
ischemic DCM and 20 patients with non-ischemic DCM. We
completed enrollment of the 40 patients in the IMPACT-DCM
clinical trial in January 2010 and the final patient was treated
in March 2010. Participants in the IMPACT-DCM clinical trial
were required to have New York Heart Association (NYHA)
functional class III or IV heart failure, a left
ventricular ejection fraction (LVEF) of less than or equal to
30% (60-75%
is typical for a healthy person), and meet other eligibility
criteria, including optimized medical therapy. Patients were
randomized in an approximate 3:1 ratio of treatment to control
group. Patients in the treatment group received our therapy
through direct injection into the heart muscle during minimally
invasive-surgery (involving a chest incision of approximately
2 inches). The primary objective of this study is to assess
the safety of ixmyelocel-T in patients with DCM. Efficacy
measures include cardiac dimensions and tissue mass, cardiac
function (e.g. cardiac output, LVEF, cardiopulmonary exercise
testing parameters), cardiac perfusion and viability, as well as
other
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efficacy endpoints. NYHA functional class and quality of life
are also assessed. Patients will be followed for 12 months
post-treatment.
Six-month data from the IMPACT-DCM interim analysis were
presented at The Sixth International Conference on Cell Therapy
for Cardiovascular Disease on January 20, 2011. Results
indicated that
ixmyelocel-T
is safe and showed that serious adverse events were associated
with the surgical procedure and not the cellular therapy.
Adverse events after the initial peri-operative period were
roughly equal between the control and treatment groups. Efficacy
findings include positive trends in quality of life and
functional and structural parameters in the treatment group as
compared with the control group. We expect to report
12-month
data from the IMPACT-DCM clinical study in the third quarter of
2011.
Catheter
Trial Program DCM
In November 2009, the FDA activated our second IND to allow for
the evaluation of our therapy delivered by a percutaneous direct
catheter injection as opposed to surgically. The Catheter-DCM
clinical trial is designed to explore catheter-based delivery of
ixmyelocel-T
to treat DCM patients. This multi-center, randomized,
controlled, prospective, open-label, Phase 2 study enrolled
approximately 12 patients with ischemic DCM and
10 patients with non-ischemic DCM at clinical sites across
the United States. Participants met the same criteria as stated
above for the IMPACT-DCM surgical trial. The first patient was
enrolled into the trial in April 2010 and enrollment concluded
in December 2010 with 22 patients enrolled. We expect to
report six-month results from the Catheter-DCM Phase 2 trial in
the third quarter of 2011.
Production
Cell
Manufacturing and Cell Production Components
We operate a centralized cell manufacturing facility in Ann
Arbor, Michigan. The facility supports the current
U.S. clinical trials and has sufficient capacity, with
minor modifications, to supply our early commercialization
requirements. We may establish and operate larger
commercial-scale cell manufacturing facilities for the
U.S. market in the future to accommodate potential market
growth.
We have established relationships with manufacturers that are
registered with the FDA as suppliers of medical products to
produce various components of our patented cell manufacturing
system.
We have established relationships with various third parties who
manufacture
and/or
supply certain components, equipment, disposable devices and
other materials used in our cell manufacturing process to
develop our cell products, as well as our final assemblies,
component parts, subassemblies and associated spare parts used
in the instrumentation platform of our cell production system.
There can be no assurance that we will be able to continue our
present arrangements with our manufacturers
and/or
suppliers, supplement existing relationships or establish new
relationships, or that we will be able to identify and obtain
certain components, equipment, disposable devices, other
materials, including ancillary materials that are necessary to
develop our product candidates or that are used in our cell
manufacturing and cell production components processes. Our
dependence upon third parties for the supply and manufacture of
such items could adversely affect our ability to develop and
deliver commercially feasible cell products on a timely and
competitive basis. See Risk Factors.
Our
Arrangement with ATEK
On November 8, 2010, we entered into a contract
manufacturing and supply agreement (the Supply
Agreement) with ATEK Medical, LLC (ATEK) for
the manufacture of our proprietary cell cassette for use in our
manufacturing process. Pursuant to the terms of the Supply
Agreement, we have granted ATEK the exclusive right to
manufacture our proprietary cell cassette and to assemble,
package, label and sterilize the cassettes in ATEKs
facilities. ATEK will be responsible for obtaining all of our
approved components pertaining to the cassettes and we are
obligated to order and purchase the cassettes from ATEK on an
agreed upon schedule and in agreed upon quantities. In addition,
we will provide ATEK with reasonable engineering support to
initiate and ramp up manufacturing of the cassettes and will
supply all manufacturing equipment.
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The Supply Agreement has an initial term of four years and will
terminate automatically without notice unless prior to that time
the term is extended by mutual written consent delivered at
least six months prior to the termination date. The minimum term
extension is generally to be no less than two years.
The Supply Agreement provides that we may discontinue the
manufacture of the cassettes at our sole discretion. In such
event, we agree to use commercially best efforts to notify ATEK
at least 120 days prior to our intention to discontinue
manufacture of the cassettes. Failure to provide such notice
will not be a breach of the Supply Agreement, but without such
notice, we agree to purchase from ATEK (i) certain finished
goods that are in usable condition and (ii) certain
components or raw materials inventory or work in process in each
case to the extent convertible into finished cassettes.
We or ATEK may terminate the Supply Agreement if the other party
materially defaults in the performance of any provision of the
Supply Agreement and, should any such default occur, then the
non-defaulting party may give written notice to the defaulting
party that if the default is not cured within 45 days, the
Supply Agreement will be terminated. If the non-defaulting party
gives such notice and the default is not cured during the
45 day period, then the Supply Agreement shall
automatically terminate at the end of such period unless an
extension is mutually agreed to by ATEK and us. In addition to
other remedies, either party may terminate the Supply Agreement
at any time if either of us breach our respective
confidentiality obligations under the Supply Agreement, in which
case termination shall be effective immediately upon receipt of
notice from the non-breaching party of the breach and of
termination. Either party may immediately terminate the Supply
Agreement by written notice if the other party is or becomes
insolvent, appoints or has appointed a receiver for all or
substantially all of its assets, or makes an assignment for the
benefit of its creditors. In addition, either party may
terminate the Supply Agreement by written notice if the other
party files a voluntary petition, or has filed against it an
involuntary petition, for bankruptcy and such petition is not
dismissed within 90 days.
Upon termination of the Supply Agreement, ATEK agrees to provide
reasonable technical support at ATEKs published
engineering rates for the transfer of manufacturing technology
to an alternative manufacturer chosen by us to conduct final
manufacture, package and test of the cassettes in the event that
ATEK, for a period of 150 days from the date of receipt of
the associated purchase order, is unable to manufacture all of
our orders for any reason, or if ATEK fails or refuses to meet
our orders for cassettes pursuant to the terms of the Supply
Agreement.
There can be no assurance that we will be able to continue our
present arrangement with ATEK. Our dependence upon our
arrangement with ATEK for the supply and manufacture of our
proprietary cell cassette could adversely affect our ability to
develop and deliver commercially feasible cell products on a
timely and competitive basis. See Risk Factors.
Research &
Development
Our cell therapy is produced from the patients bone marrow
using Aastroms proprietary manufacturing system. The
product is composed of a mixture of cell types normally found in
bone marrow but at different quantities. For example, the
mesenchymal stromal cells, identified with the CD90 cell surface
marker, as well as monocytes and activated macrophages,
identified with CD14 marker, are expanded approximately 30 and
300 fold, respectively, while other
CD45+
mononuclear cells from the bone marrow remain during the
manufacturing process. We have demonstrated in the laboratory
that the cells in our therapy are capable of multiple biological
activities thought to play a critical role in repairing diseased
and damaged tissues. These activities include aspects of tissue
remodeling, promotion of angiogenesis and resolution of
inflammation. In addition to these properties demonstrated
in vitro, we have also shown that the therapy
increases blood perfusion in both rat and mouse models of
critical limb ischemia. In addition to these initial preclinical
observations, we have on-going preclinical studies designed to
further characterize the mechanism of action of our product in
the treatment of cardiovascular diseases. These data support our
current clinical-stage research where we are exploring the use
of our therapies to regenerate cardiovascular tissue in patients
with CLI and DCM.
In addition, our proprietary cell manufacturing system has
demonstrated the capability to produce other types of cells. In
the future, we may continue to explore the application of our
manufacturing technology for the production of other cell types
where there are potential opportunities to collaborate in the
development of new cell therapies.
8
Patents
and Proprietary Rights
Our success depends in part on our ability, and the ability of
our licensors, to obtain patent protection for our products and
processes. We have exclusive rights to approximately 24
unexpired issued U.S. patents. 14 of these are material
patents that protect our cellular therapy. We own 8 of these
patents and 6 of these patents have been licensed exclusively
from the University of Michigan. These patents present various
claims relating to (i) the composition of our cellular
therapy, (ii) methods to manufacture the cellular therapy,
and (iii) the bioreactor device (the Aastrom Replicell
System) that is used to make our product. The number of
U.S. patents of each type with expiration range is listed
in the table below:
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Patent Type
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Number
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Expiry (Years)
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Composition of Matter
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2
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3 and 18
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Methods
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2
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1
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Bioreactor Device
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10
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1 4
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Certain patent equivalents to the U.S. patents have also
been issued in other jurisdictions including Australia, Japan,
the Republic of Korea and Canada and under the European Patent
Convention. In addition, we have filed applications for patents
in the United States and equivalent applications in certain
other countries claiming other aspects of our cell products and
manufacturing processes. An important patent that protects the
composition of the cellular therapy directly, Mixed cell
populations for tissue repair and separation technique for cell
processing (US Patent 7,871,605), was issued in January
2011 and will expire in 2029. Patents that protect our automated
bioreactor device and culture system expire in 2015, but we will
continue to rely on trade secrets and un-patentable know-how.
The validity and breadth of claims in medical technology patents
involve complex legal and factual questions and, therefore, may
be highly uncertain. No assurance can be given that any patents
based on pending patent applications or any future patent
applications by us, or our licensors, will be issued, that the
scope of any patent protection will exclude competitors or
provide competitive advantages to us, that any of the patents
that have been or may be issued to us or our licensors will be
held valid if subsequently challenged or that others will not
claim rights in or ownership of the patents and other
proprietary rights held or licensed by us. Furthermore, there
can be no assurance that others have not developed or will not
develop similar products, duplicate any of our products or
design around any patents that have been or may be issued to us
or our licensors. Since patent applications in the U.S. are
maintained in secrecy until they are published 18 months
after filing, we also cannot be certain that others did not
first file applications for inventions covered by our and our
licensors pending patent applications, nor can we be
certain that we will not infringe any patents that may be issued
to others on such applications.
We rely on certain licenses granted by the University of
Michigan for certain patent rights. If we breach such agreements
or otherwise fail to comply with such agreements, or if such
agreements expire or are otherwise terminated, we may lose our
rights in such patents.
We also rely on trade secrets and un-patentable know-how that we
seek to protect, in part, by confidentiality agreements. It is
our policy to require our employees, consultants, contractors,
manufacturers, outside scientific collaborators and sponsored
researchers and other advisors to execute confidentiality
agreements upon the commencement of employment or consulting
relationships with us. These agreements provide that all
confidential information developed or made known to the
individual during the course of the individuals
relationship with us is to be kept confidential and not
disclosed to third parties except in specific limited
circumstances. We also require signed confidentiality or
material transfer agreements from any company that is to receive
our confidential information. In the case of employees,
consultants and contractors, the agreements generally provide
that all inventions conceived by the individual while rendering
services to us shall be assigned to us as the exclusive property
of Aastrom. There can be no assurance, however, that these
agreements will not be breached, that we would have adequate
remedies for any breach, or that our trade secrets or
un-patentable know-how will not otherwise become known or be
independently developed by competitors.
Our success will also depend in part on our ability to develop
commercially viable products without infringing the proprietary
rights of others. We do not believe any of our currently
contemplated products or processes infringe any existing valid
issued patent. However, the results of patent litigation are
unpredictable, and no assurance can be given that patents do not
exist or could not be filed which would have an adverse affect
on our ability to market our
9
products or maintain our competitive position with respect to
our products. If our technology components, designs, products,
processes or other subject matter are claimed under other
existing U.S. or foreign patents, or are otherwise
protected by third party proprietary rights, we may be subject
to infringement actions. In such event, we may challenge the
validity of such patents or other proprietary rights or we may
be required to obtain licenses from such companies in order to
develop, manufacture or market our products. There can be no
assurances that we would be able to obtain such licenses or that
such licenses, if available, could be obtained on commercially
reasonable terms. Furthermore, the failure to either develop a
commercially viable alternative or obtain such licenses could
result in delays in marketing our proposed products or the
inability to proceed with the development, manufacture or sale
of products requiring such licenses, which could have a material
adverse affect on our business, financial condition and results
of operations. If we are required to defend ourselves against
charges of patent infringement or to protect our proprietary
rights against third parties, substantial costs will be incurred
regardless of whether we are successful. Such proceedings are
typically protracted with no certainty of success. An adverse
outcome could subject us to significant liabilities to third
parties and force us to curtail or cease our development and
sale of our products and processes.
Certain of our and our licensors research has been or is
being funded in part by the Department of Commerce and by a
Small Business Innovation Research Grant obtained from the
Department of Health and Human Services. As a result of such
funding, the U.S. Government has certain rights in the
technology developed with such funding. These rights include a
non-exclusive, fully
paid-up,
worldwide license under such inventions for any governmental
purpose. In addition, the U.S. Government has the right to
require us to grant an exclusive license under any of such
inventions to a third party if the U.S. Government
determines that: (i) adequate steps have not been taken to
commercialize such inventions; (ii) such action is
necessary to meet public health or safety needs; or
(iii) such action is necessary to meet requirements for
public use under federal regulations. Additionally, under the
federal Bayh Dole Act, a party which acquires an exclusive
license for an invention that was partially funded by a federal
research grant is subject to the following government rights:
(i) products using the invention which are sold in the
United States. are to be manufactured substantially in the
United States, unless a waiver is obtained; (ii) the
government may force the granting of a license to a third party
who will make and sell the needed product if the licensee does
not pursue reasonable commercialization of a needed product
using the invention; and (iii) the U.S. Government may
use the invention for its own needs.
Sales and
Marketing
We currently do not have the sales or marketing resources
required to fully commercialize our therapeutic products. We
intend to advance our programs to a point where we can evaluate
the options to seek a development
and/or
commercialization partnership, or to make the investment to
complete development and commercialize a product alone. We may
also choose to undertake some pilot level of sales and marketing
activity while seeking a commercial partnership.
Government
Regulation
Our research and development activities and the manufacturing
and marketing of our products are subject to the laws and
regulations of governmental authorities in the United States and
other countries in which our products will be marketed.
Specifically, in the United States, the FDA, among other
activities, regulates new product approvals to establish safety
and efficacy of these products. Governments in other countries
have similar requirements for testing and marketing. In the
United States, in addition to meeting FDA regulations, we are
also subject to other federal laws, such as the Occupational
Safety and Health Act and the Environmental Protection Act, as
well as certain state laws.
Our cell products will be regulated as somatic cell
therapies/biologics/pharmaceuticals. With this classification,
commercial production of our products will need to occur in
registered/licensed facilities in compliance with Good
Manufacturing Practice (GMP) for biologics (cellular products)
or drugs.
10
Regulatory
Process
Our products are subject to regulation as biological products
under the Public Health Service Act and the Food, Drug and
Cosmetic Act. Different regulatory requirements may apply to our
products depending on how they are categorized by the FDA under
these laws. The FDA has indicated that it intends to regulate
products based on our technology as licensed biologics through
the Center for Biologics Evaluation and Research. As current
regulations exist, the FDA will require regulatory approval for
certain human cellular- or tissue-based products, including our
cell products, through a BLA submission.
Approval of new biological products is a lengthy procedure
leading from development of a new product through preclinical
and clinical testing. This process takes a number of years and
the expenditure of significant resources. There can be no
assurance that our product candidates will ultimately receive
regulatory approval.
Regardless of how our product candidates are regulated, the
Federal Food, Drug, and Cosmetic Act and other Federal and State
statutes and regulations govern or influence the research,
testing, manufacture, safety, labeling, storage, record-keeping,
approval, distribution, use, product reporting, advertising and
promotion of such products. Noncompliance with applicable
requirements can result in civil penalties, recall, injunction
or seizure of products, refusal of the government to approve or
clear product approval applications or to allow us to enter into
government supply contracts, withdrawal of previously approved
applications and criminal prosecution.
Product
Approval
In order to obtain FDA approval of a new medical product,
sponsors must submit proof of safety and efficacy. In most
cases, such proof entails extensive preclinical studies and
clinical trials. The testing, preparation of necessary
applications and processing of those applications by the FDA is
expensive and may take several years to complete. There can be
no assurance that the FDA will act favorably or in a timely
manner in reviewing submitted applications, and we may encounter
significant difficulties or costs in our efforts to obtain FDA
approvals, in turn, which could delay or preclude us from
marketing any products we may develop. The FDA may also require
post-marketing testing and surveillance of approved products, or
place other conditions on the approvals. These requirements
could cause it to be more difficult or expensive to sell the
products, and could therefore restrict the commercial
applications of such products. Product approvals may be
withdrawn if compliance with applicable regulations is not
maintained or if problems occur following commercialization. For
patented technologies, delays imposed by the governmental
approval process may materially reduce the period during which
we will have the exclusive right to exploit such technologies.
If clinical trials of a proposed medical product are required,
the manufacturer or distributor of a drug or biologic will have
to submit an IND application with the FDA prior to commencing
human clinical trials. The submission must be supported by data,
typically including the results of preclinical and laboratory
testing. Following submission of the IND, the FDA has
30 days to review the application and raise safety and
other clinical trial issues. If we are not notified of
objections within that period, clinical trials may be initiated,
and human clinical trials may commence at a specified number of
investigational sites with the number of patients approved by
the FDA. We have submitted several INDs for our cell products,
and we have conducted clinical trials under these INDs.
Our products will be regulated by the FDA as a licensed
biologic, although there can be no assurance that the FDA will
not choose to regulate this product in a different manner in the
future. The FDA categorizes human cell- or tissue-based products
as either minimally manipulated or more than minimally
manipulated, and has determined that more than minimally
manipulated products require clinical trials to demonstrate
product safety and efficacy and the submission of a BLA for
marketing authorization. For products that may be regulated as
biologics, the FDA requires: (i) preclinical laboratory and
animal testing; (ii) submission to the FDA of an IND
application, which must be approved prior to the initiation of
human clinical trials; (iii) adequate and well-controlled
clinical trials to establish the safety and efficacy of the
product for its intended use; (iv) submission to the FDA of
a BLA; and (v) review and approval of the BLA as well as
inspections of the manufacturing facility by the FDA prior to
commercial marketing of the product.
We conduct preclinical testing for internal use and as support
for submissions to the FDA. Preclinical testing generally
includes various types of in-vitro laboratory evaluations of our
products as well as animal studies to assess
11
the safety and the functionality of the product. Clinical trials
are identified by phases (i.e., Phase 1, Phase 2, Phase 3,
etc.). Depending on the type of preclinical
and/or
clinical data available, the trial sponsor will submit a request
to the FDA to initiate a specific phase study (e.g., a Phase 1
trial represents an initial study in a small group of patients
to test for safety and other relevant factors; a Phase 2 trial
represents a study in a larger number of patients to assess the
safety and efficacy of a product; and, Phase 3 trials are
initiated to establish safety and efficacy in an expanded
patient population at multiple clinical trial sites).
The results of the preclinical tests and clinical trials are
submitted to the FDA in the form of a BLA for marketing
approval. The testing, clinical trials and approval process are
likely to require substantial time and effort and there can be
no assurance that any approval will be granted on a timely
basis, if at all. Additional animal studies or clinical trials
may be requested during the FDA review period that may delay
marketing approval. After FDA approval for the initial
indications, further clinical trials may be necessary to gain
approval for the use of the product for additional indications.
The FDA requires that adverse effects be reported to the FDA and
may also require post-marketing testing to monitor for adverse
events, which can involve significant expense.
Under current requirements, facilities manufacturing biological
products for commercial distribution must be licensed. To
accomplish this, an establishment registration must be filed
with the FDA. In addition to the preclinical studies and
clinical trials, the BLA includes a description of the
facilities, equipment and personnel involved in the
manufacturing process. An establishment registration/license is
granted on the basis of inspections of the applicants
facilities in which the primary focus is on compliance with GMPs
and the ability to consistently manufacture the product in the
facility in accordance with the BLA. If the FDA finds the
results of the inspection unsatisfactory, it may decline to
approve the BLA, resulting in a delay in production of products.
As part of the approval process for human biological products,
each manufacturing facility must be registered and inspected by
the FDA prior to marketing approval. In addition, state agency
inspections and approvals may also be required for a biological
product to be shipped out of state.
Commercial
Strategy
We are currently focused on utilizing our technology to produce
expanded, patient specific mixed cell-based products for use in
severe, chronic ischemic cardiovascular applications. At such
time as we satisfy applicable regulatory approval requirements,
we expect the sales of our cell-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 we achieve significant product sales. Until that
time, we expect that our revenue sources from our current
activities will consist of only minor sales of our cell products
and manufacturing supplies to our academic collaborators, grant
revenue, research funding and potential licensing fees or other
financial support from potential future corporate collaborators.
We expect that we will need to raise significant additional
funds or pursue strategic transactions or other strategic
alternatives in order to complete our product development
programs, complete clinical trials needed to market our
products, and commercialize our products. To date, we have
financed our operations primarily through public and private
sales of our equity securities, and we expect to continue to
seek to obtain the 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. With respect to our current activities,
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 December 31, 2010, we have
accumulated a net loss of approximately $221,212,000. 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.
We believe, based on our current projections of cash
utilization, our available cash, cash equivalents and short-term
investments of approximately $31,248,000 as of December 31,
2010 are adequate to finance our planned operations at least
until December 31, 2011. However, we will need to raise a
significant amount of additional funds in order to complete our
product development programs, complete clinical trials needed to
market our products, and
12
commercialize these products. We cannot be certain that such
funding will be available on favorable terms, if at all. Some of
the factors that will impact our ability to raise additional
capital and our overall success include: the rate and degree of
progress of our product development, the rate of regulatory
approval to proceed with clinical trial programs, the level of
success achieved in clinical trials, fulfillment of the
requirements for marketing authorization from regulatory bodies
in the United States and other countries, the liquidity and
market volatility of our equity securities, regulatory and
manufacturing requirements and uncertainties, technological
developments by competitors, the U.S. economic conditions
regarding the availability of investment capital and other
factors. If we cannot raise such funds, we may not be able to
develop or enhance products, take advantage of future
opportunities, or respond to competitive pressures or
unanticipated requirements, which would likely have a material
adverse impact on our business, financial condition and results
of operations.
Competitive
Environment
The biotechnology and medical device industries are
characterized by rapidly evolving technology and intense
competition. Our competitors include major multi-national
medical device companies, pharmaceutical companies,
biotechnology companies and stem cell companies operating in the
fields of tissue engineering, regenerative medicine, cardiac,
vascular, orthopedics and neural medicine. Many of these
companies are well-established and possess technical, research
and development, financial, and sales and marketing resources
significantly greater than ours. In addition, many of our
smaller potential competitors have formed strategic
collaborations, partnerships and other types of joint ventures
with larger, well established industry competitors that afford
these companies potential research and development and
commercialization advantages in the technology and therapeutic
areas currently being pursued by us. Academic institutions,
governmental agencies and other public and private research
organizations are also conducting and financing research
activities which may produce products directly competitive to
those being commercialized by us. Moreover, many of these
competitors may be able to obtain patent protection, obtain FDA
and other regulatory approvals and begin commercial sales of
their products before us.
Our potential commercial products address a broad range of
existing and emerging therapeutic markets, in which cell-based
therapy is a new and as of yet, unproven, commercial strategy.
In a large part, we face primary competition from existing
medical devices and drug products. Some of our competitors have
longer operating histories and substantially greater resources.
These include companies such as Baxter International, Inc.
(Baxter), Biomet, Inc., Johnson & Johnson, Inc.,
Miltenyi Biotec, Medtronic, Inc. (Medtronic), and others.
In the general area of cell-based therapies, we potentially
compete with a variety of companies, most of whom are specialty
medical products or biotechnology companies. Some of these, such
as Baxter, Johnson & Johnson, Medtronic and Miltenyi
Biotec are well-established and have substantial technical and
financial resources compared to ours. However, as cell-based
products are only just emerging as viable medical therapies,
many of our most direct competitors are smaller biotechnology
and specialty medical products companies. These include Advanced
Cell Technology, Inc., Aldagen, Inc., Arteriocyte Medical
Systems, Inc., Athersys, Inc., Bioheart, Inc., Cytori
Therapeutics, Inc., Genzyme Corporation, Harvest Technologies
Corporation, Mesoblast, Osiris Therapeutics, Inc., Pluristem,
Inc. and others.
Employees
As of December 31, 2010, we employed approximately 54
individuals on a full-time equivalent basis. A significant
number of our management and professional employees have had
prior experience with pharmaceutical, biotechnology or medical
product companies. None of our employees are covered by
collective bargaining agreements, and management considers
relations with our employees to be good.
13
Executive
Officers
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Executive
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Name
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Position
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Age
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Officer Since
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Timothy M. Mayleben
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President and Chief Executive Officer
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2010
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Ronnda L. Bartel, Ph.D.
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Chief Scientific Officer
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2010
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Scott C. Durbin
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Chief Financial Officer
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2010
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Sharon M. Watling, Pharm.D.
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Vice President Clinical and Regulatory
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2011
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Timothy M. Mayleben Mr. Mayleben joined
Aastrom as a member of the Companys Board of Directors in
June 2005, and has served as our President and Chief Executive
Officer since December 2009. Mr. Mayleben was formerly an
advisor to life science and healthcare companies through his
advisory and investment firm, ElMa Advisors. Prior to this, he
served as the President and Chief Operating Officer and a
Director of NightHawk Radiology Holdings, Inc. Mr. Mayleben
was also formerly the Chief Operating Officer of Esperion
Therapeutics, which later became a division of Pfizer Global
Research & Development. He joined Esperion in late
1998 as Chief Financial Officer. While at Esperion,
Mr. Mayleben led the raising of more than $200 million
in venture capital and institutional equity funding and later
negotiated the acquisition of Esperion by Pfizer in December
2003. Prior to joining Esperion, Mr. Mayleben held various
senior and executive management positions at Transom
Technologies, Inc., now part of Electronic Data Systems, Inc.,
and Applied Intelligent Systems, Inc., which was acquired by
Electro-Scientific Industries, Inc. in 1997. Mr. Mayleben
holds a Masters of Business Administration, with distinction,
from the J.L. Kellogg Graduate School of Management at
Northwestern University, and a Bachelor of Business
Administration degree from the University of Michigan Ross
School of Business. He is on the Advisory Board for the
Wolverine Venture Fund and serves as a director for several
private life science companies.
Ronnda L. Bartel, Ph.D. Dr. Bartel
joined Aastrom in 2006 and is responsible for research,
development and manufacturing and engineering operations.
Dr. Bartel has more than 20 years of research and
product development experience and most recently was Executive
Director, Biological Research at MicroIslet and Vice president,
Scientific Development at StemCells, Inc. Earlier in her career,
she was Senior Principal Scientist, Cell Biology at Advanced
Tissue Sciences and was involved in the development and approval
of two of the first three cell based products approved by the
FDA. She has also worked as Senior Director, Science and
Technology at SRS Capital, LLC evaluating life science
investments and has also held positions in clinical development,
drug delivery, business development and manufacturing.
Dr. Bartel holds a Ph.D. in Biochemistry from the
University of Kansas, completed postdoctoral work at the
University of Michigan and received a B.A. in Chemistry and
Biology from Tabor College.
Scott C. Durbin Mr. Durbin joined
Aastrom in June 2010 as Chief Financial Officer and brings more
than 15 years of healthcare-related banking, financial and
corporate development experience to Aastrom. Formerly, he was
the Chief Operating Officer and Chief Financial Officer of
Prescient Medical, Inc., which develops diagnostic and
therapeutic catheter-based medical devices for the treatment of
severe coronary artery disease. While at Prescient,
Mr. Durbin raised more than $60 million in private
equity financing and helped advance the company through
early-stage research, development and regulatory approval.
Previously he served as a finance and corporate development
consultant for Scios, Inc. (a Johnson & Johnson
subsidiary) and Alteon, Inc. Prior to this consulting work, he
was an investment banker with Lehman Brothers, Inc. where he
completed more than $5 billion in financings and M&A
transactions for life science companies. Mr. Durbin earned
an MPH in health management from the Yale University School of
Medicine & School of Management and a BS from the
University of Michigan.
Sharon M. Watling, Pharm.D. Dr. Watling
joined Aastrom in February 2010 and is responsible for clinical
development, clinical operations and regulatory affairs. She has
over 12 years of experience in clinical development, with
an emphasis on translational science, clinical development, and
clinical strategies. Her industry career started in late stage
development within Warner-Lambert/Parke Davis and evolved while
at Pfizer to include an early clinical leadership role in
cardiovascular-metabolic diseases. Following Pfizer, she was
site leader and senior director, clinical development at
Metabasis, Inc. Most recently, she served as the research and
development strategy leader at Cognigen Corporation, working
with multiple companies to incorporate modeling and simulation
practices into their development strategies. Prior to industry,
she was an intensive care unit clinical specialist
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at various academic institutions. Dr. Watling holds a
Pharm.D. from the University of Michigan College of Pharmacy.
Available
Information
Additional information about Aastrom is contained at our
website, www.aastrom.com. Information on our
website is not incorporated by reference into this report. We
make available on our website our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K
as soon as reasonably practicable after those reports are filed
with the Securities and Exchange Commission. The following
Corporate Governance documents are also posted on our website:
Code of Business Conduct and Ethics, Code of Ethics for Senior
Financial Officers, Board Member Attendance at Annual Meetings
Policy, Director Nominations Policy, Shareholder Communications
with Directors Policy and the Charters for each of the
Committees of the Board of Directors.
15
Our operations and financial results are subject to various
risks and uncertainties, including those described below, that
could adversely affect our business, financial condition,
results of operations, cash flows, and trading price of our
common stock. The risks and uncertainties described below are
not the only ones we face. There may be additional risks and
uncertainties that are not known to us or that we do not
consider to be material at this time. If the events described in
these risks occur, our business, financial condition, and
results of operations would likely suffer.
Risks
Related to our Business
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 December 31, 2010,
we have incurred a cumulative net loss totaling approximately
$221,212,000, and we have continued to incur losses since that
date. These losses have resulted principally from costs incurred
in the research and development (including clinical trials) of
our cell culture technologies and our cell manufacturing system,
general and administrative expenses, and the prosecution of
patent applications. We expect to continue to incur significant
operating losses over the next several years and at least until,
and probably after, product sales increase, primarily owing to
our research and development programs, including preclinical
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, timely initiation and completion of clinical trials,
obtaining regulatory approvals, establishing manufacturing,
sales and marketing arrangements with third parties, maintaining
supplies of key manufacturing components, acquisition and
development of complementary activities and raising sufficient
cash to fund our operating activities. Therefore, we may not be
able to achieve or sustain profitability.
We may
not be able to raise the required capital to conduct our
operations and develop and commercialize our products.
Despite the proceeds we received from our December 2010
financing, we will require substantial additional capital
resources in order to conduct our operations, complete our
product development programs, complete our clinical trials
needed to market our products (including a Phase 3 clinical
trial for CLI), and commercialize these products and cell
manufacturing facilities. In order to grow and expand our
business, to introduce our new product candidates into the
marketplace and to acquire or develop complementary business
activities, we will need to raise a significant amount of
additional funds. We will also need significant 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:
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continued scientific progress in our research, clinical and
development programs;
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costs and timing of conducting clinical trials and seeking
regulatory approvals;
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competing technological and market developments;
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avoiding infringement and misappropriation of third-party
intellectual property;
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obtaining valid and enforceable patents that give us a
competitive advantage;
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our ability to establish additional collaborative relationships;
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our ability to effectively launch a commercial product;
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the effect of commercialization activities and facility
expansions, if and as required; and
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complementary business acquisition or development opportunities.
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16
In November 2010, we terminated the common stock purchase
agreement with Fusion Capital Fund II entered into in June
2009. As a result, we no longer have access to the potential
funding from Fusion Capital under that agreement. However, we
believe that with our existing cash and cash equivalents we will
have adequate liquidity to finance our operations, including
development of our products and product candidates, through at
least December 31, 2011. While our budgeted cash usage and
operating plan through December 31, 2011 does not currently
contemplate taking additional actions to reduce the use of cash
over that period, we could, if necessary, delay or forego
certain budgeted discretionary expenditures such as anticipated
hiring plans or certain non-critical research and development
expenditures, as well as slow down or delay certain clinical
trial activity (without jeopardizing our pursuit of a Phase 3
clinical trial for CLI) such that we believe that we will
have sufficient cash on hand through at least December 31,
2011.
Notwithstanding the proceeds we received from our December 2010
financing, we will need to raise additional funds in order to
complete our product development programs, complete clinical
trials needed to market our products (including clinical trials
for our CLI and DCM programs), and commercialize these products.
Because of our long-term funding requirements, we may try 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. In addition, we may
seek collaborative relationships, incur debt and access other
available funding sources. This additional funding may not be
available to us on reasonable terms, or at all. Some of the
factors that will impact our ability to raise additional capital
and our overall success include:
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the rate and degree of progress for our product development;
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the rate of regulatory approval to proceed with clinical trial
programs;
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the level of success achieved in clinical trials;
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the requirements for marketing authorization from regulatory
bodies in the United States and other countries;
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the liquidity and market volatility of our equity
securities; and
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regulatory and manufacturing requirements and uncertainties,
technological developments by competitors.
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If adequate funds are not available in the future, we may not be
able to develop or enhance our products, take advantage of
future opportunities, or respond to competitive pressures or
unanticipated requirements and we may be required to delay or
terminate research and development programs, curtail capital
expenditures, and reduce business development and other
operating activities. Should the financing we require to sustain
our working capital needs be unavailable or prohibitively
expensive when we require it, the consequences could have a
material adverse effect on our business, operating results,
financial condition and prospects.
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 United
States, 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. If we cannot demonstrate the safety, purity and
potency of our product candidates, including our cell product
candidates, produced in our production system, the FDA or other
regulatory authorities could delay or withhold regulatory
approval of our product candidates.
Finally, even if we obtain regulatory approval of a product,
that approval may be subject to limitations on the indicated
uses for which it may be marketed. Even after granting
regulatory approval, the FDA and regulatory agencies in other
countries continue to review and inspect marketed products,
manufacturers and manufacturing facilities, which may create
additional regulatory burdens. Later discovery of previously
unknown problems with a product, manufacturer or facility may
result in restrictions on the product or manufacturer, including
a withdrawal of the product from the market. Further, regulatory
agencies may establish additional regulations that could prevent
or delay regulatory approval of our products.
17
Our
product development programs are based on novel technologies and
are inherently risky.
We are subject to the risks of failure inherent in the
development of products based on new technologies. The novel
nature of our therapeutics creates significant challenges in
regard to product development and optimization, manufacturing,
government regulation, third party reimbursement and market
acceptance. For example, if regulatory agencies have limited
experience in approving cellular therapies for
commercialization, the development and commercialization pathway
for our therapies may be subject to increased uncertainty, as
compared to the pathway for new conventional drugs.
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 products is, under current regulations, regulated as a
biologic, which requires a BLA.
Our
inability to complete our product development activities
successfully would severely limit our ability to operate or
finance operations.
In order to commercialize our cell product candidates in the
United States, we must complete substantial clinical trials and
obtain sufficient safety, purity and potency 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 results. 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 any issues delaying
commercialization and we may not be able to raise capital to
finance our continued operation during the period required for
resolution of any such issues.
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 United
States, 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. The results of
early stage clinical trials do not ensure success in later
clinical trials, and interim results are not necessarily
predictive of final results.
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. For example, patients enrolling in our studies
need to provide an adequate amount of bone marrow to process and
expand for injection and some patients may not be able to
provide sufficient starting material despite our study inclusion
and exclusion criteria designed to prevent this. Bone marrow is
an inherently variable starting material. We have experienced
delays in patient accrual in our previous clinical trials. If we
experience future delays in patient enrollment, 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.
18
Our research programs are currently directed at improving
product functionality for certain clinical indications,
improving product shelf life, and decreasing the cost of
manufacturing our products. These production process changes may
alter the functionality of our cells and require various
additional 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 will be sufficient for a
marketable or regulatory approvable product.
We will
rely on third parties to conduct some of our clinical trials,
and their failure to perform their obligations in a timely or
competent manner may delay development and commercialization of
our product candidates.
We may use clinical research organizations to assist in conduct
of our clinical trials. There are numerous alternative sources
to provide these services. However, we may face delays outside
of our control if these parties do not perform their obligations
in a timely or competent fashion or if we are forced to change
service providers. Any third party that we hire to conduct
clinical trials may also provide services to our competitors,
which could compromise the performance of their obligations to
us. If we experience significant delays in the progress of our
clinical trials, the commercial prospects for product candidates
could be harmed and our ability to generate product revenue
would be delayed or prevented. In addition, we and any provider
that we retain will be subject to Good Clinical Practice, or GCP
requirements. If GCP and other regulatory requirements are not
adhered to by us or our third-party providers, the development
and commercialization of our product candidates could be delayed.
Failure
of third parties, including ATEK Medical, LLC, to manufacture or
supply certain components, equipment, disposable devices and
other materials used in our cell manufacturing process would
impair our cell product development.
We rely on third parties, including ATEK Medical, LLC (ATEK), to
manufacture
and/or
supply certain of our devices/manufacturing equipment and to
manufacture
and/or
supply certain components, equipment, disposable devices and
other materials used in our cell manufacturing process to
develop our cell products. ATEK is our sole supplier of cell
cassettes for which it would be difficult to obtain alternate
sources of supply on a short-term basis. If any of our
manufacturers or suppliers fails to perform their respective
obligations, or if our supply of certain components, equipment,
disposable devices and other materials is limited or
interrupted, it could impair our ability to manufacture our
products, which would delay our ability to conduct our clinical
trials or market our product candidates on a timely and
cost-competitive basis, if at all. In addition, pursuant to our
Supply Agreement with ATEK, we are responsible for transferring
customer supplied inventory previously held by Moll Industries
to ATEK. If we fail to transfer this inventory in an efficient
or timely manner, this could impact the manufacture of the
materials required for our clinical trials and adversely affect
our ability to complete our clinical trials and develop and
commercialize our products.
In addition, 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
of 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 are subject to regulatory compliance and quality assurance
requirements at our production site in Ann Arbor, Michigan. This
site could be subject to ongoing, periodic, unannounced
inspection by regulatory agencies to ensure strict compliance
with GMP regulations and other governmental regulations. We do
not have redundant cell manufacturing sites. In the event our
cell production facility is damaged or destroyed or is subject
to regulatory restrictions, our clinical trial programs and
other business prospects would be adversely affected.
19
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
cell products for tissue repair treatments. Even if we obtain
all required regulatory approvals, we cannot be certain that our
products and processes will be accepted in the marketplace at a
level that would allow us to operate profitably. Our products
may be unable to achieve commercial acceptance for a number of
reasons, such as the availability of alternatives that are less
expensive, more effective, or easier to use; the perception of a
low cost-benefit ratio for the product amongst physicians and
hospitals; or an inadequate level of product support from
ourselves or a commercial partner. 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 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 United
States 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 suggested that stem cell
transplantation for breast cancer, which 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.
Managing and reducing health care costs has been a general
concern of federal and state governments in the United States
and of foreign governments. In addition, third party payors are
increasingly challenging the price and cost-effectiveness of
medical products and services, and many limit reimbursement for
newly approved health care products. In particular, third party
payors may limit the indications for which they will reimburse
patients who use any products that we may develop. Cost control
initiatives could decrease the price for products that we may
develop, which would result in lower product revenues to us.
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, implementation of our
technology involve the use of animal-derived products, including
fetal bovine serum. Suppliers or regulatory changes may limit or
restrict the availability of such materials for clinical and
commercial use. We currently purchase all of our fetal bovine
sera from protected herds in Australia and New Zealand. These
sources are considered to be the safest and raise the least
amount of concern from the global regulatory agencies. If, for
example, the so-called mad cow disease occurs in New
Zealand or in Australia, it may lead to a restricted supply of
the serum currently required for our product manufacturing
processes. Any restrictions on these materials would impose a
potential competitive disadvantage for our products or prevent
our ability to manufacture our cell products. The FDA has issued
draft regulations for controls over bovine materials. These
proposed regulations do not appear to affect our ability to
purchase the manufacturing materials we currently use. However,
the FDA may issue final regulations that could affect our
operations. 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.
20
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 will also need 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. We may need to
make such expenditures when there are significant uncertainties
as to the market opportunity. 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 some of our
future cell products through collaborative relationships with
companies with established sales, marketing and distribution
capabilities. Our inability to develop and maintain those
relationships would limit our ability to market, sell and
distribute our products. Our inability to enter into successful,
long-term relationships could require us to develop alternate
arrangements at a time when we need sales, marketing or
distribution capabilities to meet existing demand. We may market
one or more of our products 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.
If we do
not keep pace with our competitors and with technological and
market changes, our products will become obsolete and our
business may suffer.
The markets for our products are very competitive, subject to
rapid technological changes, and vary for different candidates
and processes that directly compete with our products. Our
competitors may have developed, or could in the future develop,
new technologies that compete with our products or even render
our products obsolete. As an example, in the past, published
studies have suggested that hematopoietic stem cell therapy use
for bone marrow transplantation, following marrow ablation due
to chemotherapy, may have limited clinical benefit in the
treatment of breast cancer, which was a significant portion of
the overall hematopoietic stem cell transplant market. This
resulted in the practical elimination of this market for our
cell-based product for this application.
Our cell manufacturing system 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.
The
current credit and financial market conditions may exacerbate
certain risks affecting our business.
We rely upon third parties for certain aspects of our business,
including collaboration partners, wholesale distributors,
contract clinical trial providers, contract manufacturers and
third-party suppliers. Because of the recent tightening of
global credit and the volatility in the financial markets, there
may be a delay or disruption in the performance or satisfaction
of commitments to us by these third parties, which could
adversely affect our business.
We have
identified a material weakness in our internal control over
financial reporting that resulted in the restatement of prior
periods consolidated financial statements and an
adjustment to the current period financial statements. We cannot
guarantee that additional material weaknesses will not arise in
the future, which could affect our ability to report our results
of operations and financial condition accurately and in a timely
manner.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with
U.S. generally accepted accounting principles (GAAP). Our
management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2010 and
identified a material weakness related to our prior
interpretation of ASC 815 and our initial classification
and subsequent accounting of warrants as either liabilities or
equity instruments. As a
21
result of this material weakness, our management concluded that
our internal control over financial reporting was not effective
as of December 31, 2010. This material weakness resulted in
a material misstatement of our liabilities, non-cash expense
relating to the changes in fair value of common stock warrants
and accumulated deficit accounts and related financial
disclosures and the restatement of our consolidated financial
statements for the years ended June 30, 2008, 2009 and 2010
and each of the quarterly periods from September 30, 2008
through September 30, 2010. See Part II
Item 9A, Controls and Procedures.
A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material
misstatement of our annual or interim consolidated financial
statements will not be prevented or detected on a timely basis.
The effectiveness of any controls or procedures is subject to
certain limitations, and as a result, internal control over
financial reporting may not prevent or detect misstatements. A
control can provide only reasonable, not absolute, assurance
that the objectives of the control system will be attained.
Although we believe that we have taken actions to remediate this
material weakness, we can give no assurance that additional
material weaknesses or restatements of financial results will
not arise in the future due to a failure to implement and
maintain adequate internal control over financial reporting or
circumvention of these controls. Additionally, even our improved
controls and procedures may not be adequate to prevent or
identify errors or irregularities or ensure that our financial
statements are prepared in accordance with GAAP. If we cannot
maintain and execute adequate internal control over financial
reporting or implement required new or improved controls that
provide reasonable assurance of the reliability of the financial
reporting and preparation of our financial statements for
external use, we could suffer harm to our reputation, fail to
meet our public reporting requirements on a timely basis, cause
investors to lose confidence in our reported financial
information or be unable to properly report on our business and
the results of our operations, and the trading price of our
common stock could be materially adversely affected.
If we
cannot attract and retain key personnel, our business may
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 three previous
occasions, most recently in fiscal 2008. 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.
Risks
Related to Intellectual Property
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 intellectual property rights to protect our proprietary
products and technologies. This involves complex legal,
scientific, and factual questions and uncertainties. We rely
upon patent, trade secret, copyright and contract laws to
protect proprietary technology and trademark law to protect
brand identities. However, we cannot assure you that any patent
applications filed by, assigned to, or licensed to us will be
granted, and that the scope of any of our issued or licensed
patents will be sufficiently broad to offer meaningful
protection. In addition, our issued patents or patents licensed
to us could be successfully challenged, invalidated, held to be
unenforceable, or circumvented so that our patent rights would
not create an effective competitive barrier. We also cannot
assure you that the inventors of the patents and applications
that we own or license were the first to invent or the first to
file on the inventions, or that a third party will not claim
ownership in one of our patents or patent applications. We
cannot assure you that a third party does not have or will not
obtain patents that dominate the patents we own or license now
or in the future. Furthermore, we rely on exclusive, world-wide
licenses relating to the production of human cells granted to us
by the University of Michigan. 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, each of these
licenses will terminate when the patent underlying the license
expires. The first of these underlying patents will expire on
March 21, 2012. Once the patents expire, third parties may
be able to practice the inventions covered by those patents and
thus compete with us.
22
Patent law relating to the scope of claims in the biotechnology
field is evolving and our patent rights in this country and
abroad are subject to this uncertainty.
We also rely on trade secrets and un-patentable know-how that we
seek to protect, in part, by confidentiality agreements with our
employees, consultants, suppliers and licensees. These
agreements may be breached, and we might not have adequate
remedies for any breach. Our competitors may also independently
develop technologies substantially equivalent or superior to
ours. 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. Our cell processing system and cell
compositions utilize a wide variety of technologies and we can
give no assurance that we have identified or can identify all
inventions and patents that may be infringed by development and
manufacture of our cell compositions. Although we have not been
subject to any filed infringement claims, 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. Such litigation is typically protracted and the
results are unpredictable. 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
including treble damages and the opposing partys attorney
fees, and force us to pay significant license fees and royalties
or cease the development and sale of our products and processes.
We have hired and will continue to hire individuals who have
experience in cell culture and cell based therapeutics and may
have confidential trade secret or proprietary information of
third parties. We caution these individuals not to use or reveal
this third-party information, but we cannot assure you that
these individuals will not use or reveal this third-party
information. Thus, we could be sued for misappropriation of
proprietary information and trade secrets. Such claims are
expensive to defend and could divert our attention and could
result in substantial damage awards and injunctions that could
have a material adverse effect on our business, financial
condition or results of operations.
We may
need to initiate lawsuits to protect or enforce our patents or
other proprietary rights, which would be expensive and, if
unsuccessful, may cause us to lose some of our intellectual
property rights.
To protect or enforce our patent rights, it may be necessary for
us to initiate patent litigation proceedings against third
parties, such as infringement suits or interference proceedings.
These lawsuits would be expensive, take significant time and
would divert managements attention from other business
concerns. These lawsuits could put our patents at risk of being
invalidated, held unenforceable, or interpreted narrowly, and
our patent applications at risk of not being issued. Further,
these lawsuits may provoke the defendants to assert claims
against us. The patent position of biotechnology firms is highly
uncertain, involves complex legal and factual questions and
recently has been the subject of much litigation. We cannot
assure you that we will prevail in any of such suits or
proceedings or that the damages or other remedies awarded to us,
if any, will be commercially valuable.
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
has certain rights in the technology developed with the grant.
These rights include a non-exclusive, fully
paid-up,
worldwide license under such inventions for any governmental
purpose. In addition, the U.S. Government has the right to
require us to grant an exclusive license under any of such
inventions to a third party if the U.S. Government
determines that: (i) adequate steps have not been taken to
commercialize such inventions; (ii) such action is
necessary to meet public health or safety needs; or
(iii) such action is necessary to meet requirements for
public use under federal regulations. Additionally, under the
federal Bayh Dole Act, a party which acquires an exclusive
license for an invention that was partially funded by a federal
research grant is subject to the following government rights:
(i) products using the
23
invention which are sold in the United States are to be
manufactured substantially in the United States, unless a waiver
is obtained; (ii) the government may force the granting of
a license to a third party who will make and sell the needed
product if the licensee does not pursue reasonable
commercialization of a needed product using the invention; and
(iii) the U.S. Government may use the invention for
its own needs. 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 manufacture
and/or use
of our products 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 adversely affect our
financial condition.
Risks
Related to an Investment in our Common Stock
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 $1.40 and $4.20
during the six month transition period ended December 31,
2010. The price of our common stock may continue to fluctuate in
response to a number of events and factors, such as:
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clinical trial results;
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the amount of our cash resources and our ability to obtain
additional funding;
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announcements of research activities, business developments,
technological innovations or new products by us or our
competitors;
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entering into or terminating strategic relationships;
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regulatory developments in both the United States and abroad;
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disputes concerning patents or proprietary rights;
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changes in our revenues or expense levels;
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public concern regarding the safety, efficacy or other aspects
of the products or methodologies we are developing;
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news or reports from other stem cell, cell therapy or
regenerative medicine companies;
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reports by securities analysts;
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status of the investment markets;
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concerns related to management transitions; and
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delisting from the NASDAQ Capital Market.
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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 recently 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.
24
The sale
of our common stock through future equity offerings may cause
dilution and could cause the price of our common stock to
decline.
Sales of our common stock offered through future equity
offerings may result in substantial dilution to the interests of
other holders of our common stock. The sale of a substantial
number of shares of our common stock to investors, or
anticipation of such sales, could make it more difficult for us
to sell equity or equity-related securities in the future at a
time and at a price that we might otherwise wish to effect sales.
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. Michigan law contains a provision that makes it
more difficult for a 10% shareholder, or its officers, to
acquire a company. This authority, together with certain
provisions of our charter documents, may have the effect 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 effect could occur even if our shareholders
consider the change in control to be in their best interest.
Forward-looking
statements
This report, including the documents that we incorporate by
reference, contains forward-looking statements within the
meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act. Any statements
about our expectations, beliefs, plans, objectives, assumptions
or future events or performance are not historical facts and may
be forward-looking. These statements are often, but are not
always, made through the use of words or phrases such as
anticipates, estimates,
plans, projects, trends,
opportunity, comfortable,
current, intention,
position, assume, potential,
outlook, remain, continue,
maintain, sustain, seek,
achieve, continuing,
ongoing, expects, management
believes, we believe, we intend
and similar words or phrases, or future or conditional verbs
such as will, would, should,
could, may, or similar expressions.
Accordingly, these statements involve estimates, assumptions and
uncertainties which could cause actual results to differ
materially from those expressed in them. Any forward-looking
statements are qualified in their entirety by reference to the
factors discussed throughout this report, and in particular
those factors listed under the section Risk Factors.
Because the factors referred to in the preceding paragraph could
cause actual results or outcomes to differ materially from those
expressed in any forward-looking statements we make, you should
not place undue reliance on any such forward-looking statements.
Further, any forward-looking statement speaks only as of the
date on which it is made, and we undertake no obligation to
update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement
is made or to reflect the occurrence of unanticipated events.
New factors emerge from time to time, and it is not possible for
us to predict which factors will arise. In addition, we cannot
assess the impact of each factor on our business or the extent
to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any
forward-looking statements. These forward-looking statements
include statements regarding:
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potential strategic collaborations with others;
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future capital needs;
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adequacy of existing capital to support operations for a
specified time;
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product development and marketing plan;
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features and successes of our cellular therapies;
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manufacturing and facility capabilities;
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clinical trial plans and anticipated results, including the
publication thereof;
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anticipation of future losses;
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replacement of manufacturing sources;
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commercialization plans; or
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revenue expectations and operating results.
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Item 1B.
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Unresolved
Staff Comments
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Not applicable.
We lease approximately 30,000 square feet of office,
manufacturing and research and development space in Ann Arbor,
Michigan under a lease agreement. This lease was entered into in
January 2007 and covers a period of six years, beginning on the
date we occupied the new space in May 2007. This lease also
includes two five-year options to extend the term to 2018 and
2023, respectively. We believe that our facilities are adequate
for our current needs. Additional facilities may be required to
support expansion for research and development activities or to
assume manufacturing operations that are currently fulfilled
through contract manufacturing relationships.
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Item 3.
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Legal
Proceedings
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We are currently not party to any material legal proceedings,
although from time to time we may become involved in disputes in
connection with the operation of our business.
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Item 4.
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Removed
and Reserved
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26
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchase of Equity Securities
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Our common stock is currently quoted on the NASDAQ Capital
Market under the symbol ASTM. The following table
sets forth the high and low closing prices per share of common
stock as reported on the NASDAQ Stock Market. Prices per share
of our common stock have been adjusted for the
eight-for-one
reverse stock split on February 18, 2010 on a retroactive
basis.
Price
Range of Common Stock
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|
|
|
|
|
High
|
|
|
Low
|
|
|
Year ended June 30, 2009
|
|
|
|
|
|
|
|
|
Quarter ended September 30, 2008
|
|
$
|
3.20
|
|
|
$
|
1.76
|
|
Quarter ended December 31, 2008
|
|
|
5.44
|
|
|
|
1.28
|
|
Quarter ended March 31, 2009
|
|
|
5.84
|
|
|
|
2.64
|
|
Quarter ended June 30, 2009
|
|
|
3.68
|
|
|
|
2.56
|
|
Year ended June 30, 2010
|
|
|
|
|
|
|
|
|
Quarter ended September 30, 2009
|
|
$
|
4.16
|
|
|
$
|
2.88
|
|
Quarter ended December 31, 2009
|
|
|
3.36
|
|
|
|
2.08
|
|
Quarter ended March 31, 2010
|
|
|
2.72
|
|
|
|
1.43
|
|
Quarter ended June 30, 2010
|
|
|
1.88
|
|
|
|
1.34
|
|
Transition Period ended December 31, 2010
|
|
|
|
|
|
|
|
|
Quarter ended September 30, 2010
|
|
$
|
1.61
|
|
|
$
|
1.40
|
|
Quarter ended December 31, 2010
|
|
|
4.20
|
|
|
|
1.44
|
|
As of March 24, 2011, there were approximately 565 holders
of record of the common stock. We have never paid any cash
dividends on our common stock and we do not anticipate paying
such cash dividends in the foreseeable future. We currently
anticipate that we will retain all future earnings, if any, for
use in the development of our business.
Equity
Compensation Plan Information as of December 31,
2010
The following table sets forth information as of
December 31, 2010 with respect to compensation plans
(including individual compensation arrangements) under which
equity securities are authorized for issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Number of Securities
|
|
|
|
Number of Securities
|
|
|
Exercise Price of
|
|
|
Remaining Available
|
|
|
|
to be Issued upon Exercise
|
|
|
Outstanding
|
|
|
for Future Issuance
|
|
|
|
of Outstanding Options,
|
|
|
Options, Warrants
|
|
|
Under Equity
|
|
|
|
Warrants and Rights
|
|
|
and Rights
|
|
|
Compensation Plans
|
|
|
Equity compensation plans approved by security holders
(employees and directors)(1)
|
|
|
4,333,623
|
|
|
$
|
2.52
|
|
|
|
310,673
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The material features of these securities are described in
Note 3 of the Consolidated Financial Statements. |
|
(2) |
|
Shares issuable under the 2009 Omnibus Incentive Plan. |
27
|
|
Item 6.
|
Selected
Financial Data
|
Not applicable.
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Change in
Fiscal Year End
On November 11, 2010, our Board of Directors approved the
change in our fiscal year end from June 30 to December 31.
As a result of this change, this Transition Report on
Form 10-K
includes financial information for the six month transition
period from July 1, 2010 to December 31, 2010
(Transition Period). References in this Transition Report on
Form 10-K
to fiscal year 2010 or fiscal 2010 refer to the period of
July 1, 2009 through June 30, 2010 and references to
fiscal year 2009 or fiscal 2009 refer to the period of
July 1, 2008 through June 30, 2009. All amounts
presented for the six months ended December 31, 2009 are
unaudited. Subsequent to this Transition Report on
Form 10-K,
our annual reports on
Form 10-K
will cover the calendar year from January 1 to December 31,
with historical periods remaining unchanged.
Overview
We are developing expanded patient specific mixed cellular
therapies for use in the treatment of severe, chronic ischemic
cardiovascular diseases. Our innovative cell-based therapies
repair or regenerate damaged or diseased tissues. Our
proprietary cell-manufacturing technology enables the
manufacture of mixed-cell therapies expanded from a
patients own bone marrow and delivered directly to damaged
tissues. Preclinical and interim clinical data suggest that
ixmyelocel-T (the new generic name for our cell therapy approved
in March 2011) may be effective in treating patients with
severe, chronic ischemic cardiovascular diseases such as
critical limb ischemia (CLI). Preliminary data utilizing
ixmyelocel-T in dilated cardiomyopathy (DCM) have shown
safety as well as provided indications of efficacy. Nearly
200 patients have been treated in recent clinical trials
using ixmyelocel-T (over 400 patients safely treated since
our inception) with no treatment related serious adverse events.
Our technology is a patient specific, expanded mixed cell
therapy developed using our proprietary, automated processing
system, which utilizes single-pass perfusion technology to
produce human cell products for clinical use. This system, the
Aastrom Replicell System, is our proprietary manufacturing
technology for expanding what we believe to be the most
important populations of cells. The manufacture of our expanded,
patient specific mixed cell therapy products is done under
current Good Manufacturing Practices (cGMP) and current Good
Tissue Practices (cGTP) guidelines required by the
U.S. Food and Drug Administration (FDA).
Our expanded, patient specific mixed cellular therapies have
several features that we believe are critical for success in
treating patients with severe, chronic cardiovascular diseases:
Safe our bone marrow-derived, expanded,
patient specific cellular therapy leverages decades of
scientific and medical experience, as bone marrow and bone
marrow-like therapies have been used safely and efficaciously in
medicine for decades.
Autologous (patient specific) we start with
the patients own cells, which are accepted by the
patients immune system allowing the cells to differentiate
and integrate into existing functional tissues, and may provide
long-term engraftment and repair.
Expanded we begin with a small amount of bone
marrow from a patient (approximately 50 ml) and
significantly expand the number of certain cell types, primarily
CD90+
mesenchymal cells,
CD14+
monocytes and activated macrophages to far more than are present
in the patients own bone marrow (approximately
30 300 times the number of these cells in the
starting bone marrow aspirate).
A mixed population of cells we believe our
proprietary mixture of cell types, which are normally found in
bone marrow, but at different quantities, possess the activities
required for tissue repair.
Minimally invasive our procedure for taking
bone marrow (an aspirate) can be performed in an
out-patient setting and takes approximately 15 minutes. For
diseases such as CLI, the administration of our therapy can be
performed in an out-patient setting in a one-time, approximately
20 minute procedure. We are also
28
pursuing a minimally invasive approach to cell delivery in other
severe, chronic ischemic cardiovascular diseases such as DCM.
Our cell therapies are produced at our cell manufacturing
facility in the United States, located at our headquarters in
Ann Arbor, Michigan.
Clinical
Development Programs
Our clinical development programs are focused on advancing
therapies for unmet medical needs in severe, chronic ischemic
cardiovascular diseases. We are currently completing our Phase
2b clinical trial in CLI and we expect it to advance to a Phase
3 development program in 2011. Our CLI development program has
received Fast Track Designation from the FDA. Our DCM program is
in early Phase 2 clinical development and is focused on
achieving proof of concept in this indication. Our DCM
development program has received Orphan Disease Designation from
the FDA.
Results to date in our clinical trials may not be indicative of
results obtained from subsequent patients enrolled in those
trials or from future clinical trials. Further, our future
clinical trials may not be successful or we may not be able to
obtain the required Biologic License Application (BLA) approval
to commercialize our products in the United States in a timely
fashion, or at all. See Risk Factors.
Critical
Limb Ischemia
Background
CLI is the most serious and advanced stage of peripheral
arterial disease (PAD). PAD is a chronic atherosclerotic disease
that progressively restricts blood flow in the limbs and can
lead to serious medical complications. This disease is often
associated with other clinical conditions including
hypertension, cardiovascular disease, hyperlipidemia, diabetes,
obesity and stroke. CLI is used to describe patients with the
most severe forms of PAD: those with chronic ischemia-induced
pain (even at rest), ulcers, tissue loss or gangrene in the
limbs, often leading to amputation and death. CLI leads to more
than 160,000 amputations per year. The one-year and four-year
mortality rates for no-option CLI patients that progress to
amputation are approximately 25% and 70%, respectively. Our
expanded, patient specific mixed cell therapy has shown
significant promise in the treatment of CLI.
Clinical
Results
Our U.S. Phase 2b RESTORE-CLI program is a multi-center,
randomized, double-blind, placebo controlled clinical trial.
This clinical trial is designed to evaluate the safety and
efficacy of ixmyelocel-T in the treatment of patients with CLI.
It is the largest multi-center, randomized, double-blind,
placebo-controlled cellular therapy study ever conducted in CLI
patients. We completed enrollment of this trial in February 2010
with a total of 86 patients at 18 sites across the United
States, with the last patient being treated in March 2010. These
patients are being followed for a period of 12 months
following treatment. In addition to assessing the safety of our
product, efficacy endpoints include amputation-free survival,
time to first occurrence of treatment failure (defined as major
amputation, all-cause mortality, doubling in wound size and de
novo gangrene), major amputation rates, level of amputation,
complete wound healing, patient quality of life, and pain scores.
Results to date include two planned interim analyses. In June
2010, we reported results at the Society of Vascular Surgery
Meeting. This interim analysis included the six month results
for 46 patients enrolled in the trial. The results included
the finding that amputation free survival, defined as time to
major amputation or death, was statistically significant in
favor of our therapy (p=0.038). Additionally, statistical
analysis revealed a significant increase in time to treatment
failure (e.g., major amputation, doubling in wound size de novo
gangrene, or death) (log-rank test, p=0.0053). Other endpoints
measured (e.g., major amputation rate, complete wound healing,
change in Wagner wound scale) showed encouraging trends, but had
not reached statistical significance at the interim analysis.
The primary purpose of the interim analysis was to assess
performance of our therapy and, if positive, to help plan the
Phase 3 program. In June 2010 we held discussions with the FDA,
which confirmed the appropriateness of using amputation free
survival as a primary endpoint for our planned Phase 3 program.
29
In November 2010, we presented six-month data on all patients
enrolled in the trial at the
VEITHsymposiumtm
non-CME satellite session. Results of this analysis showed that
the study achieved both its primary safety endpoint and primary
efficacy endpoint of time to first occurrence of treatment
failure. The findings related to time to first occurrence of
treatment failure were statistically significant (p=0.0132).
Further analyses show a clinically meaningful reduction of 56%
in treatment failure events. Analysis of the data for
amputation-free survival, a secondary endpoint which the study
was not powered to demonstrate, showed a clinically meaningful
reduction in event rates of 24%, but did not show statistical
significance (p=0.5541).
We continue to make progress towards the Phase 3 clinical
development program in CLI. In October 2010, we announced that
the FDA had granted Fast Track Designation for the use of our
cellular therapy for the CLI indication. The Fast Track program
is designed to facilitate the development and expedite the
review of new drugs and biologics, intended to treat serious or
life-threatening conditions that demonstrate the potential to
address unmet medical needs. During June 2010 discussions with
the FDA, Aastrom was encouraged to use the Special Protocol
Assessment (SPA) process for the Phase 3 program. In October
2010, we submitted two SPA requests to the FDA, one for a
no option patient population and another for a
poor option patient population. The no option SPA
request focuses on patients that have exhausted all other
treatment options with the exception of amputation. The poor
option SPA request focuses on patients that have not yet
exhausted all other treatment options; however the options
available are associated with poor outcomes. We expect to have
the no option and poor option agreements on the SPAs
completed in the second and third quarter of 2011, respectively.
Dilated
Cardiomyopathy
Background
DCM is a severe, chronic cardiovascular disease that leads to
enlargement of the heart, reducing the pumping function of the
heart to the point that blood circulation is impaired. Patients
with DCM typically present with symptoms of congestive heart
failure, including limitations in physical activity and
shortness of breath. There are two types of DCM: ischemic and
non-ischemic. Ischemic DCM, the most common form, is associated
with atherosclerotic cardiovascular disease. Among other causes,
non-ischemic DCM can be triggered by toxin exposure, virus or
genetic diseases. Patient prognosis depends on the stage and
cause of the disease but is typically characterized by a high
mortality rate. Other than heart transplantation or ventricular
assist devices, there are currently no effective treatment
options for end-stage patients with this disease. According to
the book, Heart Failure: A Combined Medical and Surgical
Approach (2007), DCM affects 200,000-400,000 patients
in the United States alone.
In February 2007, the FDA granted Orphan Drug Designation to our
investigational therapy for the treatment of DCM. Our DCM
development program is currently in Phase 2 and we have two
ongoing U.S. Phase 2 trials investigating surgical and
catheter-based delivery for our product in the treatment of DCM.
Surgical
Trial Program DCM
In May 2008, the FDA activated our investigational new drug
application (IND) for surgical delivery of our therapy. The
40-patient U.S. IMPACT-DCM clinical trial began with the
treatment of the first patient in November 2008. This
multi-center, randomized, controlled, prospective, open-label,
Phase 2 study was designed to include 20 patients with
ischemic DCM and 20 patients with non-ischemic DCM. We
completed enrollment of the 40 patients in the IMPACT-DCM
clinical trial in January 2010 and the final patient was treated
in March 2010. Participants in the IMPACT-DCM clinical trial
were required to have New York Heart Association (NYHA)
functional class III or IV heart failure, a left
ventricular ejection fraction (LVEF) of less than or equal to
30% (60-75%
is typical for a healthy person), and meet other eligibility
criteria, including optimized medical therapy. Patients were
randomized in an approximate 3:1 ratio of treatment to control
group. Patients in the treatment group received our therapy
through direct injection into the heart muscle during minimally
invasive-surgery (involving a chest incision of approximately
2 inches). The primary objective of this study is to assess
the safety of ixmyelocel-T in patients with DCM. Efficacy
measures include cardiac dimensions and tissue mass, cardiac
function (e.g. cardiac output, LVEF, cardiopulmonary exercise
testing parameters), cardiac perfusion and viability, as well as
other
30
efficacy endpoints. NYHA functional class and quality of life
are also assessed. Patients will be followed for 12 months
post-treatment.
Six-month data from the IMPACT-DCM interim analysis were
presented at The Sixth International Conference on Cell Therapy
for Cardiovascular Disease on January 20, 2011. Results
indicated that ixmyelocel-T is safe and showed that serious
adverse events were associated with the surgical procedure and
not the cellular therapy. Adverse events after the initial
peri-operative period were roughly equal between the control and
treatment groups. Efficacy findings include positive trends in
quality of life and functional and structural parameters in the
treatment group as compared with the control group. We expect to
report
12-month
data from the IMPACT-DCM clinical study in the third quarter of
2011.
Catheter
Trial Program DCM
In November 2009, the FDA activated our second IND to allow for
the evaluation of our therapy delivered by a percutaneous direct
catheter injection as opposed to surgically. The Catheter-DCM
clinical trial is designed to explore catheter-based delivery of
ixmyelocel-T to treat DCM patients. This multi-center,
randomized, controlled, prospective, open-label, Phase 2 study
enrolled approximately 12 patients with ischemic DCM and
10 patients with non-ischemic DCM at clinical sites across
the United States. Participants met the same criteria as stated
above for the IMPACT-DCM surgical trial. The first patient was
enrolled into the trial in April 2010 and enrollment concluded
in December 2010 with 22 patients enrolled. We expect to
report six-month results from the Catheter-DCM Phase 2 trial in
the third quarter of 2011.
Critical
Accounting Policies and Estimates
The preparation of our consolidated financial statements in
accordance with U.S. generally accepted accounting
principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, net revenues and expenses, and related disclosures.
We believe our estimates and assumptions are reasonable;
however, actual results and the timing of the recognition of
such amounts could differ from these estimates.
There are accounting policies that we believe are significant to
the presentation of our consolidated financial statements. The
most significant accounting policies relate to stock-based
compensation and warrants.
Stock-Based Compensation 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 historical
volatility. We estimate the expected life of options that vest
solely on service using the simplified method
provided for in the Securities and Exchange Commission Staff
Accounting Bulletin No. 110. The simplified
method is permitted for estimating the expected term of
plain-vanilla stock options for which the historical
stock option exercise experience is likely not indicative of
future exercise patterns. 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, however these estimates involve inherent
uncertainties and the application of management judgment. As a
result, if factors change and different assumptions are used,
the 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 over the service period. We estimate the
forfeiture rate considering the historical experience of our
stock-based awards. If the actual forfeiture rate is different
from the estimate, we adjust the expense accordingly.
Warrants Warrants that could require cash
settlement or have anti-dilution price protection provisions are
recorded as liabilities at their estimated fair value at the
date of issuance, with subsequent changes in estimated fair
value recorded in other income (expense) in our statement of
operations in each subsequent period. In general, warrants with
anti-dilution provisions are measured using the Monte Carlo
valuation model, while the others are measured using the
Black-Scholes valuation model. Both of the methodologies are
based, in part, upon inputs for
31
which there is little or no observable market data, requiring
the Company to develop its own assumptions. Inherent in both of
these models are assumptions related to expected stock-price
volatility, expected life, risk-free interest rate and dividend
yield. We estimate the volatility of our common stock at the
date of issuance, and at each subsequent reporting period, based
on historical volatility that matches the expected remaining
life of the warrants. 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 remaining life of the
warrants. The expected life of the warrants is assumed to be
equivalent to their remaining contractual term. The dividend
rate is based on our historical rate, which we anticipate to
remain at zero. For those warrants valued using a Monte Carlo
model, we estimate the probability and timing of potential
future financings and fundamental transactions, as applicable.
The assumptions used in calculating the estimated fair value of
the warrants represent our best estimates, however these
estimates involve inherent uncertainties and the application of
management judgment. As a result, if factors change and
different assumptions are used, the warrant liability and the
change in estimated fair value could be materially different.
On January 28, 2011, the Company received a comment letter
from the staff of the Securities and Exchange Commission (SEC)
relating to its Annual Report on
Form 10-K
for the fiscal year ended June 30, 2010. As a result, the
Company reassessed its accounting treatment for all warrants
issued by the Company since 2000 and determined that certain
warrants did not appropriately consider the provisions of
ASC 815-40
Derivatives and Hedging Contracts in
Entitys Own Equity. The Company filed an Amended
Annual Report on
Form 10-K/A
for the fiscal year ended June 30, 2010 and amended
quarterly filings on
Form 10-Q/A
for the quarters ended September 30, 2009,
December 31, 2009, March 31, 2010 and
September 30, 2010. All periods presented in each filing
were restated to account for the warrants issued in April 2004,
October 2004, October 2007 and January 2010 (Class A
warrants and Class B warrants) as liabilities with changes
in fair value in subsequent periods recorded as non-cash income
or expense. The Company used a Black-Scholes valuation
methodology for all of these warrants.
The Company received a follow up comment letter from the SEC
staff on March 29, 2011. As a result, the Company
reassessed the appropriateness of the Black-Scholes valuation
methodology used for the Class A warrants issued in January
2010 and the appropriateness of liability accounting for the
Class B warrants issued in January 2010 (which expired
unexercised in July 2010). After further analysis, the Company
concluded that a Monte Carlo valuation methodology is more
appropriate for valuing the Class A warrants and the terms
of the Class B warrants are such that the Class B
warrants should have been classified as equity rather than as a
liability.
The Company assessed the aforementioned items and concluded the
impacts to the Companys previously-filed financial
statements were not material. However, as of December 31,
2010, the Company is now utilizing a Monte Carlo valuation
methodology to estimate the fair value of its Class A
warrants and will continue to do so going forward. Additionally,
the Company has corrected the cumulative impact of the
aforementioned items in the six-month transition period ended
December 31, 2010. The impact of these items is not
material to the quarter or six-month transition period ended
December 31, 2010. These corrections decreased the
Companys net loss for the six-month transition period
ended December 31, 2010 by approximately $77,000 and also
decreased the Companys shareholders equity by
$349,000.
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 increased to $253,000 for the Transition Period
from $89,000 for the six months ended December 31, 2009.
The increase is due to proceeds from the Qualifying Therapeutic
Discovery Project in November 2010. Total revenues decreased to
$89,000 in fiscal 2010 from $182,000 in fiscal 2009 due to the
declines in volume of cell production sales for investigator
sponsored clinical trials in Spain and limited cell
manufacturing supplies to a research institute in the United
States. At such time as we satisfy applicable regulatory
approval requirements, we expect the sales of our cell-based
products will constitute nearly all of our product sales
revenues.
Total costs and expenses increased to $11,876,000 for the
Transition Period from $8,490,000 for the six months ended
December 31, 2009 due to preparation for our Phase 3 CLI
program and increased consulting and
32
non-cash stock-based compensation expense. Total costs and
expenses increased to $17,893,000 in fiscal 2010 from
$16,351,000 in fiscal 2009 due to increased clinical activity
related to our DCM and CLI programs.
Research and development expenses increased to $8,609,000 for
the Transition Period from $6,194,000 for the six months ended
December 31, 2009 due to preparation for our Phase 3 CLI
program. These amounts include non-cash stock-based compensation
of $549,000 for the Transition Period, compared to $361,000 for
the six months ended December 31, 2009. In fiscal 2010,
research and development expenses increased to $12,658,000 from
$11,289,000 in fiscal 2009 due to increased clinical activity
related to our DCM and CLI programs. These amounts include
non-cash stock-based compensation of $484,000 for fiscal 2010,
compared to $579,000 for fiscal 2009.
Selling, general and administrative expenses increased to
$3,265,000 for the Transition Period from $2,262,000 for the six
months ended December 31, 2009 due to an increase in
non-cash stock-based compensation and consulting costs.
Stock-based compensation included in selling, general and
administrative expenses increased to $494,000 for the Transition
Period from a net reversal of expense of $11,000 for the six
months ended December 31, 2009. In fiscal 2010, selling,
general and administrative expenses increased to $5,201,000 from
$4,950,000 in fiscal 2009 due to increased cash compensation
costs and increased legal and consulting costs offset by lower
non-cash stock-based compensation expense. Stock-based
compensation expense included in selling, general and
administrative expenses decreased to $225,000 in fiscal 2010
from $783,000 in fiscal 2009. Stock-based compensation expense
for the six months ended December 31, 2009 and for fiscal
2010 was impacted by the reversal of previously recognized
expense for options that were forfeited in excess of our
estimated rate of forfeiture. Approximately $279,000 of the
reversal was for certain options held by George W. Dunbar that
were forfeited when he stepped down as Chief Executive Officer,
President and Chief Financial Officer in December 2009.
Non-cash income (expense) from the change in fair value of
warrants was ($7,500,000) for the Transition Period compared to
$264,000 for the six months ended December 31, 2009. For
fiscal 2010, warrant income (expense) was $3,171,000 compared to
($115,000) in fiscal 2009. The fluctuations are due to the
issuance of warrants in the January 2010 and December 2010
financings, as well as changes in the fair value of our warrant
liability resulting from changes in the fair value of our common
stock. Fluctuations in the fair value of warrants in future
periods could result in significant non-cash adjustments to the
consolidated financial statements, however any income or expense
recorded will not impact our cash and cash equivalents,
operating expenses or cash flows.
Interest income was $40,000 in the Transition Period and
compared to $49,000 for the six months ended December 31,
2009. In fiscal 2010, interest income was $115,000 compared to
$296,000 in fiscal 2009. The fluctuations in interest income are
due primarily to corresponding changes in the levels of cash,
cash equivalents and short-term investments combined with
interest rate changes during the periods.
Our net loss was $19,088,000, or $0.65 per share for the
Transition Period compared to $8,112,000, or $0.38 per share for
the six months ended December 31, 2009. In fiscal 2010, our
net loss was $14,558,000, or $0.59 per share, compared to
$16,061,000, or $0.90 per share in fiscal 2009. The changes in
net loss are primarily due to the non-cash fluctuations in the
fair value of warrants, in addition to the changes in research
and development expenses and selling, general and administrative
expense as described in more detail above. Loss per share
comparisons were also impacted by the issuance of
10,000,000 shares of common stock in December 2010 and
6,510,000 shares of common stock in January 2010.
Our major ongoing research and development programs are focused
on the clinical development of our technology platform for
treatment of severe, chronic cardiovascular diseases. The
following table summarizes the approximate allocation of cost
for our research and development projects (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
Six Months Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Critical Limb Ischemia
|
|
$
|
5,334
|
|
|
$
|
5,163
|
|
|
$
|
2,456
|
|
|
$
|
4,092
|
|
Dilated Cardiomyopathy
|
|
|
5,510
|
|
|
|
7,370
|
|
|
|
3,673
|
|
|
|
4,494
|
|
Other
|
|
|
445
|
|
|
|
125
|
|
|
|
65
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
11,289
|
|
|
$
|
12,658
|
|
|
$
|
6,194
|
|
|
$
|
8,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Because of the uncertainties of clinical trials and the evolving
regulatory requirements applicable to our products, estimating
the completion dates or cost to complete our major research and
development programs 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 in Item 1A of this report. The
lengthy process of seeking regulatory approvals for our product
candidates, and the subsequent compliance with applicable
regulations, will require the expenditure of substantial
resources. Any failure by us to obtain, or any delay in
obtaining, regulatory approvals could cause our research and
development expenditures to increase and, in turn, have a
material adverse effect on our results of operations. We cannot
be certain when any net cash inflow from products validated
under our major research and development project, if any, will
commence.
We have not generated any net taxable income since our inception
and therefore have not paid any federal income taxes since
inception. We issued shares of common stock in prior years,
which resulted in multiple ownership changes under relevant
taxation rules (Section 382 of the Internal Revenue Code).
Consequently, pursuant to these taxation rules, the utilization
of net operating loss and tax credit loss and tax carryforwards
will be significantly limited in future periods, even if we
generate taxable income. Such limitations may result in our
carryforwards expiring before we can utilize them. At
December 31, 2010, we had generated cumulative
U.S. federal tax net operating loss and tax credit
carryforwards of $133,291,000 and $1,600,000, respectively,
which will expire in various periods through 2030 if not
utilized. Our ability to utilize our net operating loss and tax
credit carryforwards may become subject to further annual
limitation in the event of future changes in ownership under the
taxation rules.
Liquidity
and Capital Resources
We are currently focused on utilizing our technology to produce
patient specific cell-based products for use in regenerative
medicine applications. At such time as we satisfy applicable
regulatory approval requirements, we expect the sales of our
cell-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 we achieve significant product sales. Until that
time, we expect that our revenue sources from our current
activities will consist of only minor sales of our cell products
and manufacturing supplies to our academic collaborators, grant
revenue, research funding and potential licensing fees or other
financial support from potential future corporate collaborators.
We expect that we will need to raise significant additional
funds or pursue strategic transactions or other strategic
alternatives in order to complete our product development
programs, complete clinical trials needed to market our
products, and commercialize our products. To date, we have
financed our operations primarily through public and private
sales of our equity securities, and we expect to continue to
seek to obtain the 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. With respect to our current activities,
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 December 31, 2010, we had
accumulated a net loss of approximately $221,212,000. 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.
We have financed our operations since inception primarily
through public and private sales of our equity securities,
which, from inception through December 31, 2010, have
totaled approximately $225,102,000 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.
34
Our combined cash, cash equivalents and short-term investments
totaled $31,248,000 at December 31, 2010, an increase of
$12,129,000 from June 30, 2010. During the Transition
Period ended December 31, 2010, the primary source of cash,
and cash equivalents and short-term investments was from the
sale of our equity securities in December 2010 with net proceeds
of $20,600,000, in addition to $1,074,000 from the exercise of
stock purchase warrants and stock options. The primary uses of
cash, cash equivalents and short-term investments during the
Transition Period ended December 31, 2010 included
$9,252,000 for our operations and working capital requirements,
and $305,000 in capital expenditures.
Our combined cash, cash equivalents and short-term investments
totaled $19,119,000 at June 30, 2010, an increase of
$2,119,000 from June 30, 2009. During the year ended
June 30, 2010, the primary source of cash, cash equivalents
and short-term investments was from the sale of our equity
securities in January 2010 with net proceeds of $12,432,000, in
addition to $5,094,000 of equity securities issued pursuant to
the June 2009 agreement with Fusion Capital. The primary uses of
cash, cash equivalents and short-term investments during the
year ended June 30, 2010 included $15,085,000 to finance
our operations and working capital requirements, and $120,000 in
capital expenditures.
Our cash and cash equivalents included money market securities,
and short-term investments included certificates of deposit with
original maturities of less than twelve months.
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, costs of
possible acquisition or development of complementary business
activities and the cost of product commercialization. We do not
expect to generate positive cash flows from operations for at
least the next several years due to the expected spending for
research and development programs and the cost of
commercializing our product candidates. We intend to seek
additional funding through research and development agreements
or grants, distribution and marketing agreements and through
public or private debt or equity financing transactions.
Successful future operations are subject to several technical
and risk factors, including our continued ability to obtain
future funding, satisfactory product development, obtaining
regulatory approval and market acceptance for our products.
In order to complete our Phase 3 CLI trial, grow and expand our
business, introduce our product candidates into the marketplace
and possibly acquire or develop complementary business
activities, we will need to raise additional funds. We will also
need additional funds or a collaborative partner, or both, to
finance the research and development activities of our product
candidates for the expansion of additional cell types. We expect
that our primary sources of capital for the foreseeable future
will be through collaborative arrangements and through the
public or private sale of our equity or debt securities. There
can be no assurance that such collaborative arrangements, or any
public or private financing, will be available on acceptable
terms, if at all, or can be sustained. Several factors will
affect our ability to raise additional funding, including, but
not limited to, market volatility of our common stock, continued
stock market listing and economic conditions affecting the
public markets generally or some portion or the entire
technology sector.
We believe that we will have adequate liquidity to finance our
operations, including development of our products and product
candidates, via our cash and cash equivalents on hand as of
December 31, 2010 until at least December 31, 2011.
While our budgeted cash usage and operating plan for 2011 does
not currently contemplate taking additional actions to reduce
the use of cash over the next twelve months, we could, if
necessary, delay or forego certain budgeted discretionary
expenditures such as anticipated hiring plans or certain
non-critical research and development expenditures. In addition,
we could slow down or delay certain clinical trial activity
(without jeopardizing our Phase 3 clinical trial for
CLI) such that we will have sufficient cash on hand until
at least December 31, 2011. 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, in Item 1A of this report.
In October 2008, we entered into a common stock purchase
agreement with Fusion Capital Fund II, LLC (Fusion
Capital) pursuant to which we were entitled to sell up to
$15,000,000 of our common stock to Fusion Capital. In April
2009, we concluded the sales of the registered shares under this
common stock purchase agreement. Under this purchase agreement
we issued 2,836,583 shares of common stock for net proceeds
of
35
approximately $8,600,000. In connection with entering into this
common stock purchase agreement, we issued to Fusion Capital
242,040 shares of our common stock as a commitment fee. We
also issued to Fusion Capital an additional 139,229 shares
as a pro rata commitment fee.
In June 2009, we entered into a $30,000,000 common stock
purchase agreement with Fusion Capital. Pursuant to the purchase
agreement with Fusion Capital, we had the right to sell to
Fusion Capital up to $30,000,000 of our common stock over a
25-month
period, which began on July 1, 2009. Such sales were to be
made from time to time in amounts between $100,000 and
$4,000,000, depending on certain conditions as set forth in the
agreement. In consideration for entering into the purchase
agreement, we issued 181,530 shares of our common stock to
Fusion Capital as an initial commitment fee. During fiscal 2010,
1,718,538 shares of our common stock (including
51,432 shares related to its commitment fee) were issued to
Fusion Capital for net proceeds of approximately $5,100,000. No
additional shares were issued to Fusion Capital subsequent to
October 2009, and we terminated the agreement with Fusion
Capital in November 2010.
On January 21, 2010, we completed the sale of
6,509,637 units (including 740,387 units sold to the
underwriter pursuant to the exercise of its over-allotment
option) at a public offering price of $2.08 per unit. Each unit
consisted of (i) one share of our common stock, (ii) a
Class A warrant to purchase 0.75 of a share of our common
stock at an exercise price of $2.52 per share (as adjusted from
$2.97 per share for the anti-dilution provision triggered in the
December 2010 financing) and (iii) a Class B warrant
to purchase 0.50 of a share of our common stock at an exercise
price of $2.08 per share. We received approximately $12,400,000
in net proceeds from the sale of the units (including the
partially exercised option of the over-allotment), after
underwriting discounts and commissions and other offering
expenses.
The 6,509,637 units consist of an aggregate of
6,509,637 shares of our common stock, Class A warrants
to purchase an aggregate of 4,882,228 shares of our common
stock and Class B warrants to purchase an aggregate of
3,254,818 shares of our common stock. The Class A
warrants are exercisable for a five year period commencing on
July 21, 2010. The Class B warrants were exercisable
at any time from January 21, 2010 through July 21,
2010 and expired unexercised.
On December 15, 2010, we completed the sale of
10,000,000 units at a public offering price of $2.25 per
unit. Each unit consisted of one share of our common stock and a
warrant to purchase one share of our common stock at an exercise
price of $3.22 per share. We received approximately $20,600,000
in net proceeds from the sale of the units, after underwriting
discounts and commissions and other offering expenses. The
warrants to purchase 10,000,000 shares of our common stock
are exercisable for a five year period commencing on
December 15, 2010.
If we cannot raise necessary funding in the future, we may not
be able to develop or enhance products, take advantage of future
opportunities, or respond to competitive pressures or
unanticipated requirements, which would have a material adverse
impact on our business, financial condition and results of
operations. See Risk Factors and Notes to
Consolidated Financial Statements included herein.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements or
relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purpose entities.
New
Accounting Standards
Refer to Note 1 of the consolidated financial statements in
Item 8 for detail regarding accounting pronouncements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Not applicable.
36
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
37
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Aastrom Biosciences, Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations,
shareholders equity and comprehensive loss and cash flows
present fairly, in all material respects, the financial position
of Aastrom Biosciences, Inc. and its subsidiaries (a development
stage company) at June 30, 2009, June 30, 2010 and
December 31, 2010, and the results of their operations and
their cash flows for each of the three years in the period ended
June 30, 2010, for the six month period ended
December 31, 2010 and for the period from March 24,
1989 (Inception) to December 31, 2010, in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
/s/
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
April 14, 2011
38
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,000
|
|
|
$
|
14,119
|
|
|
$
|
31,248
|
|
Short-term investments
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
Receivables, net
|
|
|
58
|
|
|
|
16
|
|
|
|
25
|
|
Inventories
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
732
|
|
|
|
383
|
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
17,791
|
|
|
|
19,518
|
|
|
|
31,699
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
1,485
|
|
|
|
1,013
|
|
|
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
19,276
|
|
|
$
|
20,531
|
|
|
$
|
32,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
853
|
|
|
$
|
1,749
|
|
|
$
|
2,900
|
|
Accrued employee benefits
|
|
|
355
|
|
|
|
686
|
|
|
|
796
|
|
Current portion of long-term debt
|
|
|
479
|
|
|
|
226
|
|
|
|
214
|
|
Warrant liabilities
|
|
|
532
|
|
|
|
3,010
|
|
|
|
25,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,219
|
|
|
|
5,671
|
|
|
|
29,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
|
|
305
|
|
|
|
79
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, no par value; shares authorized
31,250, 62,500 and 62,500 respectively; shares
issued and outstanding 20,028, 28,256 and 38,616,
respectively
|
|
|
205,286
|
|
|
|
217,873
|
|
|
|
225,102
|
|
Deficit accumulated during the development stage
|
|
|
(188,534
|
)
|
|
|
(203,092
|
)
|
|
|
(222,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
16,752
|
|
|
|
14,781
|
|
|
|
2,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
19,276
|
|
|
$
|
20,531
|
|
|
$
|
32,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month
|
|
|
March 24, 1989
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
(Inception) to
|
|
|
|
Year Ended June 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
(In thousands, except per share amounts)
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales and rentals
|
|
$
|
208
|
|
|
$
|
182
|
|
|
$
|
89
|
|
|
$
|
9
|
|
|
$
|
1,859
|
|
Research and development agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,105
|
|
Grants
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
9,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
522
|
|
|
|
182
|
|
|
|
89
|
|
|
|
253
|
|
|
|
13,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales and rentals
|
|
|
56
|
|
|
|
112
|
|
|
|
34
|
|
|
|
2
|
|
|
|
3,037
|
|
Research and development
|
|
|
15,249
|
|
|
|
11,289
|
|
|
|
12,658
|
|
|
|
8,609
|
|
|
|
169,375
|
|
Selling, general and administrative
|
|
|
6,436
|
|
|
|
4,950
|
|
|
|
5,201
|
|
|
|
3,265
|
|
|
|
77,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
21,741
|
|
|
|
16,351
|
|
|
|
17,893
|
|
|
|
11,876
|
|
|
|
249,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(21,219
|
)
|
|
|
(16,169
|
)
|
|
|
(17,804
|
)
|
|
|
(11,623
|
)
|
|
|
(235,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in fair value of warrants
|
|
|
4,632
|
|
|
|
(115
|
)
|
|
|
3,171
|
|
|
|
(7,500
|
)
|
|
|
2,960
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,249
|
|
Interest income
|
|
|
1,170
|
|
|
|
296
|
|
|
|
115
|
|
|
|
40
|
|
|
|
10,719
|
|
Interest expense
|
|
|
(84
|
)
|
|
|
(73
|
)
|
|
|
(40
|
)
|
|
|
(5
|
)
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
5,718
|
|
|
|
108
|
|
|
|
3,246
|
|
|
|
(7,465
|
)
|
|
|
14,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(15,501
|
)
|
|
$
|
(16,061
|
)
|
|
$
|
(14,558
|
)
|
|
$
|
(19,088
|
)
|
|
$
|
(221,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE (Basic and Diluted)
|
|
$
|
(0.96
|
)
|
|
$
|
(0.90
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding (Basic and
Diluted)
|
|
|
16,140
|
|
|
|
17,877
|
|
|
|
24,729
|
|
|
|
29,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Development
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Stage
|
|
|
Equity
|
|
|
|
(In thousands, except per share data)
|
|
|
BALANCE, MARCH 24, 1989 (Inception)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(171,505
|
)
|
|
|
(171,505
|
)
|
Issuance of common stock for cash, services and license rights
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
2,336
|
|
|
|
|
|
|
|
2,336
|
|
Issuance of Series A through Series E Preferred Stock
for cash, net of issuance costs of $342
|
|
|
9,452
|
|
|
|
34,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,218
|
|
Issuance of Series E Preferred Stock at $17.00 per Share
|
|
|
206
|
|
|
|
3,500
|
|
|
|
|
|
|
|
(3,500
|
)
|
|
|
|
|
|
|
|
|
Exercise of stock options and stock purchase warrants, and
issuance of stock under Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
1,088
|
|
|
|
7,293
|
|
|
|
|
|
|
|
7,293
|
|
Issuance of Stock Purchase Rights for cash in September 1995 and
March 1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
3,500
|
|
Principal payment received under shareholder note Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
31
|
|
Initial public offering of common stock at $56.00 per share, net
of issuance costs of $2,865
|
|
|
|
|
|
|
|
|
|
|
406
|
|
|
|
19,885
|
|
|
|
|
|
|
|
19,885
|
|
Conversion of preferred stock
|
|
|
(11,866
|
)
|
|
|
(55,374
|
)
|
|
|
2,720
|
|
|
|
55,374
|
|
|
|
|
|
|
|
|
|
Compensation expense related to stock options and warrants
granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,017
|
|
|
|
|
|
|
|
7,017
|
|
Issuance of 5.5% Convertible Preferred Stock at $5.00 per
share, net of issuance costs of $1,070
|
|
|
2,200
|
|
|
|
9,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,930
|
|
Issuance of 1998 Series I Convertible Preferred Stock at
$1,000 per share, net of issuance costs of $460
|
|
|
5
|
|
|
|
4,540
|
|
|
|
5
|
|
|
|
149
|
|
|
|
|
|
|
|
4,689
|
|
Issuance of 1999 Series III Convertible Preferred Stock at
$1,000 per share, net of issuance costs of $280
|
|
|
3
|
|
|
|
2,720
|
|
|
|
6
|
|
|
|
90
|
|
|
|
|
|
|
|
2,810
|
|
Issuance of common stock, net of issuance costs of $10,215
|
|
|
|
|
|
|
|
|
|
|
12,091
|
|
|
|
101,849
|
|
|
|
|
|
|
|
101,849
|
|
Issuance of restricted stock, net of cancellations
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock under Direct Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
936
|
|
|
|
|
|
|
|
936
|
|
Dividends and yields on preferred stock
|
|
|
|
|
|
|
466
|
|
|
|
19
|
|
|
|
502
|
|
|
|
(968
|
)
|
|
|
|
|
Repurchase and retirement of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JUNE 30, 2008
|
|
|
|
|
|
|
|
|
|
|
16,607
|
|
|
|
195,389
|
|
|
|
(172,473
|
)
|
|
|
22,916
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,061
|
)
|
|
|
(16,061
|
)
|
Issuance of restricted stock and units
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of restricted stock
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock under Direct Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Compensation expense related to stock options and restricted
stock awards and units granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,362
|
|
|
|
|
|
|
|
1,362
|
|
Issuance of common stock, net of issuance costs of $1,682
|
|
|
|
|
|
|
|
|
|
|
3,400
|
|
|
|
8,528
|
|
|
|
|
|
|
|
8,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JUNE 30, 2009
|
|
|
|
|
|
|
|
|
|
|
20,028
|
|
|
|
205,286
|
|
|
|
(188,534
|
)
|
|
|
16,752
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,558
|
)
|
|
|
(14,558
|
)
|
Compensation expense related to stock options and restricted
stock awards and units granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
710
|
|
|
|
|
|
|
|
710
|
|
Issuance of common stock, net of issuance costs of $1,265
|
|
|
|
|
|
|
|
|
|
|
8,228
|
|
|
|
11,877
|
|
|
|
|
|
|
|
11,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JUNE 30, 2010
|
|
|
|
|
|
|
|
|
|
|
28,256
|
|
|
|
217,873
|
|
|
|
(203,092
|
)
|
|
|
14,781
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,088
|
)
|
|
|
(19,088
|
)
|
Exercise of stock options and stock purchase warrants
|
|
|
|
|
|
|
|
|
|
|
360
|
|
|
|
1,498
|
|
|
|
|
|
|
|
1,498
|
|
Compensation expense related to stock options and restricted
stock awards and units granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,043
|
|
|
|
|
|
|
|
1,043
|
|
Issuance of common stock, net of issuance costs of $1,944
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
4,688
|
|
|
|
|
|
|
|
4,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
38,616
|
|
|
$
|
225,102
|
|
|
$
|
(222,180
|
)
|
|
$
|
2,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month
|
|
|
March 24, 1989
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
(Inception) to
|
|
|
|
Year Ended June 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,501
|
)
|
|
$
|
(16,061
|
)
|
|
$
|
(14,558
|
)
|
|
$
|
(19,088
|
)
|
|
$
|
(221,212
|
)
|
Adjustments to reconcile net loss to net cash used for operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
732
|
|
|
|
704
|
|
|
|
592
|
|
|
|
259
|
|
|
|
6,851
|
|
Loss on property held for resale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
Amortization of discounts and premiums on investments
|
|
|
(381
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,704
|
)
|
Stock compensation expense
|
|
|
1,603
|
|
|
|
1,362
|
|
|
|
710
|
|
|
|
1,043
|
|
|
|
10,142
|
|
Increase (decrease) in fair value of warrant liabilities
|
|
|
(4,632
|
)
|
|
|
115
|
|
|
|
(3,171
|
)
|
|
|
7,500
|
|
|
|
(2,960
|
)
|
Inventory write downs and reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,240
|
|
Stock issued pursuant to license agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,300
|
|
Provision for losses on accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
60
|
|
|
|
(40
|
)
|
|
|
42
|
|
|
|
(9
|
)
|
|
|
(274
|
)
|
Inventories
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(2,335
|
)
|
Other current assets
|
|
|
(58
|
)
|
|
|
592
|
|
|
|
72
|
|
|
|
(43
|
)
|
|
|
(406
|
)
|
Accounts payable and accrued expenses
|
|
|
(867
|
)
|
|
|
(54
|
)
|
|
|
896
|
|
|
|
976
|
|
|
|
2,668
|
|
Accrued employee benefits
|
|
|
(491
|
)
|
|
|
(392
|
)
|
|
|
331
|
|
|
|
110
|
|
|
|
796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for operating activities
|
|
|
(19,527
|
)
|
|
|
(13,805
|
)
|
|
|
(15,085
|
)
|
|
|
(9,252
|
)
|
|
|
(202,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organizational costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
Purchase of short-term investments
|
|
|
(30,703
|
)
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
(217,041
|
)
|
Maturities of short-term investments
|
|
|
40,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
5,000
|
|
|
|
218,745
|
|
Property and equipment purchases
|
|
|
(215
|
)
|
|
|
(35
|
)
|
|
|
(120
|
)
|
|
|
(305
|
)
|
|
|
(6,186
|
)
|
Proceeds from sale of property held for resale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
9,082
|
|
|
|
5,965
|
|
|
|
(5,120
|
)
|
|
|
4,695
|
|
|
|
(4,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,647
|
|
Net proceeds from issuance of common stock and warrants
|
|
|
13,613
|
|
|
|
8,534
|
|
|
|
17,526
|
|
|
|
21,805
|
|
|
|
184,676
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
Payments received for stock purchase rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
Payments received under shareholder notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Restricted cash used as compensating balance
|
|
|
241
|
|
|
|
259
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
751
|
|
Payments on long-term debt
|
|
|
(356
|
)
|
|
|
(445
|
)
|
|
|
(479
|
)
|
|
|
(119
|
)
|
|
|
(2,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
13,498
|
|
|
|
8,348
|
|
|
|
17,324
|
|
|
|
21,686
|
|
|
|
237,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
3,053
|
|
|
|
508
|
|
|
|
(2,881
|
)
|
|
|
17,129
|
|
|
|
31,248
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
13,439
|
|
|
|
16,492
|
|
|
|
17,000
|
|
|
|
14,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
16,492
|
|
|
$
|
17,000
|
|
|
$
|
14,119
|
|
|
$
|
31,248
|
|
|
$
|
31,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
84
|
|
|
$
|
73
|
|
|
$
|
40
|
|
|
$
|
11
|
|
|
$
|
475
|
|
Equipment acquired under capital lease obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
69
|
|
|
$
|
1,243
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
42
|
|
1.
|
Organization
and Summary of Significant Accounting Policies
|
Aastrom Biosciences, Inc. was incorporated in March 1989
(Inception), began employee-based operations in 1991, and is in
the development stage. The Company operates its business in one
reportable segment research and product development
involving the development of patient specific cell products for
use in regenerative medicine.
Successful future operations are subject to several technical
hurdles and risk factors, including satisfactory product
development, timely initiation and completion of clinical
trials, regulatory approval and market acceptance of 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. The Company believes that it will have adequate
liquidity to finance its operations, including development of
its products and product candidates, via its cash and
investments on hand as of December 31, 2010 until at least
December 31, 2011. While the Companys budgeted cash
usage and operating plan for 2011 does not currently contemplate
taking additional actions to reduce the use of cash over the
next twelve months, the Company could, if necessary, delay or
forego certain budgeted discretionary expenditures such as
anticipated hiring plans or certain non-critical research and
development expenditures, as well as slow down or delay certain
clinical trial activity (without jeopardizing our Phase 3
clinical trial for CLI) such that the Company will have
sufficient cash on hand until at least December 31, 2011.
On a longer-term basis, 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 United States 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 likely have a material
adverse impact on the Companys business, financial
condition and results of operations.
Principles of Consolidation The consolidated
financial statements include the accounts of Aastrom and its
wholly-owned subsidiaries, Aastrom Biosciences GmbH, located in
Berlin, Germany, Aastrom Biosciences, SL, located in Barcelona,
Spain, and Aastrom Biosciences, Ltd. located in Dublin, Ireland
(collectively, the Company). All inter-company transactions and
accounts have been eliminated in consolidation. As of
December 31, 2010, Aastrom Biosciences, SL was dissolved
while the remaining subsidiaries had limited operations and are
not currently a significant component of the consolidated
financial statements.
Fiscal Year Change On November 11, 2010,
our Board of Directors approved the change in our fiscal year
end from June 30 to December 31. As a result of this
change, this Transition Report on
Form 10-K
includes financial information for the six month transition
period from July 1, 2010 to December 31, 2010
(Transition Period). References in this Transition Report on
Form 10-K
to fiscal year 2010 or fiscal 2010 refer to the period of
July 1, 2009 through June 30, 2010 and references to
fiscal year 2009 or fiscal 2009 refer to the period of
July 1, 2008 through June 30, 2009.
43
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Selected financial information as of and for the six months
ended December 31, 2009 and 2010 is as follows (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
Consolidated Balance Sheets
|
|
2009
|
|
2010
|
|
|
(Unaudited)
|
|
|
|
Cash
|
|
$
|
14,739
|
|
|
$
|
31,248
|
|
Property and equipment, net
|
|
|
1,240
|
|
|
|
1,128
|
|
Total assets
|
|
|
16,624
|
|
|
|
32,827
|
|
Warrant liabilities
|
|
|
268
|
|
|
|
25,954
|
|
Current liabilities
|
|
|
2,340
|
|
|
|
29,864
|
|
Long-term debt
|
|
|
194
|
|
|
|
41
|
|
Shareholders equity
|
|
$
|
14,090
|
|
|
$
|
2,922
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
December 31,
|
|
December 31,
|
Consolidated Statements of Operations
|
|
2009
|
|
2010
|
|
|
(Unaudited)
|
|
|
|
Total revenues
|
|
$
|
89
|
|
|
$
|
253
|
|
Research and development expenses
|
|
|
6,194
|
|
|
|
8,609
|
|
Selling, general and administrative expenses
|
|
|
2,262
|
|
|
|
3,265
|
|
Loss from operations
|
|
|
(8,401
|
)
|
|
|
(11,623
|
)
|
(Increase) decrease in fair value of warrants
|
|
|
264
|
|
|
|
(7,500
|
)
|
Net loss
|
|
|
(8,112
|
)
|
|
|
(19,088
|
)
|
Net loss per share (Basic and Diluted)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
December 31,
|
|
December 31,
|
Consolidated Statements of Cash Flows
|
|
2009
|
|
2010
|
|
|
(Unaudited)
|
|
|
|
Net cash used for operating activities
|
|
$
|
(7,206
|
)
|
|
$
|
(9,252
|
)
|
Net cash provided by (used for) investing activities
|
|
|
(56
|
)
|
|
|
4,695
|
|
Net cash provided by financing activities
|
|
$
|
5,001
|
|
|
$
|
21,686
|
|
Suppliers Some of the key components used to
manufacture the Companys products come from single or
limited sources of supply.
Cash and Cash Equivalents Cash and cash
equivalents include cash and highly liquid short-term
investments with original maturities of three months or less.
Fair Value Measurements Fair value is the
amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants. As such, fair value is determined based upon
assumptions that market participants would use in pricing an
asset or liability. Fair value measurements are rated on a
three-tier hierarchy as follows:
|
|
|
|
|
Level 1 inputs: Quoted prices (unadjusted) for identical
assets or liabilities in active markets;
|
|
|
|
Level 2 inputs: Inputs, other than quoted prices included
in Level 1 that are observable either directly or
indirectly; and
|
|
|
|
Level 3 inputs: Unobservable inputs for which there is
little or no market data, which require the reporting entity to
develop its own assumptions.
|
44
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In many cases, a valuation technique used to measure fair value
includes inputs from multiple levels of the fair value hierarchy
described above. The lowest level of significant input
determines the placement of the entire fair value measurement in
the hierarchy.
At December 31, 2010, the Company had $6,437,000 invested
in three money market funds with maturities of three months or
less that are included within the Cash and cash
equivalents line on the consolidated balance sheet.
Because there is an active market for shares in the money market
funds, the Company considers its fair value measures of these
investments to be based on Level 1 inputs.
See Note 5 for disclosures related to the fair value of the
Companys warrants. The Company does not have any other
assets or liabilities on the balance sheet as of
December 31, 2010 that are measured at fair value.
Diversity of Credit Risk The Company has
established guidelines relative to diversification and
maturities of its investments in an effort to limit risk. These
guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates. The Company
has not experienced any losses on its cash equivalents or
short-term investments.
Property and Equipment Property and equipment
is recorded at cost and depreciated or amortized using the
straight-line method over the estimated useful life of the asset
(primarily three to five years) or the underlying lease term for
leasehold improvements, whichever is shorter. When assets are
disposed of, the cost and accumulated depreciation are removed
from the accounts. Repairs and maintenance are charged to
expense as incurred.
Revenue Recognition The Companys
revenue can be generated from grants and research agreements,
collaborative agreements and product sales. Revenue from grants
and research agreements is recognized on a cost reimbursement
basis consistent with the performance requirements of the
related agreement. Revenue from collaborative agreements is
recognized when the scientific or clinical results stipulated in
the agreement have been met and there are no ongoing obligations
on the Companys part. Revenue from product sales is
recognized when title to the product transfers and there are no
remaining obligations that will affect the customers final
acceptance of the sale. Revenue from licensing fees under
licensing agreements is recognized when there are no future
performance obligations remaining with respect to such revenues.
Payments received before all obligations are fulfilled are
classified as deferred revenue.
Research and Development Costs Research and
development costs are expensed as incurred. These costs include
direct research and development costs such as salaries, clinical
trial expenses, consulting fees and other expenses that are
specific to the Companys research and development
programs, as well as an allocation of indirect costs such as
facility expenses, human resources and information technology
expenses.
Stock-Based Compensation 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 historical
volatility. We estimate the expected life of options that vest
solely on service using the simplified method
provided for in the Securities and Exchange Commission Staff
Accounting Bulletin No. 110. The simplified
method is permitted for estimating the expected term of
plain-vanilla stock options for which the historical
stock option exercise experience is likely not indicative of
future exercise patterns. 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, however these estimates involve inherent
uncertainties and the application of management judgment. As a
result, if factors change and different assumptions are used,
the 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 over the service period. We estimate the
forfeiture rate
45
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
considering the historical experience of our stock-based awards.
If the actual forfeiture rate is different from the estimate, we
adjust the expense accordingly.
Income Taxes Deferred tax assets are
recognized for deductible temporary differences and tax credit
carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred
tax assets will not be realized.
Net Loss Per Share Net loss per common share
is computed using the weighted-average number of common shares
outstanding during the period. Common equivalent shares are not
included in the diluted per share calculation where the effect
of their inclusion would be anti-dilutive. The aggregate number
of common equivalent shares (related to options and warrants)
that have been excluded from the computations of diluted net
loss per common share for the periods ended June 30, 2008,
2009 and 2010 was approximately 2,509,000, 2,228,200 and
12,200,500, respectively, and 19,599,700 for the six month
transition period ended December 31, 2010.
Use of Estimates The preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of expenses during the reported period. Actual
results could differ from those estimates.
Financial Instruments The Companys
financial instruments include cash equivalents, short-term
investments and receivables for which the current carrying
amounts approximate market value based upon their short-term
nature.
Warrants Warrants that could require cash
settlement or have anti-dilution price protection provisions are
recorded as liabilities at their estimated fair value at the
date of issuance, with subsequent changes in estimated fair
value recorded in other income (expense) in our statement of
operations in each subsequent period. In general, warrants with
anti-dilution provisions are measured using the Monte Carlo
valuation model, while the others are measured using the
Black-Scholes valuation model. Both of the methodologies are
based, in part, upon inputs for which there is little or no
observable market data, requiring the Company to develop its own
assumptions. The assumptions used in calculating the estimated
fair value of the warrants represent our best estimates, however
these estimates involve inherent uncertainties and the
application of management judgment. As a result, if factors
change and different assumptions are used, the warrant liability
and the change in estimated fair value could be materially
different.
On January 28, 2011, the Company received a comment letter
from the staff of the Securities and Exchange Commission (SEC)
relating to its Annual Report on
Form 10-K
for the fiscal year ended June 30, 2010. As a result, the
Company reassessed its accounting treatment for all warrants
issued by the Company since 2000 and determined that certain
warrants did not appropriately consider the provisions of
ASC 815-40
Derivatives and Hedging Contracts in
Entitys Own Equity. The Company filed an Amended
Annual Report on
Form 10-K/A
for the fiscal year ended June 30, 2010 and amended
quarterly filings on
Form 10-Q/A
for the quarters ended September 30, 2009,
December 31, 2009, March 31, 2010 and
September 30, 2010. All periods presented in each filing
were restated to account for the warrants issued in April 2004,
October 2004, October 2007 and January 2010 (Class A
warrants and Class B warrants) as liabilities with changes
in fair value in subsequent periods recorded as non-cash income
or expense. The Company used a Black-Scholes valuation
methodology for all of these warrants.
The Company received a follow up comment letter from the SEC
staff on March 29, 2011. As a result, the Company
reassessed the appropriateness of the Black-Scholes valuation
methodology used for the Class A warrants issued in January
2010 and the appropriateness of liability accounting for the
Class B warrants issued in January 2010 (which expired
unexercised in July 2010). After further analysis, the Company
concluded that a Monte Carlo
46
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
valuation methodology is more appropriate for valuing the
Class A warrants and the terms of the Class B warrants
are such that the Class B warrants should have been
classified as equity rather than as a liability.
The Company assessed the aforementioned items and concluded the
impacts to the Companys previously-filed financial
statements were not material. However, as of December 31,
2010, the Company is now utilizing a Monte Carlo valuation
methodology to estimate the fair value of its Class A
warrants and will continue to do so going forward. Additionally,
the Company has corrected the cumulative impact of the
aforementioned items in the six-month transition period ended
December 31, 2010. The impact of these items is not
material to the quarter or six-month transition period ended
December 31, 2010. These corrections decreased the
Companys net loss for the six-month transition period
ended December 31, 2010 by approximately $77,000 and also
decreased the Companys shareholders equity by
$349,000.
Long-Lived Assets The Company reviews its
long-lived assets for impairment whenever an event or change in
circumstances indicates that the carrying values of an asset may
not be recoverable. If such an event or change in circumstances
occurs and potential impairment is indicated because the
carrying values exceed the estimated future undiscounted cash
flows of the asset, the Company would measure the impairment
loss as the amount by which the carrying value of the asset
exceeds its fair value. No significant events or changes in
circumstances were identified by the Company that would indicate
that the carrying value of an asset was not recoverable for any
of the periods presented in the accompanying financial
statements.
New Accounting Standard In January 2010, the
FASB amended the disclosure requirements for fair value
measurements for recurring and nonrecurring non-financial assets
and liabilities. The guidance provides that disclosures for
assets and liabilities with significant unobservable inputs
(level 3 inputs) should separately disclose the purchases,
sales, issuances and settlements in a rollforward as opposed to
aggregating as one. These disclosure requirements are effective
for fiscal years beginning after December 15, 2010, which
will begin with the Companys first quarter of 2011. The
Company does not anticipate that the additional disclosure
requirements will have a material impact on its consolidated
financial statements.
|
|
2.
|
Selected
Balance Sheet Information
|
Property and Equipment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
Machinery and equipment
|
|
$
|
2,493
|
|
|
$
|
2,511
|
|
|
$
|
2,729
|
|
Furniture and fixtures
|
|
|
469
|
|
|
|
469
|
|
|
|
469
|
|
Computer software
|
|
|
410
|
|
|
|
410
|
|
|
|
410
|
|
Computer equipment
|
|
|
262
|
|
|
|
278
|
|
|
|
414
|
|
Office equipment
|
|
|
75
|
|
|
|
75
|
|
|
|
75
|
|
Leasehold improvements
|
|
|
891
|
|
|
|
922
|
|
|
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,600
|
|
|
|
4,665
|
|
|
|
5,019
|
|
Less accumulated depreciation
|
|
|
(3,115
|
)
|
|
|
(3,652
|
)
|
|
|
(3,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,485
|
|
|
$
|
1,013
|
|
|
$
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Accounts Payable and Accrued Expenses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
Accounts payable
|
|
$
|
248
|
|
|
$
|
973
|
|
|
$
|
2,083
|
|
Accrued clinical trial expense
|
|
|
184
|
|
|
|
195
|
|
|
|
281
|
|
Other accruals
|
|
|
421
|
|
|
|
581
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
853
|
|
|
$
|
1,749
|
|
|
$
|
2,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Employee Benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
Vacation pay and other
|
|
$
|
355
|
|
|
$
|
281
|
|
|
$
|
239
|
|
Bonus
|
|
|
|
|
|
|
300
|
|
|
|
522
|
|
Severance
|
|
|
|
|
|
|
105
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
355
|
|
|
$
|
686
|
|
|
$
|
796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
Stock-Based
Compensation
|
Stock
Option and Equity Incentive Plans
The Company has historically had various stock incentive plans
and agreements that provide for the issuance of nonqualified and
incentive stock options as well as other equity awards. Such
awards may be granted by the Companys Board of Directors
to certain of the Companys employees, directors and
consultants. Options granted under these plans expire no later
than ten years from the date of grant, and other than those
granted to non-employee directors, generally become exercisable
over a four-year period (other than 443,125 of options granted
in October 2008 that vest over 3 years), under a
graded-vesting methodology, following the date of grant. The
Company generally issues new shares upon the exercise of stock
options.
In December 2009, the shareholders approved the 2009 Omnibus
Incentive Plan (the 2009 Plan). The 2009 Plan provides
incentives through the grant of stock options, stock
appreciation rights, restricted stock awards and restricted
stock units. The exercise price of stock options granted under
the 2009 Plan shall not be less than the fair market value of
the Companys common stock on the date of grant. The 2009
Plan replaced the 1992 Stock Option Plan, the 2001 Stock Option
Plan and the Amended and Restated 2004 Equity Incentive Plan
(the Prior Plans), and no new awards will be granted under the
Prior Plans. However, the expiration or cancellation of options
previously granted under the Prior Plans will increase the
awards available for issuance under the 2009 Plan.
As of December 31, 2010, there were 310,673 awards
available for future grant under the 2009 Plan.
Service-Based
Stock Options
During the six month transition period ended December 31,
2010, the Company granted 1,700,000 service-based options to
purchase common stock. These were granted with exercise prices
equal to the fair value of the Companys stock at the grant
date, vest over four years (other than 189,000 non-employee
director options which generally vest over three years) and have
lives of ten years. The weighted average grant-date fair value
of service-based options granted under the Companys Option
Plans during the years ended June 30, 2008, 2009 and 2010
was $5.36, $2.08 and $1.33, respectively, and $0.99 for the six
month transition period ended December 31, 2010.
48
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The net compensation costs recorded for the service-based stock
options related to employees and directors (including the impact
of the forfeitures) were $1,597,000, $1,292,000 and $698,000 for
the years ended June 30, 2008, 2009 and 2010, respectively,
and $1,043,000 for the six month transition period ended
December 31, 2010.
The fair value of each service-based stock option grant for the
reported periods is estimated on the date of the grant using the
Black-Scholes option-pricing model using the weighted average
assumptions noted in the following table.
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
December 31,
|
Service-Based Stock Options
|
|
2008
|
|
2009
|
|
2010
|
|
2010
|
|
Expected dividend rate
|
|
0%
|
|
0%
|
|
0%
|
|
0%
|
Expected stock price volatility
|
|
61.2% - 62.4%
|
|
61.2% - 72.7%
|
|
70.2% - 72.8%
|
|
70.6% -77.4%
|
Risk-free interest rate
|
|
3.1% - 4.7%
|
|
2.0% - 3.3%
|
|
2.4% - 3.1%
|
|
1.5% - 2.1%
|
Estimated forfeiture rate (per annum)
|
|
10%
|
|
10%
|
|
10%
|
|
10%
|
Expected life (years)
|
|
6.6 - 7.0
|
|
6.6
|
|
5.5 - 6.3
|
|
6.1 - 6.3
|
The following table summarizes the activity for service-based
stock options for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
Service-Based Stock Options
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value
|
|
|
Outstanding at June 30, 2007
|
|
|
1,044,692
|
|
|
$
|
11.68
|
|
|
|
7.8
|
|
|
$
|
1,093,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
336,363
|
|
|
$
|
8.40
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,315
|
)
|
|
$
|
3.04
|
|
|
|
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(311,842
|
)
|
|
$
|
12.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
1,066,898
|
|
|
$
|
10.48
|
|
|
|
7.8
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
498,750
|
|
|
$
|
3.12
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(200,266
|
)
|
|
$
|
10.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2009
|
|
|
1,365,382
|
|
|
$
|
7.76
|
|
|
|
7.9
|
|
|
$
|
114,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,508,525
|
|
|
$
|
2.02
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(590,727
|
)
|
|
$
|
7.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010
|
|
|
3,283,180
|
|
|
$
|
3.40
|
|
|
|
8.6
|
|
|
$
|
2,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,700,000
|
|
|
$
|
1.54
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(7,500
|
)
|
|
$
|
1.80
|
|
|
|
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(678,471
|
)
|
|
$
|
4.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
4,297,209
|
|
|
$
|
2.43
|
|
|
|
8.9
|
|
|
$
|
3,158,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010
|
|
|
1,177,172
|
|
|
$
|
6.47
|
|
|
|
5.1
|
|
|
$
|
194,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 there was approximately $2,375,000
of total unrecognized compensation cost related to non-vested
service-based stock options granted under the 2009 Plan and the
Prior Plans. That cost is expected to be recognized over a
weighted-average period of 3.3 years.
The total fair value of stock options vested during the years
ended June 30, 2008, 2009 and 2010 was $2,389,000,
$1,678,000 and $1,084,000, respectively, and $622,000 for the
six month transition period ended December 31, 2010
Subsequent to December 31, 2010, the Company granted
3,394,050 service-based options to employees and non-employee
directors under the 2009 Plan. These options were granted with
an exercise price equal to the fair
49
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
value of the Companys stock at the grant date and fully
vest four years from the grant date for employees and
3 years for non-employee directors.
Performance-Based
Stock Options
As of December 31, 2010, there were 36,414
performance-based stock options outstanding. These were granted
to key employees in three equal tranches during fiscal 2007 and
have a 10 year life and exercise prices equal to the fair
value of the Companys stock at the grant date. Vesting of
these performance options is dependent on (i) the passage
of time subsequent to the grant date and (ii) meeting
certain performance conditions, which relate to our progress in
our clinical trial programs, which were established by the Board
of Directors. The Board of Directors will determine if the
performance conditions have been met. Stock-based compensation
expense for these options will be recorded when the Company
believes that the vesting of these options is probable based on
the progress of its clinical trial programs and other relevant
factors.
The first tranche expired on March 31, 2008 unvested; the
second tranche will vest if performance conditions are met by
June 2011; and the third tranche will vest if performance
conditions are met by June 2012. Each tranche of options is
forfeited if its performance conditions are not met by the
required timeframe, and vesting for any tranche of options is
not dependent on the vesting of the other tranches of options.
For the years ended June 30, 2008, 2009 and 2010, and the
six month transition period ended December 31, 2010
management reviewed the progress toward the performance
conditions necessary for these options to vest and concluded
that it was not yet probable that the performance conditions of
any of the tranches of options would be met and, accordingly, no
compensation expense has been recorded.
The aggregate estimated fair value of awards that were
outstanding as of December 31, 2010 was approximately
$295,000.
Restricted
Stock Awards
The Company has historically granted restricted stock awards
that generally vest over a four year period and entitle the
recipient to receive common stock. The net compensation costs
charged as operating expenses for restricted stock for the years
ended June 30, 2008, 2009 and 2010 were $6,000, $69,000 and
$11,000, respectively. There were no restricted stock awards
granted during the six month transition period ended
December 31, 2010, nor were any restricted stock awards
outstanding at December 31, 2010.
The total market value at the vesting date of restricted stock
award shares that vested during the year ended June 30,
2008, 2009 and 2010 was $63,000, $9,000 and $37,000,
respectively. No awards vested during the six month transition
period ended December 31, 2010.
As of December 31, 2010 there was no unrecognized
compensation cost related to restricted stock awards.
In October 2008, the Company entered into a common stock
purchase agreement with Fusion Capital Fund II, LLC (Fusion
Capital) pursuant to which the Company was entitled to sell up
to $15,000,000 of its common stock to Fusion Capital. In April
2009, the Company concluded the sales of the registered shares
under this common stock purchase agreement. Under this purchase
agreement the Company issued 2,836,583 shares of common
stock for net proceeds of approximately $8,600,000. In
connection with entering into this common stock purchase
agreement, the Company issued to Fusion Capital
242,040 shares of its common stock as a commitment fee. The
Company also issued to Fusion Capital an additional
139,229 shares as a pro rata commitment fee.
In June 2009, the Company entered into a $30,000,000 common
stock purchase agreement with Fusion Capital. Pursuant to the
purchase agreement with Fusion Capital, the Company had the
right to sell to Fusion Capital
50
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
up to $30,000,000 of its common stock over a
25-month
period, which began on July 1, 2009. Such were to be made
from time to time in amounts between $100,000 and $4,000,000,
depending on certain conditions as set forth in the agreement.
In consideration for entering into the purchase agreement, the
Company issued 181,530 shares of its common stock to Fusion
Capital as an initial commitment fee. During fiscal 2010,
1,718,538 shares of the Companys common stock
(including 51,432 shares related to its commitment fee)
were issued to Fusion Capital for net proceeds of approximately
$5,100,000. No additional shares were issued to Fusion Capital
subsequent to October 2009, and the Company terminated the
agreement with Fusion Capital in November 2010.
On January 21, 2010, the Company completed the sale of
6,509,637 units (including 740,387 units sold to the
underwriter pursuant to the exercise of its over-allotment
option) at a public offering price of $2.08 per unit. Each unit
consisted of (i) one share of the Companys common
stock, (ii) a Class A warrant to purchase 0.75 of a
share of the Companys common stock at an exercise price of
$2.52 per share (as adjusted from $2.97 per share for the
anti-dilution provision triggered in the December 2010
financing) and (iii) a Class B warrant to purchase
0.50 of a share of the Companys common stock at an
exercise price of $2.08 per share. The Company received
approximately $12,400,000 in net proceeds from the sale of the
units (including the partially exercised option of the
over-allotment), after underwriting discounts and commissions
and other offering expenses.
On December 15, 2010, the Company completed the sale of
10,000,000 units at a public offering price of $2.25 per
unit. Each unit consisted of one share of the Companys
common stock and a warrant to purchase one share of the
Companys common stock at an exercise price of $3.22 per
share. The Company received approximately $20,600,000 in net
proceeds from the sale of the units, after underwriting
discounts and commissions and other offering expenses. The
warrants to purchase 10,000,000 shares of the
Companys common stock are exercisable for a five year
period commencing on December 15, 2010.
Dividends
No cash dividends have been declared or paid by the Company
since its Inception.
|
|
5.
|
Stock
Purchase Warrants
|
The Company has historically issued warrants to purchase shares
of the Companys common stock in connection with certain of
its common stock offerings. The following warrants were
outstanding during the years ended June 30, 2008, 2009 and
2010, and the six month transition period ended
December 31, 2010, and include provisions that could
require cash settlement of the warrants or have anti-dilution
price protection provisions requiring each to be recorded as
liabilities of the Company at the estimated fair value at the
date of issuance, with changes in estimated fair value recorded
as non-cash income or expense in the Companys statement of
operations in each subsequent period:
|
|
|
|
(i)
|
warrants to purchase an aggregate of 300,000 shares of the
Companys common stock, issued on April 5, 2004 in
connection with the Companys registered direct offering,
exercisable for a five year period commencing on April 5,
2004 at an exercise price of $13.20 per share, all of which
expired unexercised;
|
|
|
(ii)
|
warrants to purchase an aggregate of 320,248 shares of the
Companys common stock, issued on October 27, 2004 in
connection with the Companys registered direct offering,
exercisable from April 28, 2005 through October 27,
2008 at an exercise price of $13.92 per share, all of which
expired unexercised;
|
|
|
(iii)
|
warrants to purchase an aggregate of 740,131 shares of the
Companys common stock, issued on October 17, 2007 in
connection with the Companys registered direct offering,
exercisable from April 18, 2008 through April 17, 2013
at an exercise price of $12.72 per share, all of which remained
outstanding as of December 31, 2010;
|
51
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
(iv)
|
Class A warrants to purchase an aggregate of
4,882,228 shares of the Companys common stock, issued
on January 21, 2010 in connection with the Companys
registered public offering, exercisable for a five year period
commencing on July 21, 2010 at an exercise price of $2.52
per share (as adjusted from $2.97 per share for the
anti-dilution provision triggered in the December 2010
financing), 4,525,978 of which remained outstanding as of
December 31, 2010; and
|
|
|
(v)
|
warrants to purchase an aggregate of 10,000,000 shares of
the Companys common stock, issued on December 15,
2010 in connection with the Companys registered public
offering, exercisable for a five year period commencing on
December 15, 2010 at an exercise price of $3.22 per share,
all of which remained outstanding as of December 31, 2010.
|
All of the warrants listed above could require net cash
settlement in the event that registered shares are not available
at the time of exercise of such warrant. The Class A
warrants and the December 2010 warrants also contain
anti-dilution provisions that adjust the exercise price of the
warrant if the Company issues or sells, or is deemed to have
issued or sold, any shares of its common stock or securities
exercisable or convertible into shares of common stock for no
consideration or for a consideration per share less than the
applicable exercise price in effect immediately prior to the
time of such issue or sale. In the event of such a subsequent
issuance of common stock of the Company, (i) the exercise
price of the Class A warrants would be adjusted to a point
between the current exercise price per share of such
Class A warrant and the price per share at which the new
shares of common stock of the Company are being issued based on
a weighted average calculation as outlined in the Class A
warrant agreement, and (ii) the exercise price of the
December 2010 warrants would be adjusted to the price per share
at which the new shares of common stock of the Company are being
issued. Notwithstanding the foregoing, there are certain
issuances of the Company that would not trigger the
anti-dilution provisions of the Class A warrants or the
December 2010 warrants, including but not limited to, issuances
under any duly authorized Company stock option, restricted stock
plan or stock purchase plan whether now existing or hereafter
approved by the Company and its stockholders in the future, or
as an inducement grant to employees, consultants, directors or
officers. The December 2010 warrants also contain a feature that
allows the warrant holder to put the warrants back to the
Company and receive cash in the event of a fundamental
transaction, such as a change in control of the Company or a
sale of all or substantially all of its assets. The value
received by the warrant holder upon exercise of the put right is
based on a Black-Scholes model using a defined set of inputs
outlined in the December 2010 warrant agreement.
The Class A warrants and the December 2010 warrants are
measured using the Monte Carlo valuation model, while the other
warrants listed above are measured using the Black-Scholes
valuation model. Both of the methodologies are based, in part,
upon inputs for which there is little or no observable market
data, requiring the Company to develop its own assumptions. The
assumptions used in calculating the estimated fair value of the
warrants represent the Companys best estimates, however
these estimates involve inherent uncertainties and the
application of management judgment. As a result, if factors
change and different assumptions are used, the warrant
liabilities and the change in estimated fair value of the
warrants could be materially different.
Inherent in both the Monte Carlo and Black-Scholes valuation
models are assumptions related to expected stock-price
volatility, expected life, risk-free interest rate and dividend
yield. The Company estimates the volatility of its common stock
based on historical volatility that matches the expected
remaining life of the warrants. 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 remaining life
of the warrants. The expected life of the warrants is assumed to
be equivalent to their remaining contractual term. The dividend
rate is based on the historical rate, which the Company
anticipates to remain at zero.
The Monte Carlo model is used for the Class A warrants and
the December 2010 warrants to appropriately value the potential
future exercise price adjustments triggered by the anti-dilution
provisions as well as the value of the put feature of the
December 2010 warrants. These both require Level 3 inputs
which are based on the Companys estimates of the
probability and timing of potential future financings and
fundamental transactions. The other
52
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
assumptions used by the Company are summarized in the following
tables for warrants that were outstanding as of any of the
balance sheet dates presented on our consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2007 Warrants
|
|
June 30, 2009
|
|
June 30, 2010
|
|
December 31, 2010
|
|
Closing stock price
|
|
$
|
3.36
|
|
|
$
|
1.49
|
|
|
$
|
2.56
|
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
70.8
|
%
|
|
|
80.4
|
%
|
|
|
100.3
|
%
|
Risk-free interest rate
|
|
|
1.6
|
%
|
|
|
1.0
|
%
|
|
|
0.6
|
%
|
Expected life (years)
|
|
|
3.75
|
|
|
|
2.75
|
|
|
|
2.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2010 Class A Warrants
|
|
January 21, 2010
|
|
June 30, 2010
|
|
December 31, 2010
|
|
Closing stock price
|
|
$
|
1.84
|
|
|
$
|
1.49
|
|
|
$
|
2.56
|
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
73.8
|
%
|
|
|
66.3
|
%
|
|
|
79.6
|
%
|
Risk-free interest rate
|
|
|
2.6
|
%
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
Expected life (years)
|
|
|
5.50
|
|
|
|
5.06
|
|
|
|
4.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2010 Warrants
|
|
|
|
December 15, 2010
|
|
December 31, 2010
|
|
Closing stock price
|
|
|
|
|
|
$
|
2.23
|
|
|
$
|
2.56
|
|
Expected dividend rate
|
|
|
|
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
|
|
|
|
77.0
|
%
|
|
|
78.0
|
%
|
Risk-free interest rate
|
|
|
|
|
|
|
2.1
|
%
|
|
|
2.0
|
%
|
Expected life (years)
|
|
|
|
|
|
|
5.00
|
|
|
|
4.96
|
|
The following table summarizes the change in the estimated fair
value of the Companys warrant liabilities (in
thousands):
|
|
|
|
|
Warrant Liabilities
|
|
|
|
|
Balance at June 30, 2009
|
|
$
|
532
|
|
Warrants issued
|
|
|
5,649
|
|
Decrease in fair value
|
|
|
(3,171
|
)
|
|
|
|
|
|
Balance at June 30, 2010
|
|
|
3,010
|
|
Warrants issued
|
|
|
15,868
|
|
Warrants exercised
|
|
|
(424
|
)
|
Increase in fair value
|
|
|
7,500
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
25,954
|
|
|
|
|
|
|
53
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A reconciliation of income taxes computed using the federal
statutory rate to the taxes reported in our consolidated
statements of operations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
Loss before income taxes
|
|
$
|
15,501
|
|
|
$
|
16,061
|
|
|
$
|
14,558
|
|
|
$
|
19,088
|
|
Federal statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
Taxes computed at federal statutory rate
|
|
|
(5,270
|
)
|
|
|
(5,461
|
)
|
|
|
(4,950
|
)
|
|
|
(6,490
|
)
|
Loss attributable to foreign operations
|
|
|
630
|
|
|
|
437
|
|
|
|
116
|
|
|
|
|
|
Warrants
|
|
|
(1,575
|
)
|
|
|
41
|
|
|
|
(1,078
|
)
|
|
|
2,550
|
|
Other
|
|
|
(75
|
)
|
|
|
79
|
|
|
|
136
|
|
|
|
397
|
|
Valuation allowance
|
|
|
6,290
|
|
|
|
4,904
|
|
|
|
5,776
|
|
|
|
3,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
Net operating loss carryforwards
|
|
$
|
38,265
|
|
|
$
|
43,130
|
|
|
$
|
46,533
|
|
Research and development credit carryforwards
|
|
|
1,600
|
|
|
|
1,600
|
|
|
|
1,600
|
|
Property and equipment
|
|
|
33
|
|
|
|
114
|
|
|
|
(21
|
)
|
Employee benefits and stock compensation
|
|
|
131
|
|
|
|
934
|
|
|
|
1,178
|
|
Other, net
|
|
|
257
|
|
|
|
284
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
40,286
|
|
|
|
46,062
|
|
|
|
49,605
|
|
Valuation allowance
|
|
|
(40,286
|
)
|
|
|
(46,062
|
)
|
|
|
(49,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the Companys
U.S. federal tax net operating loss and tax credit
carryforwards are $133,291,000 and $1,600,000, respectively.
These net operating loss carryforwards will expire between 2011
and 2030. The tax credit carryforwards will expire between 2022
and 2030. The Companys Michigan business tax net operating
losses are $50,300,000 which will expire between 2017 and 2020
if not utilized.
The Companys net operating losses are subject to the
limitations imposed under section 382 of the Internal
Revenue Code. These limits are triggered when a change in
control occurs, and are computed based upon several variable
factors including the share price of the Companys common
stock on the date of the change in control. A change in control
is generally defined as a cumulative change of 50% or more in
the ownership positions of certain stockholders during a rolling
three year period. Based on common stock issuances over the
Companys history and the likelihood of additional
issuances, it is possible that the use of the Companys
existing net operating losses will be limited. If a limitation
occurs, it is likely that a significant portion of our net
operating losses will expire unutilized regardless of the amount
of future profitability.
54
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Due to the historical losses incurred by the Company, a full
valuation allowance for deferred tax assets, including the
deferred tax assets for the aforementioned net operating losses
and credits, has been provided since they are not more likely
than not to be realized. If the Company achieves profitability,
these deferred tax assets may be available to offset future
income taxes. The increase in the valuation allowance was
$5,776,000 and $3,543,000 for the year ended June 30, 2010
and the six month transition period ended December 31,
2010, respectively.
The Company assesses uncertain tax positions in accordance with
the provisions of Financial Accounting Standards Board
Accounting Standards Codification (ASC)
740-10-5,
Accounting for Uncertain Tax Positions. This
pronouncement prescribes a recognition threshold and measurement
methodology for recording within the financial statements
uncertain tax positions taken, or expected to be taken, in the
Companys income tax returns. As of December 31, 2010
the Company had no unrecognized tax benefits.
The Company files U.S. federal and Michigan income tax
returns. Due to the Companys net operating loss
carryforwards, Federal income tax returns from incorporation are
still subject to examination. Michigan tax returns for the year
ended June 30, 2008 and forward are subject to examination.
|
|
7.
|
Licenses,
Royalties and Collaborative Agreements and Commitments
|
University of Michigan In August 1989, the
Company entered into a research agreement with the University of
Michigan (the University). In March 1992, and as provided for
under the research agreement, the Company also entered into a
license agreement for the technology developed under the
research agreement. The license agreement, as amended, provides
for a royalty to be paid to the University equal to 2% of net
sales of products containing the licensed technology sold by the
Company. Such royalties have been nominal since Inception. This
license agreement will expire in 2014.
Corning Incorporated In December 2002, the
Company entered into an agreement with Corning Incorporated
(Corning) that granted Corning an exclusive sublicense relating
to the Companys cell transfection technology. Under the
terms of the agreement, the Company retains exclusive rights to
the applications of the technologies involving cells for
therapeutic applications. In addition, the agreement provides
for future royalty payments on net sales of licensed products
sold under the sublicense amounting to 5% of such sales up to
$50,000,000. However, the Company does not expect to receive
material revenue from this source for several years, if ever.
RealBio Technologies In May 2009, the Company
entered into an agreement with RealBio Technologies, Inc.
(RealBio) that granted RealBio an exclusive license to utilize
our technology outside of the Companys core area of
focus human regenerative medicine. In return for
this license, the Company received a minority equity interest in
RealBio, which was not material as of December 31, 2010.
Manufacture, Supply and Other Agreements The
Company has entered into various agreements relating to the
manufacture of its products and the supply of certain
components. If the manufacturing or supply agreements expire or
are otherwise terminated, the Company may not be able to
identify and obtain ancillary materials that are necessary to
develop its product and such expiration and termination could
have a material affect on the Companys business.
|
|
8.
|
Commitments,
Contingencies and Debt
|
During 2007 the Company entered into a new operating lease with
Dominos Farms Office Park, LLC, for approximately
30,000 square feet. This lease has a noncancelable term of
six years, which began on May 14, 2007, and has two
five-year market value renewals that the Company, at its option,
can exercise six months prior to May 14, 2013 and
May 14, 2018. The Companys leased facility includes a
Class 100,000 modular manufacturing clean room,
laboratories and office space. The Company obtained
seller-financing from the landlord in the amount of $834,000 for
the purchase of leasehold improvements of which $191,000
remained outstanding as of
55
AASTROM
BIOSCIENCES, INC.
(a clinical development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 2010. This debt obligation to the landlord is
payable over a four-year period at a 7.0% rate of interest. The
lease also provides the Company the right of first refusal on
certain additional space.
In June 2007, the Company entered into a loan with Key Equipment
Finance Inc. in the amount of $751,000, payable over
36 months at a 7.24% fixed interest rate. The proceeds of
the loan were used to purchase property and equipment. The
Company made the final payment on this loan in June 2010.
As of December 31, 2010, future minimum payments related to
our operating and capital leases and long-term debt are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More then
|
|
Contractual Obligations
|
|
Total
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
5 Years
|
|
|
Operating leases
|
|
$
|
2,655
|
|
|
$
|
1,117
|
|
|
$
|
1,151
|
|
|
$
|
387
|
|
|
$
|
|
|
|
$
|
|
|
Capital leases
|
|
|
64
|
|
|
|
23
|
|
|
|
23
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
191
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,910
|
|
|
$
|
1,331
|
|
|
$
|
1,174
|
|
|
$
|
405
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense for the years ended June 30, 2008, 2009 and
2010, was $1,107,000, $1,153,000 and $1,175,000, respectively,
$548,000 for the six month transition period ended
December 31, 2010 and $10,993,000 for the period from
Inception to December 31, 2010.
In December 2009, the Company entered into amended agreements
with certain employees that would result in an aggregate cash
payment to these employees of up to $725,000 upon a
change-in-control
event. Subsequent to December 31, 2010, these agreements
were amended and no longer include this provision.
The Company has a 401(k) savings plan that allows participating
employees to contribute a portion of their salary, subject to
annual limits and minimum qualifications. The Board may, at its
sole discretion, approve Company matching contributions to the
plan. The Company made contributions of $217,000, $195,000 and
$200,000 for the years ended June 30, 2008, 2009 and 2010,
respectively, $88,000 for the six month transition period ended
December 31, 2010 and $1,545,000 for the period from
Inception to December 31, 2010.
On March 21, 2011, the Companys shareholders approved
amendments to the companys Restated Articles of
Incorporation to increase the number of authorized shares of
Aastrom common stock from 62,500,000 to 150,000,000 and to
increase the number of shares available under the Aastrom 2009
Omnibus Equity Incentive Plan from 3,250,000 shares to
7,150,000 shares.
56
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
There are none to report.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures as of
December 31, 2010. The term disclosure controls and
procedures is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities and Exchange Act of 1934 (Exchange Act).
Management recognizes that any disclosure controls and
procedures no matter how well designed and operated, can only
provide reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Based on their evaluation, our management, including our Chief
Executive Office and Chief Financial Officer, concluded that our
disclosure controls and procedures were not effective to provide
reasonable assurance as of December 31, 2010 because of a
material weakness in our internal control over financial
reporting described below. Notwithstanding the material weakness
described below, management has concluded that our consolidated
financial statements for the periods included in this Transition
Report on
Form 10-K
are fairly stated in all material respects in accordance with
generally accepted accounting principles for each of the periods
presented herein.
Managements
Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
or
Rule 15d-15(f)
of the Exchange Act. Our internal control over financial
reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements prepared for external purposes in
accordance with generally accepted accounting principles. Our
internal control over financial reporting includes those
policies and procedures that (a) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and disposition of the companys
assets; (b) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures are being made
only in accordance with authorizations of management and the
directors of the company; and (c) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management, including our Chief Executive Officer and Chief
Financial Officer, assessed the effectiveness of our internal
control over financial reporting as of December 31, 2010.
In making its assessment, management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated
Framework. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a
material misstatement of the companys annual or interim
financial statements will not be prevented or detected on a
timely basis. Based on this assessment using the COSO criteria,
management has concluded that we did not maintain effective
internal control over financial reporting as of
December 31, 2010, because of a material weakness relating
to accounting for warrants. Specifically, we did not maintain
effective controls over the identification and proper accounting
treatment of certain terms and conditions in our warrant
agreements. This material weakness resulted in a misstatement of
our liabilities, non-cash expense relating to the changes in
fair value of common stock warrants and accumulated deficit
accounts and related financial disclosures and the restatement
of our consolidated financial statements for the years ended
June 30, 2010, 2009 and 2008, the period from Inception to
June 30, 2010, and each of the quarterly periods (including
the period from Inception) from September 30, 2008 through
September 30,
57
2010 as discussed in Note 2 to the consolidated financial
statements included in our amended Annual Report on
Form 10-K/A
for the year ended June 30, 2010 and adjustments to the
quarter and six month transition period ended December 31,
2010, as discussed in Note 1 in the consolidated financial
statements in this Transition Report on
Form 10-K.
Additionally, this deficiency could result in misstatements of
the aforementioned accounts and disclosures that would result in
a material misstatement of the consolidated financial statements
that would not be prevented or detected.
Remediation
Plan
Management has been actively engaged in developing and
implementing a remediation plan to address the material
weakness. Implementation of the remediation plan has occurred
and consisted of the combination of (i) hiring of new
accounting/finance personnel and (ii) those personnel
revisiting the original accounting assessment for each of their
historical warrants and assessing the original accounting and
the on-going accounting impact.
Management believes the foregoing efforts will effectively
remediate the material weakness. As the Company continues to
evaluate and work to improve its internal control over financial
reporting, management may execute additional measures to address
potential control deficiencies or modify the remediation steps
described above. Management will continue to review and make
necessary changes to the overall design of the Companys
internal control.
Changes
in Internal Control over Financial Reporting
During our quarter ended December 31, 2010, there were no
changes made in our internal control over financial reporting
(as such term is defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
Not applicable.
58
PART III
Certain information required by Part III is omitted from
this Transition Report on
Form 10-K,
and is incorporated by reference to our definitive Proxy
Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A in connection with
our 2011 Annual Meeting of Shareholders scheduled for
June 7, 2011.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information relating to our directors is incorporated by
reference to the Proxy Statement as set forth under the caption
Election of Directors. Information relating to our
executive officers is set forth in Part I of this Report
under the caption Executive Officers.
Information with respect to delinquent filings pursuant to
Item 405 of
Regulation S-K
is incorporated by reference to the Proxy Statement as set forth
under the caption Section 16(a) Beneficial Ownership
Reporting Compliance.
|
|
Item 11.
|
Executive
Compensation
|
The information relating to executive compensation is
incorporated by reference to the Proxy Statement under the
caption Executive Compensation and Related
Information.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management, and
Related Shareholder Matters
|
The information relating to ownership of our equity securities
by certain beneficial owners and management is incorporated by
reference to the Proxy Statement as set forth under the caption
Stock Ownership of Certain Beneficial Owners and
Management.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information relating to certain relationships and related
person transactions is incorporated by reference to the Proxy
Statement under the caption Certain Relationships and
Related Party Transactions.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information relating to principal accountant fees and
services is incorporated by reference to the Proxy Statement
under the caption Ratification of Appointment of
Independent Registered Public Accounting Firm.
59
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are filed as part of this
Transition Report on
Form 10-K:
1. Financial Statements (see Item 8).
2. All information is included in the Financial Statements
or Notes thereto.
3. Exhibits:
See Exhibit Index.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Aastrom Biosciences, Inc.
Timothy M. Mayleben
President and Chief Executive Officer
(Principal Executive Officer)
Date: April 14, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this Transition Report on
Form 10-K
has been signed on behalf of the registrant on April 14,
2011 by the following persons in the capacities indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Timothy
M. Mayleben
Timothy
M. Mayleben
|
|
President and Chief Executive Officer, Director
(Principal Executive Officer)
|
|
|
|
/s/ Scott
C. Durbin
Scott
C. Durbin
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
/s/ Nelson
M. Sims
Nelson
M. Sims
|
|
Lead Independent Director
|
|
|
|
/s/ Ronald
M. Cresswell, Ph.D.
Ronald
M. Cresswell, Ph.D.
|
|
Director
|
|
|
|
/s/ Alan
L. Rubino
Alan
L. Rubino
|
|
Director
|
|
|
|
/s/ Harold
C. Urschel, Jr., M.D.
Harold
C. Urschel, Jr., M.D.
|
|
Director
|
|
|
|
/s/ Robert
L. Zerbe, M.D.
Robert
L. Zerbe, M.D.
|
|
Director
|
61
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
3
|
.1
|
|
Restated Articles of Incorporation of Aastrom, filed as
Exhibit 4.1 to Aastroms Current Report on
Form 8-K
filed on December 17, 2009, incorporated herein by
reference.
|
|
3
|
.2
|
|
Certificate of Amendment to Restated Articles of Incorporation
of Aastrom dated February 9, 2010, filed as
Exhibit 3.2 to Aastroms Post Effective Amendment
No. 1 to
Form S-1
filed on March 31, 2010, incorporated herein by reference.
|
|
3
|
.3
|
|
Certificate of Amendment to Restated Articles of Incorporation
of Aastrom dated March 22, 2011, attached as
Exhibit 3.1 to Aastroms Current Report on
Form 8-K
filed on March 25, 2011, incorporated herein by reference.
|
|
3
|
.4
|
|
Bylaws, as amended, attached as Exhibit 3.1 to
Aastroms Current Report on
Form 8-K
filed on November 12, 2010, incorporated herein by
reference.
|
|
10
|
.1 #
|
|
Form of Indemnification Agreement, attached as Exhibit 10.1
to Aastroms Registration Statement on
Form S-1
(No. 333-15415),
filed on November 1, 1996, incorporated herein by reference.
|
|
10
|
.2 #
|
|
Amended and Restated 1992 Incentive and Non-Qualified Stock
Option Plan and forms of agreements thereunder, attached as
Exhibit 10.5 to Aastroms Registration Statement on
Form S-1
(No. 333-15415),
filed on November 1, 1996, incorporated herein by reference.
|
|
10
|
.3 #
|
|
Form of Employment Agreement, attached as Exhibit 10.8 to
Aastroms Registration Statement on
Form S-1
(No. 333-15415),
filed on November 1, 1996, incorporated herein by reference.
|
|
10
|
.4
|
|
License Agreement, dated March 13, 1992, between Aastrom
and the University of Michigan and amendments thereto dated
March 13, 1992, October 8, 1993 and June 21,
1995, attached as Exhibit 10.17 to Aastroms
Registration Statement on
Form S-1
(No. 333-15415),
filed on November 1, 1996, incorporated herein by reference.
|
|
10
|
.5 #
|
|
Aastrom Biosciences 2001 Stock Option Plan, attached as
Exhibit 10.72 to Aastroms Annual Report on
Form 10-K
for the year ended June 30, 2002, incorporated herein by
reference.
|
|
10
|
.6
|
|
Supply Agreement between Aastrom and Moll Industries, Inc.,
dated December 16, 2003, attached as Exhibit 10.77 to
Aastroms Annual Report on
Form 10-K
for the year ended June 30, 2004, incorporated herein by
reference.
|
|
10
|
.7 #
|
|
2004 Equity Incentive Plan, attached as Exhibit 10.82 to
Amendment No. 1 to Aastroms Quarterly Report on
Form 10-Q/A
for the quarter ended September 30, 2004, incorporated
herein by reference.
|
|
10
|
.8 #
|
|
Form of Option and Restricted Stock Award Agreements for Grants
under 2004 Equity Incentive Plan, attached as Exhibit 10.84
to Aastroms Annual Report on
Form 10-K
for the year ended June 30, 2005, incorporated herein by
reference.
|
|
10
|
.9 #
|
|
Employee Compensation Guidelines, attached as Exhibit 10.85
to Aastroms Annual Report on
Form 10-K
for the year ended June 20, 2005, incorporated herein by
reference.
|
|
10
|
.10
|
|
Amendment dated December 5, 2002 to License Agreement with
the University of Michigan, attached as Exhibit 10.87 to
Aastroms Annual Report on
Form 10-K
for the year ended June 30, 2005, incorporated herein by
reference.
|
|
10
|
.11 #
|
|
Summary of Changes to Employee Compensation Guidelines, attached
as Exhibit 10.94 to Aastroms Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2006, incorporated
herein by reference.
|
|
10
|
.12 #
|
|
2004 Equity Incentive Plan, as amended, attached as
Exhibit 99.1 to Aastroms Current Report on
Form 8-K
filed on November 8, 2006, incorporated herein by reference.
|
|
10
|
.13 #
|
|
Forms of Grant Notice and Stock Option Agreement for Grants
under 2004 Equity Incentive Plan, as amended, attached as
Exhibit 99.2 to Aastroms Current Report on
Form 8-K
filed on November 8, 2006, incorporated herein by reference.
|
|
10
|
.14
|
|
Placement Agency Agreement, dated October 15, 2007, by and
between the Company and BMO Capital Markets Corp., attached as
Exhibit 10.1 to Aastroms Current Report on
Form 8-K
filed on October 16, 2007, incorporated herein by
reference.
|
62
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.15
|
|
Escrow Agreement, dated as of October 15, 2007, among the
Company, BMO Capital Markets Corp. and The Bank of New York,
attached as Exhibit 10.2 to Aastroms Current Report
on
Form 8-K
filed on October 16, 2007, incorporated herein by reference.
|
|
10
|
.16
|
|
Form of Purchase Agreement, attached as Exhibit 10.3 to
Aastroms Current Report on
Form 8-K
filed on October 16, 2007, incorporated herein by reference.
|
|
10
|
.17
|
|
Form of Warrant, attached as Exhibit 10.4 to Aastroms
Current Report on
Form 8-K
filed on October 16, 2007, incorporated herein by reference.
|
|
10
|
.18
|
|
Standard Lease between Aastrom and Dominos Farms Office
Park, L.L.C. dated January 31, 2007., attached as
Exhibit 10.96 to Amendment No. 1 to Aastroms
Annual Report on
Form 10-K
for the year ended June 30, 2007, incorporated herein by
reference.
|
|
10
|
.19 #
|
|
Nonemployee Director Compensation Guidelines, attached as
Exhibit 10.98 to Aastroms Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008, incorporated herein
by reference.
|
|
10
|
.20
|
|
Common Stock Purchase Agreement, dated June 12, 2009,
between Aastrom Biosciences, Inc. and Fusion Capital
Fund II, LLC, attached as Exhibit 10.1 to
Aastroms Current Report on
Form 8-K
filed on June 12, 2009, incorporated herein by reference.
|
|
10
|
.21
|
|
Registration Rights Agreement, dated June 12, 2009, between
Aastrom Biosciences, Inc. and Fusion Capital Fund II, LLC,
attached as Exhibit 10.2 to Aastroms Current Report
on
Form 8-K
filed on June 12, 2009, incorporated herein by reference.
|
|
10
|
.22 #
|
|
2009 Omnibus Incentive Plan, attached as Appendix II to
Aastroms Proxy Statement filed on October 9, 2009,
incorporated herein by reference.
|
|
10
|
.23
|
|
Class A Warrant Agreement, dated as of January 21,
2010, by and between the Registrant and Continental Stock
Transfer & Trust Company (incorporated herein by
reference to Exhibit 4.1 to the Companys Current
Report on
Form 8-K
filed with the SEC on January 27, 2010).
|
|
10
|
.24
|
|
Class B Warrant Agreement, dated as of January 21,
2010, by and between the Registrant and Continental Stock
Transfer & Trust Company (incorporated herein by
reference to Exhibit 4.2 to the Companys Current
Report on
Form 8-K
filed with the SEC on January 27, 2010).
|
|
10
|
.25
|
|
Underwriting Agreement, dated as of January 15, 2010, and
between the Registrant and Oppenheimer & Co. Inc.
(incorporated herein by reference to Exhibit 1.1 to the
Companys Current Report on
Form 8-K
filed with the SEC on January 15, 2010).
|
|
10
|
.26 #
|
|
Employment Agreement with Timothy M. Mayleben dated
October 23, 2009 attached as Exhibit 99.3 to
Aastroms Current Report on
Form 8-K
filed on October 27, 2009, incorporated herein by reference.
|
|
10
|
.27 #
|
|
Employment Agreement with Scott C. Durbin dated June 7,
2010 attached as Exhibit 10.1 to Aastroms Current
Report on
Form 8-K
filed on June 8, 2010, incorporated herein by reference.
|
|
10
|
.28 #
|
|
Form of indemnification agreement entered into between the
Company and each of its directors, including Timothy M.
Mayleben, a director and the Companys President and Chief
Executive Officer, attached as Exhibit 10.1 to
Aastroms Current Report on
Form 8-K
filed on August 31, 2010, incorporated herein by reference.
|
|
10
|
.29
|
|
Amended Code of Business Conduct and Ethics, attached as
Exhibit 14.1 to Aastroms Current Report on
Form 8-K
filed on August 31, 2010, incorporated herein by reference.
|
|
10
|
.30*
|
|
Contract Manufacturing and Supply Agreement, dated as of
November 8, 2010, by and between ATEK Medical, LLC and the
Company.
|
|
10
|
.31
|
|
Warrant agreement, dated as of December 15, 2010, by and
between the Registrant and Continental Stock
Transfer & Trust Company (incorporated herein by
reference to Exhibit 4.1 to the Companys Current
Report on
Form 8-K
filed with the SEC on December 16, 2010).
|
|
10
|
.32
|
|
Underwriting Agreement, dated as of December 10, 2010, and
between the Registrant and Stifel, Nicolaus & Company,
Incorporated, Needham & Company, LLC and Roth Capital
Partners (incorporated herein by reference to Exhibit 1.1
to the Companys Current Report on
Form 8-K
filed with the SEC on December 10, 2010).
|
|
21
|
|
|
Subsidiaries of Registrant.
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
63
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
# |
|
Management contract or compensatory plan or arrangement covering
executive officers or directors of Aastrom. |
|
* |
|
Confidential treatment status has been requested as to certain
portions thereof, which portions are omitted and filed with the
Securities and Exchange Commission. |
64
GLOSSARY
|
|
|
Term
|
|
Definition
|
|
Adverse Event
|
|
Any adverse change in health or side-effect that
occurs in a person participating in a clinical trial, from the
time they consent to joining the trial until a pre-specified
period of time after their treatment has been completed.
|
Autologous (Patient Specific)
|
|
Originating from the patient receiving treatment. (Aastrom uses
only autologous cells)
|
BLA Biologics License Application
|
|
An application containing product safety, efficacy and
manufacturing information required by the FDA to market
biologics products in the U.S.
|
CBER Center for Biologics Evaluation and Research
|
|
Branch of the FDA that regulates biological products for disease
prevention and treatment that are inherently more complex than
chemically synthesized pharmaceuticals.
|
CLI Critical Limb Ischemia
|
|
A vascular disease characterized by insufficient blood flow in
the lower extremities that causes severe pain, tissue loss or
both.
|
Controlled Clinical Trial
|
|
A clinical study that compares patients receiving a specific
treatment to patients receiving an alternate treatment for the
condition of interest. The alternate treatment may be another
active treatment, standard of care for the condition and/or a
placebo (inactive) treatment.
|
DCM Dilated Cardiomyopathy
|
|
A chronic cardiac disease where expansion of the patients
heart reduces the pumping function to a point that the normal
circulation of blood cannot be maintained.
|
Double-Blind Clinical Trial
|
|
Clinical trials in which neither the patient nor the physician
know if the patient received the experimental treatment or a
control/placebo.
|
Ex vivo
|
|
Outside the body
|
FDA Food & Drug Administration
|
|
The U.S. FDA ensures that medicines, medical devices, and
radiation-emitting consumer products are safe and effective.
Authorized by Congress to enforce the Federal Food, Drug, and
Cosmetic Act and several other public health laws, the agency
monitors the manufacture, import, transport, storage, and sale
of $1 trillion worth of goods annually.
|
GMP Good Manufacturing Practice
|
|
GMP regulations require that manufacturers, processors, and
packagers of drugs, medical devices, some food, and blood take
proactive steps to ensure that their products are safe, pure,
and effective. GMP regulations require a quality approach to
manufacturing, enabling companies to minimize or eliminate
instances of contamination, mix-ups, and errors.
|
65
|
|
|
Term
|
|
Definition
|
|
Hematopoietic Stem Cells
|
|
Stem cells that give rise to all the blood cell types including
myeloid (monocytes and macrophages, neutrophils, basophils,
eosinophils, erythrocytes, megakaryocytes/platelets, dendritic
cells), and lymphoid lineages (T-cells, B-cells, NK-cells).
|
IMPACT-DCM
|
|
Aastroms U.S. Phase 2 dilated cardiomyopathy clinical
trial.
|
IND Investigational New Drug
|
|
An application submitted to the FDA for a new drug or biologic
that, if allowed, will be used in a clinical trial.
|
Ischemia
|
|
A shortage or inadequate flow of blood to a body part (commonly
an organ or tissue) caused by a constriction or obstruction of
the blood vessels supplying it.
|
LVEF Left Ventricular Ejection Fraction
|
|
The fraction of blood pumped out of the left ventricle with each
heart beat.
|
Open-label Clinical Trial
|
|
A trial in which both the treating physician and the patient
know whether they are receiving the experimental treatment or
control/placebo treatment.
|
Orphan Drug Designation
|
|
Orphan drug refers to a drug or biologic that is
intended for use in the treatment of a rare disease or
condition. Orphan drug designation from the U.S. Food and Drug
Association (FDA) qualifies the sponsor to receive certain
benefits from the Government in exchange for developing the drug
for a rare disease or condition. The drug must then go through
the FDA marketing approval process like any other drug or
biologic which evaluates for safety and efficacy. Usually a
sponsor receives a quicker review time and lower application
fees for an orphan product.
|
Phase 1 Clinical Trial
|
|
A Phase 1 trial represents an initial study in a small group of
patients to test for safety and other relevant factors.
|
Phase 2 Clinical Trial
|
|
A Phase 2 trial represents a study in a moderate number of
patients to assess the safety and efficacy of a product.
|
Phase 2b Clinical Trial
|
|
A Phase 2b trial is a moderately-sized Phase 2 trial that is
more specifically designed assess the efficacy of a product than
a Phase 2a trial.
|
Phase 3 Clinical Trial
|
|
Phase 3 studies are initiated to establish safety and efficacy
in an expanded patient population at multiple clinical trial
sites and are generally larger than trials in earlier phases of
development.
|
Progenitor Cells
|
|
A parent cell that gives rise to a distinct cell
lineage by a series of cell divisions.
|
Prospective Clinical Trial
|
|
A clinical trial in which participants are identified and then
followed throughout the study going forward in time.
|
Randomized Clinical Trial
|
|
A clinical trial in which the participants are assigned randomly
to different treatment groups.
|
66
|
|
|
Term
|
|
Definition
|
|
Somatic Cell
|
|
Any of the cells responsible for forming the body of an organism
such as internal organs, bones, skin, connective tissues and
blood.
|
SPP Single-Pass Perfusion
|
|
Technology utilized by Aastroms proprietary, automated
processing system that controls gas and cell culture media
exchange to enable the replication of early-stage stem and
progenitor cells while preventing their differentiation into
mature cells.
|
Stem Cell
|
|
Unspecialized (undifferentiated) cells that retain the ability
to divide throughout a lifetime and give rise to more
specialized (differentiated) cells which take the place of cells
that die or are lost. In culture, these undifferentiated cells
possess the ability to divide for indefinite periods in culture
and may give rise to highly specialized cells.
|
67
exv10w30
Exhibit 10.30
* * *
Text Omitted and Filed Separately
with the Secretary of the
Commission
Confidential Treatment Requested
CONTRACT MANUFACTURING AND SUPPLY AGREEMENT
This Agreement (the Agreement) is made and entered into as of this 8th day of November, 2010
(the Effective Date) by and between Aastrom Biosciences, a Michigan corporation having its
principal place of business at Dominos Farms, Lobby K, 24 Frank Lloyd Wright Drive, Ann Arbor, Ml,
48105 (Aastrom) and ATEK Medical, LLC, having its principal place of business at 620 Watson SW,
Grand Rapids, MI, 49504 (Supplier).
RECITALS
WHEREAS, Aastrom manufactures a stem cell product for use in clinical trials;
WHEREAS, Supplier desires to manufacture Aastroms proprietary cell cassette (the Product) for
use in their manufacturing process; and
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements
hereinafter set forth, and subject to the terms and conditions of this Agreement, the parties agree
as follows:
1. PRODUCTS
Aastrom hereby grants to Supplier the exclusive right to manufacture the Product as set forth on
Appendix A attached hereto, and to assemble, package, label, and sterilize the Product in
Suppliers facilities in accordance with the terms of this Agreement.
2. OBLIGATIONS
|
2.1 |
|
Suppliers Obligations. |
|
2.1.1 |
|
Sterilization Cost. Supplier will include the cost of gamma sterilization in the
Product unit cost. Supplier shall arrange for initial sterilization validations and Aastrom
requested re-validations using mutually approved protocols. The cost for development of protocols,
execution of the validation, and writing of the sterilization final report shall be paid for by
Aastrom at a pre-approved cost. Supplier will coordinate sterilization schedules and will generate
purchase orders for sterilization to an Aastrom approved contract sterilization company. Subsequent
certificates of sterilization will be provided by the contract sterilization company to Supplier.
Supplier shall forward such certificates to Aastrom upon shipment of Product and will be included
in the Product unit price. In the event of a failed sterilization, Aastrom shall be responsible for
the sterilization costs of such product. |
|
|
2.1.2 |
|
Quarterly Dose Audits. Supplier will coordinate the execution of quarterly dose
audits related to sterilized Product using a mutually approved standard operating procedure.
Aastrom will provide a purchase order for the periodic dose audits with associated bioburden and
sterility testing. Any Supplier requested modifications requiring re-validation will be performed
at Suppliers expense. |
|
|
2.1.3 |
|
Purchasing. Supplier is responsible for obtaining all Aastrom approved components
pertaining to the Product including those for manufacturing, assembly, packaging, labeling and
sterilization in accordance with the schedule and quantities outlined on Appendix A attached
hereto, unless otherwise noted in Appendix A of this Agreement. Supplier will order components
against pre-approved purchase specifications and will receive components against pre-approved
incoming inspection plans. |
1
|
2.1.4 |
|
Schedule. Supplier will ship the Product in accordance with Appendix A of this
Agreement. |
|
|
2.1.5 |
|
Production Affecting Events. Supplier will notify Aastrom of any plant shut down,
significant manufacturing delay, or other reasonably anticipated event that would result in the
inability of Supplier to provide product. Aastrom will be notified within two days of any major
shutdown or other information that may impede ATEK in the manufacture of the product. |
|
|
2.1.6 |
|
Sustaining. Supplier shall provide reasonable ongoing manufacturing support of
the Product in order to satisfy production requirements outlined in Appendix A. |
|
2.2.1 |
|
Purchasing. Aastrom shall order and purchase the Product from Supplier based on
the schedule and quantities outlined on Appendix A attached hereto, as amended from time to time by
mutual consent, and subject to the Customer Supplied Inventory set forth on Appendix B attached
hereto. |
|
|
2.2.2 |
|
Engineering Support. Aastrom shall provide Supplier with reasonable engineering
support to initiate and ramp up manufacturing of the Product, including training, substitute part
validation and sterilization validation. |
|
|
2.2.3 |
|
Obsolescence. If Aastrom decides to make obsolete a component of the Product,
Aastrom shall reimburse Supplier at cost for any remaining inventory of such component and work in
process to the extent that such inventory and work in process can be converted into finished
Products, but not to exceed three (3) months of the Forecast (as defined in Section 9) Product
demand or as agreed to in writing by both parties. |
|
|
2.2.4 |
|
Tooling for External Suppliers. Aastrom shall be responsible for costs in
connection to routine tooling maintenance performed by any external supplier appointed by Aastrom. |
3. EQUIPMENT & CALIBRATION
All manufacturing equipment will be supplied by Aastrom. Suppliers calibration group will
calibrate all applicable equipment within its capabilities. Calibration requirements for each piece
of equipment will be agreed upon individually and provided in writing to Supplier by Aastrom. For
all special equipment or processes requiring calibration, Supplier will consult with Aastrom on
requirements prior to taking action towards setup and routine calibration. Additional expenses
required for special calibration requirements will be agreed upon in advance and submitted to
Aastrom for payment.
4. CONFIDENTIALITY
It is anticipated that Aastrom and Supplier will need to exchange confidential information. All
such information concerning the subject matter of this Agreement is to be considered confidential
by the receiving party whether received orally, visually, or in written form. In the event of any
conflict between this Section 4 and any prior confidentiality agreement entered into between the
parties, the confidentiality provisions herein shall control.
During the term of this Agreement all confidential information disclosed hereunder shall be used by
the recipient solely for the purpose of this Agreement and shall not be used in any way for its own
account or for the account of any third party, or disclosed to third parties, nor to those within
the recipients company who do not have a need to know such information.
2
Said obligations of confidentiality shall not apply to any information which:
|
4.1 |
|
was in the possession of the recipient before disclosure hereunder as evidenced by
written records; or |
|
|
4.2 |
|
is or becomes known to the public through no fault of the recipient party; or |
|
|
4.3 |
|
is information received by the recipient from a third party who is under no obligation
to the disclosing party to maintain such information as confidential; or |
|
|
4.4 |
|
is developed by the recipient independent of any disclosure hereunder as evidenced by
written records. |
All confidential information shall at all times remain the property of the disclosing party, and
shall be returned to the disclosing party along with all copies thereof, immediately upon request
by the disclosing party.
No disclosure of confidential information shall be deemed to vest in the receiving party any rights
in any patents, trade secrets, or intellectual property or other property of the disclosing party,
other than as set forth in this Agreement.
5. DESIGN CONTROL AND SPECIFICATIONS
|
5.1 |
|
General. Supplier shall only manufacture the Product to Aastroms
specifications and shall not change materials, specifications, design/configuration, procedures,
packaging or labeling without Aastroms prior written consent. Aastrom may reject any Product lots
that are defective or otherwise do not conform to Aastroms specifications, drawings, or to
Aastroms purchase orders. |
|
|
5.2 |
|
Changes by Aastrom. Aastrom may change specifications from time to time as
needed, (e.g. to meet market requirements, comply with regulatory requirements, improve Product
function or quality, or lower Product cost). Any changes in specifications shall be conveyed to
Supplier in writing. Supplier shall confirm, in writing, its receipt of Aastroms changes and
shall use its commercial best efforts to implement the documented changes within forty-five (45)
days of notification unless otherwise agreed upon. Once changes are implemented, Supplier shall
immediately advise Aastrom in writing of the first Product lot to contain the changes. |
|
|
|
|
Aastrom shall purchase from Supplier any affected finished goods that are in a usable condition and
comply with all Aastrom specifications, components or raw materials inventory and work in process
to the extent that such inventory and work in process can be converted into finished Products, that
Supplier has purchased or completed at Suppliers actual cost, in aggregate quantities not to
exceed the actual accumulated monthly production from Aastrom purchase orders for ninety (90) days
preceding notice of discontinuation of the affected components of the Product or unless otherwise
mutually agreed in writing. However, Supplier agrees to make commercially best effort to minimize
the financial impact to Aastrom by optimizing the procurement of materials for minimal scrap once
Aastrom notifies Supplier of such changes. |
|
|
|
|
If any Aastrom specification change directly affects the prices or schedule of the Product, a
reasonable adjustment for such increased costs of Supplier shall be made, provided that Supplier
makes and Aastrom accepts a written claim for an adjustment prior to manufacturing the Product.
Price adjustments shall be limited to the affected component or process and shall not constitute an
opportunity to renegotiate any other aspects of this Agreement or the manufacture of the Product.
If the parties are unable to agree upon the amount of the adjustment, Aastrom may, without
liability to Supplier, terminate this Agreement as to all or part of the affected Products. |
3
|
5.3 |
|
Changes by Supplier. Supplier may recommend design or specification changes to
Aastrom but no such changes will be incorporated into the Product without Aastroms prior written
approval and without following appropriate documentation change procedures. Such Supplier proposed
changes shall be made at Aastroms expense. |
|
|
5.4 |
|
Discontinuation of Product. Aastrom may discontinue the manufacture of the
Product at its sole discretion. In the event Aastrom decides to discontinue the manufacture of the
Product, Aastrom shall use commercially best efforts to notify Supplier at least one hundred twenty
(120) days prior to Aastroms intention to discontinue manufacture of the Product. Failure to
provide Supplier prior notice shall not be a breach of this Agreement; provided, however, if
Aastrom does not give Supplier one hundred twenty (120) days prior notice, Aastrom agrees to
purchase from Supplier any finished goods that are in a usable condition and comply with all
Aastrom specifications, component or raw materials inventory and work in process to the extent that
such inventory and work in process can be converted into finished Products, that Supplier has
purchased or completed at Suppliers actual cost, in aggregate quantities not to exceed the actual
accumulated monthly production from Aastrom purchase orders for ninety (90) days preceding notice
of discontinuation of the Product. |
6. QUALITY
|
6.1 |
|
Quality Agreement. A separate written Quality
Agreement will be drafted and
mutually agreed upon between Aastrom and Supplier. |
7. PRICING
|
7.1 |
|
General. The Product shall be purchased and sold in U.S. dollars. Prices for the
manufacture of the Product are listed in Appendix A. |
|
|
7.2 |
|
Annual Price Adjustment Notification. At least forty-five (45) days prior to the
end of the first year of the Term and each year thereafter that this Agreement remains in effect,
Supplier shall notify Aastrom of any proposed Product unit price increase or decrease for the next
succeeding year. Any increase or decrease in Product unit price shall be applicable only to those
production lots of the Product of which the production process is
completed after the change and
cost becomes effective and shall remain in effect until another price change occurs. |
|
|
7.3 |
|
Justification of Price Increases. Supplier will provide written rationale for
its price increases for the Product any year during the Term upon Aastroms request. Aastrom and
Supplier will work collaboratively and in good faith to mitigate any potential cost increases. |
|
|
7.4 |
|
Scrap. Supplier unit cost shall assume a scrap rate of [ * * * ]%. If during term of
this agreement actual scrap rate exceeds [ * * * ]% for a period of thirty (30) days or more, Supplier
will notify Aastrom in writing of the actual scrap rate and failure mode. Supplier and Aastrom will
work collaboratively to determine root cause of the increased scrap. When the supplier and Aastrom
agree on the root cause, financial responsibility shall remain with the party at cause. Best
efforts shall be made by both parties to resolve all scrap issues within 90 days from occurrence. |
|
|
7.5 |
|
Cost Reduction. Both parties shall continuously work towards reducing costs. Any
cost reduction efforts researched and implemented by both parties shall result in a 50/50 gain
sharing of the savings realized. When a cost saving measure is solely driven by Aastrom the
savings will benefit Aastrom 100%. Aastrom and Supplier will meet periodically to review cost
reduction efforts and define an action plan for driving improvement. |
4
* * *
Text Omitted and Filed Separately
with the Secretary of the
Commission
Confidential Treatment Requested
8. TERM
The term of this Agreement shall be four (4) years from the Effective Date (the Term). At the end
of the initial Term, this Agreement shall terminate automatically without notice, unless, prior to
that time, the Term is extended by mutual written consent of the parties delivered at least six (6)
months prior to the termination date. The minimum term extension is to be no less than two (2)
years, except as expressly limited by the terms of this Agreement. Sections 3 and 11 through 28
shall survive the expiration or termination of this Agreement.
9. TERMINATION
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9.1 |
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Procedure for Termination: This Agreement may be terminated as follows: |
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9.1.1 |
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Either party may terminate this Agreement if the other party materially defaults in the
performance of any provision of this Agreement. Should any such default occur, then the
non-defaulting party may give written notice to the defaulting party that if the default is not
cured within forty-five (45) days, the Agreement will be
terminated. If the non-defaulting party
gives such notice and the default is not cured during the forty-five (45) day period, then the
Agreement shall automatically terminate at the end of such period unless an extension is mutually
agreed to by both parties. |
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9.1.2 |
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In addition to other remedies, either party may terminate the Agreement at any time if
either breaches its confidentiality obligations under Section 3, in which case termination shall be
effective immediately upon receipt of notice of the breach and of termination. |
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9.1.3 |
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Either party may immediately terminate this Agreement by written notice upon the
occurrence of any of the following events: (i) the other party is or becomes insolvent or unable to
pay its debts as they become due within the meaning of the United States Bankruptcy Code (or any
successor statute) or any analogous foreign statute; or (ii) the other party appoints or has
appointed a receiver for all or substantially all of its assets, or makes an assignment for the
benefit of its creditors; or (iii) the other party files a voluntary petition under the United
States Bankruptcy Code (or any successor statute) or any analogous foreign statute; or (iv) the
other party has filed against it an involuntary petition under the United States Bankruptcy Code
(or any successor statute) or any analogous foreign statute, and such petition is not dismissed
within ninety (90) days. |
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9.2 |
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Return of Confidential Information and Equipment. Upon termination of this
Agreement for any reason, each party shall return all confidential information, including, but not
limited to technical information, and any equipment belonging to Aastrom, each party shall make no
further use of such information. |
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9.3 |
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Inventory and Equipment Purchase Upon Termination. If the Agreement is
terminated by Supplier for material breach by Aastrom then Aastrom shall purchase: (a) finished
Product that are in a usable condition and comply with all Aastrom specifications, including
sterility on the date of termination; and (b) ninety (90) day work in process and component and raw
materials inventory to the extent that such work in process and inventory can be converted into
finished Products, all based on Aastroms Forecast needs. Such purchases shall be made within sixty
(60) days following the effective date of the termination. |
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Other Termination. If the Agreement terminates by mutual agreement of both
parties, then both parties will mutually agree upon the purchase and/or disposition of raw
component materials, Product and/or equipment. Supplier shall provide reasonable technical support
to transition Product to new manufacturing facility. Such technical support will be provided at
Suppliers published engineering rates and shall be at Aastroms expense. If the Agreement
terminates by |
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Aastrom for material breach by Supplier, then Aastrom shall be required to purchase any raw
materials, inventory or Products at any stage of assembly as long as all materials are within
current Aastrom specification. |
10 FORECAST, ORDERS AND QUANTITY
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10.1 |
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Purchase Orders. Orders by Aastrom shall be initiated by purchase orders
executed by an authorized representative of Aastrom. Supplier shall provide written confirmation to
Aastrom within 3 business days. If Supplier is unable to meet requested delivery date Supplier will
provide alternative delivery date based on current manufacturing schedule. Supplier will make best
effort to achieve Aastrom requested delivery date. |
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10.2 |
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Delivery. Supplier shall use best efforts to ship the Product for delivery by the
requested date on the Aastrom purchase order. In order for shipment to be considered timely, a
delivery must be shipped no earlier than three (3) days prior or no days later to the requested
date. |
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10.3 |
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Production Forecast. Aastrom will provide to Supplier a twelve (12) month rolling
forecast (Forecast) upon the placement of initial production order. At all times the first three
(3) months will represent a firm production demand. |
11 SHIPMENT, RISK OF LOSS AND PAYMENT TERMS
Supplier shall ship the Product in accordance with Aastroms delivery instructions specified in
Aastroms purchase orders. Delivery shall be FOB Suppliers
dock in Grand Rapids, MI. Supplier
shall deliver all Products ordered by Aastrom in accordance with the requested delivery dates as
indicated in Aastroms purchase orders. Aastrom shall be responsible for shipping costs.
All Products delivered by Supplier pursuant to this Agreement shall be packed as per standard
operating procedure for the designated carrier. All Product shipped will include the Certificate of
Conformance and will specify Aastrom part number, lot number and quantity. All Product will be
shipped with appropriate shipping documentation and clearly marked with part number, order number,
and quantity.
Payments for Products are due within thirty (30) days of the invoice date. In the event that any
terms and conditions on any Supplier invoice or Aastrom purchase order conflict with the terms of
this Agreement, the terms of this Agreement shall govern.
12 INTELLECTUAL PROPERTY RIGHTS
All confidential information, including technical data and intellectual property rights, including
without limitation, patents, patents pending, patent applications, trademarks, service marks, trade
secrets and copyrights (the Intellectual Property), associated with the development, design, and
manufacture of the Product are and shall remain the exclusive property of Aastrom, and may be used
by Supplier only as specifically set forth in this Agreement. Aastrom reserves to itself and
retains all right, title and interest in and to the Intellectual Property embodied in the Product
and to any modifications, enhancements, improvements and upgrades thereto.
Supplier understands and agrees that it has no license to any Aastrom product, technology,
Intellectual Property or other property, except as set forth in this Agreement.
13 WARRANTY AND PRODUCT RECALL
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13.1 |
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Warranty. Supplier warrants for the shelf life period (18 months) of the Product
after delivery that (i) the Product shall be manufactured in compliance with documentation provided
and certified by
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Aastrom; (ii) the Product delivered shall conform to documented specifications, including component
inspection, test, and product release testing; (iii) any components or parts shall be sourced from
Aastrom approved vendors and inspected by mutually approved incoming inspection plans; (iv) the
Product will be free of defects related to internal sterilization, workmanship, or material; (v) it
shall not manufacture Product in advance of confirmed purchase orders so that the Product is
delivered with the longest possible expiration date; and (vi) it shall manufacture the Product in a
workmanlike manner and in accordance with industry standards and not in violation or infringement
of any patent, copyright or trademark laws (the Product Warranty). Should any failure to conform
to the Product Warranty become apparent, Aastrom shall notify Supplier in writing, and Supplier
will either correct such nonconformity by repair or replacement of the defective Product or credit
Aastrom for any payments made with respect to the value of any defective Product including related
direct expenses to Aastrom. |
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13.2 |
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Aastrom warrants that the specifications and license contemplated herein do not violate or
infringe any laws, regulations or standards, including any patent, copyright or trademark laws. |
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Suppliers Product Warranty does not extend to (i) any Product rendered defective by a component
provided by Aastrom, unless Supplier is aware of the defect at or before the time the Product is
assembled, or (ii) to defects caused by improper sterilization, use, transportation, maintenance or
storage; negligence; or unauthorized repair, service or modification, unless caused by Supplier. |
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EXCEPT FOR THE WARRANTIES SET FORTH IN THIS AGREEMENT, SUPPLIER EXPRESSLY DISCLAIMS ALL OTHER
WARRANTIES, EXPRESSED OR IMPLIED, ARISING BY OPERATION OF LAW OR OTHERWISE, INCLUDING IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. |
14 INDEMNIFICATION AND LIMITATION OF LIABILITY
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14.1 |
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Indemnification. Each party (the Indemnifying Party) will indemnify and hold
harmless the other party (the Indemnified Party) from any claims, actions, proceedings, awards,
demands, losses, damages or expenses suffered by the Indemnified Party (Losses), whether or not
such Losses relate to any liability to a third party, claimed or arising from or relating to a
material breach of the Indemnifying Partys representations, warranties or covenants under this
Agreement or the Indemnifying Partys negligence. |
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Supplier shall not indemnify Aastrom for any Losses claimed or arising from or relating to (A) the
Intellectual Property provided by Aastrom for the manufacture of or incorporation into the Product,
or (B) the use of the Product by customers in any manner inconsistent with the Products intended
purposes. |
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14.2 |
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Procedure. To obtain indemnification, the Indemnified Party shall: (a) provide
prompt notice in writing of any such Losses claimed to the Indemnifying Party and permit the
Indemnifying Party, through counsel chosen by the Indemnifying Party, the opportunity to answer and
defend such claims; and (b) provide the Indemnifying Party information, assistance and authority,
at the Indemnifying Partys expense, to assist the Indemnifying Party in defending such claims.
Neither party shall be responsible for any settlement made by the other party without the other
partys prior written approval. Neither party shall admit any liability of the other party without
the other partys prior written approval. |
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14.3 |
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Limitation of Liability. Notwithstanding any other provision of this Agreement,
neither party shall be liable to the other for, nor obligated to allow claims for, special,
incidental, consequential, or other indirect damages or expenses of any kind. |
7
15 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE PARTIES
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15.1 |
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Aastrom hereby represents and warrants to Supplier that: |
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15.1.1 |
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Aastrom is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Michigan, and has all corporate power and authority to own, lease and
operate its properties and to carry on its businesses as it is currently being conducted. Aastrom
has all necessary corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. This Agreement has been duly authorized, executed and delivered by Aastrom. |
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15.1.2 |
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Aastrom is the lawful owner of all right, title and interest in and to the applicable
Intellectual Property incorporated in the Product, free and clear of all liens, claims, security
interests or other restrictions or encumbrances. |
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15.2 |
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Supplier hereby represents and warrants to Aastrom that: |
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15.2.1 |
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Supplier is a company duly organized and existing under the laws of the State of
Minnesota, and has all power and authority to own, lease and operate its properties and to carry on
its businesses as currently conducted. Supplier has all necessary power and authority to enter into
this Agreement and to perform its obligations hereunder. This Agreement has been duly authorized,
executed and delivered by Supplier. |
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15.2.2 |
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Supplier has the manufacturing and assembly facilities and personnel reasonably necessary
to perform its functions and otherwise carry out its obligations under the terms of this Agreement. |
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15.2.3 |
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Supplier warrants that all Products manufactured, sold and shipped pursuant to this
Agreement shall have been manufactured and shipped by Supplier in compliance with applicable U.S.
Food and Drug Administration regulations and current Good Manufacturing Practices requirements set
forth in the Quality System promulgated under the U.S. Food, Drug & Cosmetic Act. |
16 RELATIONSHIP OF THE PARTIES
The parties understand and agree that Supplier is a vendor to Aastrom and that neither party is an
agent of the other nor are the parties to be legal partners, joint ventures or otherwise. Except as
expressly set forth in this Agreement, no rights or licenses are granted by either party to the
other. Neither party shall be entitled to participate in any plans, arrangements or distributions
offered by the other party to its employees, including without limitation any bonus, profit
sharing, insurance or similar benefits. Each party shall be solely responsible to purchase any
required insurance on behalf of its employees and to pay any applicable taxes. Neither party has
authority to bind the other by contract or agreement, of any kind, nor to undertake any obligation
on behalf of the other party.
17 SUCCESSORS, ASSIGNS AND SUBCONTRACTORS
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Neither party may assign rights nor delegate duties, including
to a subcontractor, under this Agreement without the prior written consent of the other party
except in the event of a merger, consolidation or sale of all or substantially all of its assets
and the assignee agrees to be bound to the terms of this Agreement. Any assignee or delegate must
agree to be bound by the terms of this Agreement.
8
18 NO WAIVER
None of the terms of this Agreement shall be deemed to be waived by any party unless such waiver is
in writing duly executed by the party to be charged with such waiver and such writing recites
specifically that it is a waiver of the terms of this Agreement. The waiver by either party of any
breach of any agreement, warranty or covenant contained in this Agreement shall not be construed to
act as a waiver of any subsequent breach. The failure or delay of either party to exercise any
right, power or remedy shall not operate as a waiver thereof, and all rights, powers and remedies
shall continue in full force and effect. All rights, powers and remedies of both parties provided
for in this Agreement are cumulative and non-exclusive, except as otherwise expressly provided.
19 NO INVALIDITY
The unenforceability or invalidity of any one or more provisions hereof shall not render any other
provision herein contained unenforceable or invalid.
20 ENTIRE AGREEMENT; NO OTHER AGREEMENTS
This Agreement constitutes the entire agreement between the parties relating to the subject
matter herein, and all oral or written, prior and contemporaneous proposals, understandings, course
of conduct and writings by and between the parties and relating to the subject matter herein is
superseded hereby.
Neither party has any other Agreement of any kind or nature with any other person, corporation or
entity which would or might prevent it from entering into this Agreement with the other party
hereto.
21 MODIFICATION
This Agreement may be modified or altered through written instrument duly executed by Supplier and
Aastrom.
22 NOTICES
Any notice, except purchase orders, required to be sent by one party to the other pursuant to the
terms of this Agreement shall be effective only if such notice or request is in writing, duly
delivered to the other party. Such written notice or request shall be deemed to be duly delivered
if delivered in person or sent by telegram, telex or facsimile transmission or sent by registered
mail, as follows:
If to Aastrom, to:
Aastrom BioSciences.
Dominos Farms, Lobby K
24 Frank Lloyd Wright Drive
Ann Arbor, Michigan 48105
Attn: Director of Engineering Development
Facsimile: 734 930-5520
If to Supplier, to:
ATEK Medical, LLC
620 Watson SW
Grand Rapids, MI 49504-6393
Attn: VP Business Development
Facsimile: 616 643-1044
9
23 CHOICE OF LAW
This Agreement will be governed, construed and enforced in accordance with the laws of the State of
Michigan, without regard to the principles of conflicts of laws.
24 DISPUTE RESOLUTION
Final and binding arbitration of any dispute shall be conducted in the State of Michigan. Except
with respect to any disputes relating to the provisions on confidentiality and Aastroms
intellectual property rights, any disputes arising hereunder, if not resolved after good faith
negotiation between the parties, shall be finally settled by binding arbitration in accordance with
the commercial rules and under the auspices of one arbitrator of the American Arbitration
Association. The award thereof shall be final and binding upon both parties. Each party shall bear
its own expenses of the arbitration, unless the arbitration award states that the expense shall be
otherwise assessed, including its own attorneys fees and costs. The parties shall share equally
the expenses of the arbitration, including payment to the arbitrator(s).
Notwithstanding the foregoing, in the event both parties hereto are named as defendants by an arms
length third party plaintiff asserting a claim against both parties, then and in such event, either
party may seek the resolution of their respective indemnity rights and obligations as herein set
forth, arising from such claim in said proceedings.
Notwithstanding the foregoing, both parties-acknowledge that any breach by it of its
confidentiality obligations or of the provisions governing Aastroms intellectual property rights
will cause Aastrom irreparable harm for which injunctive relief is the only adequate remedy.
Supplier therefore agrees that Aastrom shall have the right to seek injunctive or other immediate
relief from any United States court or tribunal of competent jurisdiction to prevent or stop any
violations of those Supplier obligations. Should Aastrom desire to seek injunctive relief after an
arbitration proceeding is commenced by either party, Supplier hereby agrees to the filing of such
action according to the terms of this paragraph.
25 FORCE MAJEURE
Failure of either party to perform its obligations under this Agreement shall not subject such
party to any liability to the other party if such failure is caused by any cause beyond the
reasonable control of such nonperforming party, including, but not limited to, acts of God, fire,
explosion, flood, drought, war, riot, terrorism, sabotage, embargo, strikes or other labor trouble
or a national health emergency.
26 RISK MITIGATION
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26.1 |
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Upon termination of Agreement, Supplier agrees to provide reasonable technical support at
Suppliers published engineering rates for the transfer of manufacturing technology to an
alternative manufacturer chosen by Aastrom to conduct final manufacture, package and test of the
Product (Backup Manufacturer), in the event that; |
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26.1.1 |
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Supplier, for a period of one hundred and fifty (150) days from the date of receipt of
the associated purchase order, is unable to manufacture all of Aastroms orders for any reason, or |
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26.1.2 |
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Supplier fails or refuses to meet Aastroms orders for the Product pursuant to the terms
of this Agreement. |
10
27 INSURANCE
Supplier shall maintain during the term of this Agreement, and for a reasonable period thereafter,
general liability insurance and product liability insurance, which insurances shall be in amounts
and of a type customarily maintained by companies similarly situated. Each such insurance shall
provide at least [* * *] ($ [* * *])
U.S. Dollars in coverage per occurrence combined single limit,
bodily injury/property damage and [* * *] ($ [* * *])
U.S. Dollars aggregate liability limits.
Additionally, Supplier warrants that such insurance will not be changed or canceled without at
least thirty (30) days prior written notice to Aastrom.
28 APPENDIX TO THIS AGREEMENT
Included in this Agreement are the following Appendices:
Appendix A Pricing Schedule and Volume
Appendix B Customer Supplied Inventory
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their
respective duly authorized officers on the day and year first above written.
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Aastrom Bioscience |
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By:
Name:
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/s/ Tim Mayleben
Tim Mayleben
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Date: 11-8-10
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Title:
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CEO |
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ATEK Medical |
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By:
Name:
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/s/ Scott Fetzer
Scott Fetzer
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Date: 08/NOVEMBER/2010
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Title:
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Sr VP Business Growth |
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11
* * *
Text Omitted and Filed Separately
with the Secretary of the
Commission
Confidential Treatment Requested
APPENDIX
A
Pricing Schedule and Volume
[* * *]
12
* * *
Text Omitted and Filed Separately
with the Secretary of the
Commission
Confidential Treatment Requested
APPENDIX
B
Customer Supplied Inventory
[* * *]
13
* * *
Text Omitted and Filed Separately
with the Secretary of the
Commission
Confidential Treatment Requested
exv21
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Aastrom Biosciences, Ltd., Ireland
Aastrom Biosciences GmbH, Germany
exv23w1
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-1
(No. 333-160044), Form S-3 (Nos. 333-155739, 333-108989, 333-107579 and 333-170581) and Form S-8
(Nos. 333-163832, 333-140624, 333-121006, 333-115505, 333-81340, 333-51556, 333-38886, 333-140624
and 333-25021) of Aastrom Biosciences, Inc. (a development stage company) of our report dated April
14, 2011 relating to the consolidated financial statements which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
April 14, 2011
exv31w1
EXHIBIT 31.1
CERTIFICATION
I, Timothy M. Mayleben, certify that:
1. I have reviewed this Transition Report on Form 10-K of Aastrom Biosciences, Inc. for the
six month transition period ended December 31, 2010;
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.
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/s/ Timothy M. Mayleben
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Timothy M. Mayleben |
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President and Chief Executive Officer
(Principal Executive Officer) |
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Date: April 14, 2011
exv31w2
EXHIBIT 31.2
CERTIFICATION
I, Scott C. Durbin, certify that:
1. I have reviewed this Transition Report on Form 10-K of Aastrom Biosciences, Inc. for the
six month transition period ended December 31, 2010;
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.
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/s/ Scott C. Durbin
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Scott C. Durbin |
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Chief Financial Officer
(Principal Financial and Accounting Officer) |
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Date: April 14, 2011
exv32w1
EXHIBIT 32.1
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Transition Report of Aastrom Biosciences, Inc. (Company) on Form 10-K
for the year ended December 31, 2010, as filed with the Securities and Exchange Commission on the
date hereof (Report), each of the undersigned officers 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), the following:
(1) The Report fully complies with the requirements of section 13(a) and 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
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/s/ Timothy M. Mayleben
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Timothy M. Mayleben |
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President and Chief Executive Officer
(Principal Executive Officer) |
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/s/ Scott C. Durbin
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Scott C. Durbin |
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Chief Financial Officer
(Principal Financial and Accounting Officer) |
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Date: April 14, 2011
A signed original of this written statement required by Section 906 has been provided to
Aastrom Biosciences, Inc. and will be retained by Aastrom Biosciences, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.