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ASTM > SEC Filings for ASTM > Form 10-Q on 8-May-2013All Recent SEC Filings

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Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


We were incorporated in 1989 and are a biotechnology company focused on the development of innovative cell therapies to repair or regenerate damaged or diseased tissues. We are developing patient-specific, expanded multicellular therapies for use in the treatment of severe, chronic ischemic cardiovascular diseases. We believe ixmyelocel-T (the generic name for our multicellular therapy) is a disease modifying therapy with multi-functional properties including: tissue remodeling, immunomodulation and the promotion of angiogenesis. Our proprietary cell-manufacturing technology enables the manufacture of multicellular therapies, expanded from an adult patient's own bone marrow, to be delivered directly to damaged tissues. Preclinical and clinical data suggest that ixmyelocel-T may be safe and effective in treating patients with severe, chronic ischemic cardiovascular diseases such as dilated cardiomyopathy (DCM), the third leading cause of heart failure, and critical limb ischemia (CLI), the most severe form of peripheral arterial disease (PAD).
Over 400 patients have been safely treated since our inception, with over 200 of those using ixmyelocel-T. During the fourth quarter of 2012, we launched a randomized, placebo-controlled, double-blinded Phase 2b clinical trial (ixCELL-DCM) for patients with advance heart failure due to ischemic DCM. In November 2011, we released positive Phase 2b data from our RESTORE-CLI clinical trial and launched our pivotal Phase 3 REVIVE trial in CLI in February 2012.

On March 27, 2013, we announced a strategic change in our research and development programs to focus on the clinical development of ixmyelocel-T for the treatment of advanced heart failure due to ischemic DCM. We believe heart failure represents a significant unmet medical need and a growing public health problem. DCM is the third leading cause of heart failure and the leading cause of heart transplantation in the U.S. A majority of advanced heart failure patients that are refractory to medical therapy have DCM, which leads us to believe that the refractory ischemic DCM market represents a substantial market opportunity for ixmyelocel-T. The DCM program has received a U.S. Orphan Drug designation, and we believe that this orphan designation will allow us to pursue this heart failure indication with a more cost-effective path to approval for ixmyelocel-T.

As a result of the strategic change, we stopped enrollment of patients and are ending the Phase 3 REVIVE clinical trial in patients with CLI. In addition, we are executing a corporate restructuring that we expect will reduce staff and ongoing operating cash needs by approximately 50 percent. As a result, we recorded a one-time restructuring charge of approximately $400,000 in the first quarter of 2013, primarily representing cash payments for severance and other personnel-related expenses. Severance payments will be paid out during the second quarter of 2013 and will continue into the fourth quarter of 2013.

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Our Therapy

Ixmyelocel-T is a patient-specific, expanded multicellular therapy developed using our proprietary, fully-closed, automated processing system. Ixmyelocel-T is a product derived from an adult patient's own bone marrow but it is significantly enhanced compared with the original bone marrow. Our process enhances the patient's bone marrow mononuclear cells by expanding the mesenchymal stromal cells and M2-like anti-inflammatory macrophages while retaining many of the hematopoietic cells. These cell types, known to regulate the immune response, are important in the resolution of pathologic inflammation and tissue repair. The manufacture of our patient-specific, expanded multicellular therapies 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 therapy has several features that we believe are primarily responsible for success in treating adult patients with severe, chronic cardiovascular diseases:

Patient-specific (autologous) - we start with the patient's own cells, which are accepted by the patient's immune system allowing the cells to integrate into existing functional tissues. We believe that this characteristic of our therapy eliminates both the risk of rejection and of having to use immunosuppressive therapy pre- or post-therapy. Our data also suggests that ixmyelocel-T provides the potential for long-term engraftment and tissue repair.

Expanded - we begin with a small amount of bone marrow from the patient (up to 60 ml) and significantly expand the number of certain cell types, primarily CD90+ (mesenchymal stromal cells or MSCs) and CD14+autofluorescent+ (M2-like anti-inflammatory macrophages) to a substantially greater number than are present in the patient's own bone marrow (up to 200 times the number of certain cell types compared with the starting bone marrow).

Multicellular - we believe the multiple cell types in ixmyelocel-T, which are normally found in bone marrow but in smaller quantities, possess the key functions required for reducing chronic inflammation and promoting tissue repair and angiogenesis. By reducing inflammation, we believe ixmyelocel-T provides the ideal conditions to allow for the growth of new tissue and blood vessels.

Minimally invasive - our procedure for taking bone marrow (an "aspirate") can be performed in an out-patient setting and takes approximately 15 minutes. For DCM, administration of ixmyelocel-T is performed in the cardiac catheterization laboratory. A catheter, similar to those used for balloon angioplasty and stenting is inserted and 12-20 direct injections into the heart muscle are performed in a one-time procedure. For diseases such as CLI, the administration of ixmyelocel-T is performed in an out-patient setting (e.g. a physician's office) in a one-time, approximately 20 minute procedure.

Safe - bone marrow and bone marrow-derived therapies have been used safely and efficaciously in medicine for over three decades. Our product, ixmyelocel-T, a bone marrow-derived, patient-specific, expanded multicellular therapy, leverages this body of scientific study and medical experience, and appears well tolerated in over 400 patients treated to date.

Cell Composition

Ixmyelocel-T is the only multicellular product known to have expanded cell populations of both MSCs and M-2 like anti-inflammatory macrophages. We believe that our therapy is best suited for chronic, ischemic diseases with significant inflammation. Our multicellular therapy could be ideal to modulate inflammation and allow for remodeling of ischemic tissue and angiogenesis.

Manufacturing Process

Our therapy is produced at our cell manufacturing facility in the United States, located at our headquarters in Ann Arbor, Michigan.

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Clinical Development Programs

Our clinical development programs are focused on addressing areas of high unmet medical needs in severe, chronic ischemic cardiovascular diseases. We have completed our Phase 1/2 clinical trials in DCM and launched the randomized, placebo-controlled, double-blinded Phase 2b ixCELL-DCM clinical trial in the fourth quarter of 2012. Our DCM development program has received Orphan Drug 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" included in Item 3 of our Form S-1 filed with the SEC on April 29, 2013.

Dilated Cardiomyopathy


DCM is a severe, chronic cardiovascular disease that leads to weakening of the heart muscle, enlargement of the heart, and reduction of 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. DCM is now the third leading cause of heart failure and the leading cause of heart transplantation in the U.S. There are two types of DCM: ischemic and non-ischemic. Ischemic DCM, the most common form representing an estimated 60% of all DCM patients, is associated with atherosclerotic cardiovascular disease. These refractory ischemic DCM patients are currently the target patient population for our clinical development of ixmyelocel-T, with approximately 125,000 patients in the U.S. alone. Patient prognosis depends on the stage and cause of the disease but is typically characterized by a very poor quality of life and a high mortality rate.

Current treatments for refractory ischemic DCM patients are limited to heart transplantation and placement of left ventricular assist devices (LVADs). There are less than 2,500 heart transplantations in the U.S. each year. Many refractory DCM patients are not eligible for heart transplantation and transplants are extremely expensive at an estimated cost of over $1 million.
LVADs are also expensive at an estimated cost of over $175,000 and have a mortality rate of 50% at two years.

In February 2007, the FDA granted Orphan Drug designation to ixmyelocel-T for the treatment of DCM. Our DCM development program is currently in Phase 2b clinical development. We recently completed follow up on two U.S. Phase 1/2 trials investigating surgical and catheter-based delivery for our product in the treatment of DCM. The final results from these Phase 1/2 clinical trials were presented at the Society for Cardiovascular Angiography and Interventions (SCAI) meeting on May 10, 2012.

Surgical Trial Program - DCM

We completed enrollment of 40 ischemic and non-ischemic DCM 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 was to assess the safety of ixmyelocel-T in patients with DCM. Efficacy measures included cardiac dimensions and tissue mass, cardiac function (e.g., cardiac output, LVEF, cardiopulmonary exercise testing parameters), cardiac perfusion and viability, as well as other efficacy endpoints. NYHA functional class and quality of life were also assessed.
Patients were followed for 12 months after treatment with an additional two year follow-up phone call recently completed for all patients.

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Catheter Trial Program - DCM

The Catheter-DCM clinical trial was designed to explore catheter-based direct injection delivery of ixmyelocel-T to treat DCM patients. This multi-center, randomized, controlled, prospective, open-label, Phase 2 study enrolled DCM patients at clinical sites across the United States.

We reported final 12-month results from the Catheter-DCM Phase 2 trial at the SCAI 2012 Scientific Sessions on May 10, 2012. The trial included 22 ischemic DCM (IDCM) and non-ischemic DCM (NIDCM) patients with a NYHA heart failure class of III or IV, or moderate to severe heart failure, and a left ventricular ejection fraction of 30 percent or less, which is a measure of how much blood leaves the heart with each pump. Patients were randomized 2:1 to receive an injection of the treatment into their heart muscles or to a control group, and were followed at three, six and 12 months. After 12 months, no procedural complications and no difference in adverse events were reported among patients who received the treatment and the control group. IDCM patients who received ixmyelocel-T had a lower mean number of major adverse cardiac events (MACE) (0.22 compared to 1.67 in the control group). IDCM patients who received the treatment were more likely to see improvement in NYHA class, six-minute walking distance and ejection fraction, compared to those in the control group. No consistent trends were noted in NIDCM patients.

Phase 2b Clinical Program - ixCELL-DCM

In February 2013, several sites began screening patients with ischemic DCM in the ixCELL-DCM trial, which is a randomized, double-blind, placebo-controlled clinical trial. The first patient was randomized in April 2013. The Phase 2b ixCELL-DCM trial will enroll 108 ischemic DCM patients. To be eligible, patients must be between the ages of 30 and 85, not be a candidate for reasonable revascularization procedures, have a LVEF less than or equal to 30%, and have NYHA class III or IV heart failure. Patients will be randomized 1:1 and followed for 12 months for the primary efficacy endpoint of major adverse cardiac events (MACE), defined as all-cause deaths, all-cause hospitalizations, and unplanned outpatient or emergency department visits for IV treatment of acute worsening heart failure. Secondary endpoints include clinical, functional, structural, symptomatic, quality of life, and biomarker measures at 3, 6 and 9 months. Patients will be followed for an additional 12 months for safety. We anticipate that enrollment will occur at approximately 30 sites across the U.S. and Canada and be completed by the end of the first quarter of 2014, with top-line data in the second quarter of 2015.

Critical Limb Ischemia


CLI is the most serious and advanced stage of peripheral arterial disease (PAD) resulting from chronic inflammation and lipid accumulation. 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 serious clinical conditions including hypertension, cardiovascular disease, dyslipidemia, diabetes, obesity and stroke. CLI is used to describe patients with chronic ischemia-induced pain (even at rest) or tissue loss (ulcers or gangrene) in the limbs, often leading to amputation and death. Many CLI patients are considered "unsuitable for revascularization" patients as they have exhausted all other reasonable treatment options and will likely require amputation. The one-year and four-year mortality rates for CLI patients that are unsuitable for revascularization that progress to amputation are approximately 25% and 70%, respectively. Ixmyelocel-T, our disease modifying therapy with multiple functions, has shown significant promise in the treatment of CLI patients with existing tissue loss that are unsuitable for revascularization. Currently, there are an estimated 250,000 CLI patients that are unsuitable for revascularization in the U.S.

Phase 2b Clinical Program - RESTORE CLI

Our U.S. Phase 2b RESTORE-CLI program was a multi-center, randomized, double-blind, placebo-controlled clinical trial. This clinical trial was designed to evaluate the safety and efficacy of ixmyelocel-T in the treatment of patients with CLI that are unsuitable for revascularization. It was 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 treated in

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March 2010. These patients were followed for a period of 12 months after treatment. In addition to assessing the safety of our product, efficacy endpoints included time to first occurrence of treatment failure - the trial's primary efficacy endpoint - (defined as major amputation, all-cause mortality, doubling in wound surface area and de novo gangrene), amputation-free survival (defined as major amputation and all-cause mortality), major amputation rates, level of amputation, wound healing, patient quality of life and pain scores.
The primary purpose of the trial was to assess performance of our therapy and, if positive, prepare for a Phase 3 program.

Final results of the Phase 2b RESTORE-CLI clinical trial were presented at the American Heart Association Scientific Sessions in November 2011 and published in the peer-reviewed journal Molecular Therapy in April 2012. Patients in the treatment arm showed a 62% reduction in risk relative to placebo in the primary efficacy endpoint of time to first occurrence of treatment failure (p=0.0032).
While the study was not powered to show statistical significance in the secondary endpoint of amputation free survival, results from a subgroup of 45 patients with wounds at baseline (the approximate profile of the Phase 3 patient population) showed a 61% reduction in risk (21% ixmyelocel-T treated versus 44% control event rate; p=0.0802). The study also met the primary safety endpoint with no meaningful differences between the treated and control groups.

Phase 3 Clinical Program - REVIVE

In February 2012, several principal investigators participating in the pivotal Phase 3 REVIVE clinical trial for patients with CLI that are unsuitable for revascularization began screening patients. The first patient was randomized and aspirated in May 2012. We had previously received Fast Track Designation from the FDA for use of ixmyelocel-T for CLI in October 2010 and reached agreement with the FDA on a Special Protocol Assessment (SPA) in July 2011.
Patients were randomized 1:1 and were to be followed for 12 months for the primary efficacy endpoint of amputation-free survival. On March 27, 2013 we announced that we were stopping enrollment and ending the Phase 3 REVIVE clinical trial. We had enrolled approximately 40 patients through that date and plan to continue following the patients for 12 months for safety and certain efficacy measures.

Results of Operations

Research and development expenses decreased to $5,538,000 for the quarter ended March 31, 2013 from $6,796,000 for the quarter ended March 31, 2012. The decrease is due to the reversal of non-cash stock compensation expense due to the restructuring that we announced on March 27, 2013 and lower purchasing of manufacturing supplies to align inventory levels with previously expected clinical production volume.

Our major ongoing research and development programs are focused on the clinical development of ixmyelocel-T for treatment of severe, chronic cardiovascular diseases. The following table summarizes the approximate allocation of cost for our research and development projects (in thousands):

                                            Quarter Ended March 31,
                                              2012            2013
Critical Limb Ischemia                    $      6,109    $      4,471
Dilated Cardiomyopathy                             687           1,059
Other                                                -               8
Total research and development expenses   $      6,796    $      5,538

Selling, general and administrative expenses decreased to $1,633,000 for the quarter ended March 31, 2013 compared to $1,762,000 for the quarter ended March 31, 2012. The decrease is primarily due to a reduction of non-cash stock-based compensation due to the restructuring that was announced on March 27, 2013.

The income (expense) related to the non-cash change in fair value of warrants was $1,619,000 for the quarter ended March 31, 2013 compared to ($900,000) for the quarter ended March 31, 2012. The decrease in value was primarily due to the decline in our stock price, the reduction in the time to maturity and the reduction in the number of warrants outstanding. Fluctuations in the fair value of warrants in future periods could result in significant non-cash adjustments to the condensed consolidated financial statements, however any income or expense recorded will not impact our cash and cash equivalents, operating expenses or cash flows.

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The non-cash accretion of convertible preferred stock for the quarter ended March 31, 2013, was $1,263,000, compared to $289,000 for the quarter ended March 31, 2012. The increase in non-cash accretion is primarily due to the preferred stock having been outstanding for less than one month in the quarter ended March 31, 2012 compared to a full quarter in 2013. The Series B-1 Preferred Stock was issued in March 2012 and is accreted to its redemption value through charges to shareholders' deficit using the effective interest method.

Our net loss attributable to common shareholders was $6,807,000, or $0.15 per share, for the quarter ended March 31, 2013 compared to $9,744,000, or $0.25 per share, for the quarter ended March 31, 2012. The changes in net loss attributable to common shareholders are primarily due to the non-cash change in the fair value of warrants, non-cash accretion of convertible preferred stock and decreases in research and development expenses.

Non-cash stock-based compensation expense included in research and development expenses and general, selling and administrative expenses is summarized in the following table (in thousands):

                                                          Quarter Ended March 31,
                                                         2012                 2013
Research and development                           $            444     $           (341 )
General, selling and administrative                             371                  298
Total non-cash stock-based compensation expense
(income)                                           $            815     $            (43 )

The decrease in stock-based compensation expense is due primarily to the restructuring that was announced on March 27, 2013, and the forfeiture adjustment that resulted from the related reduction in workforce. The forfeiture adjustments for research and development and general, selling and administrative were $866,000 and $72,000, respectively.

Liquidity and Capital Resources

We are currently focused on utilizing our technology to produce patient specific cell-based therapies for use in severe chronic ischemic cardiovascular diseases. At such time as we satisfy, if at all, applicable regulatory approval requirements, we expect the sales of our cell-based therapies 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 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. During the quarter ended March 31, 2013, we raised gross proceeds of $2,451,000 utilizing our ATM. As a development stage company, we have never been profitable and do not anticipate having net income unless significant product sales commence. With respect to our current activities, such sales are not likely to occur until we obtain additional funding, complete the required clinical trials for regulatory approvals, and receive the necessary approvals to market our products. Through March 31, 2013, we had accumulated a net loss attributable to common shareholders of approximately $282,122,000. 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, commence product sales or complete additional corporate partnering or acquisition transactions.

We have also, but to a lesser degree, financed our operations through grant funding, payments received under research agreements and collaborations, interest earned on cash, cash equivalents, and short-term investments, stock option and warrant exercises and funding under equipment leasing agreements. These financing sources, in addition to our public and private sales of our equity securities, have generally allowed us to maintain adequate levels of cash and other liquid investments.

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Our cash and cash equivalents totaled $9,226,000 at March 31, 2013, a decrease of $4,412,000 from December 31, 2012. During the three months ended March 31, 2013, the primary uses of cash and cash equivalents included $6,761,000 for our operations and working capital requirements for the Phase 3 clinical program for ixmyelocel-T. As of March 31, 2013 we had $9,054,000 of cash deposited into an Insured Cash Sweep (ICS) program which is administered by Bank of New York Mellon. This program maximizes our Federal Deposit Insurance Company (FDIC) coverage by dividing our ICS funds into amounts under the standard FDIC maximum and places these amounts with other ICS Network member banks (each an FDIC-insured institute). These funds are placed in savings accounts at the member banks earning interest while still maintaining insurance coverage.

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 required regulatory approvals and market acceptance for our products.

As of March 31, 2013, we have $9,226,000 of cash and cash equivalents. This is not sufficient to sustain our operations for one year. In light of our financial position, we are evaluating strategic and financial opportunities in the short-term in order to maintain adequate liquidity through December 31, 2013 . . .

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