##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to  .
 Commission File Number 0-51110
 VIACELL, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    04-3244816(State or Other Jurisdiction of Incorporation or
Organization)
    
    (I.R.S. Employer Identification No.)245 First Street, Cambridge, MA
    
    02142(Address of Principal Executive Offices)
    
    (Zip Code)
 (617) 914-3400  (Registrants telephone number, including area code)
 
 þ o
 o þ
 o þ




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TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited)Condensed
Consolidated Balance Sheets  September 30, 2005 and December 31, 2004
    
    
    3Condensed
Consolidated Statements of Operations  Three and Nine months ended September 30, 2005 and September 30, 2004
    
    
    4Condensed
Consolidated Statements of Comprehensive Loss  Three and Nine months ended September 30, 2005 and September 30, 2004
    
    
    5Condensed
Consolidated Statements of Cash Flows  Nine months ended September 30, 2005 and September 30, 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    51Item 4.
    
    Controls and Procedures
    
    
    52PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    52Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    52Item 3.
    
    Defaults upon Senior Securities
    
    
    53Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    53Item 5.
    
    Other Information
    
    
    53Item 6.
    
    Exhibits
    
    
    53Signatures
    
    
    54EXHIBITSIndex to Exhibits
    
    
    55Ex-10.1 Amendment No. 1 to Collaboration Agreement, dated August 29, 2005Ex-10.2 Warrant Purchase Agreement, dated August 29, 2005Ex-10.3 Purchase Warrant, dated August 29, 2005Ex-10.4 Exclusive License Agreement, dated August 29, 2005Ex-10.5 Letter Agreement dated August 1, 2005Ex-31.1 Section 302 Certification of CEOEx-31.2 Section 302 Certification of CFOEx-32.1 Section 906 Certification of CEOEx-32.2 Section 906 Certification of CFO
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##### Table of Contents



Part I  Financial Information
 
 Item 1  Financial Statements
 ViaCell, Inc.
 
 Condensed Consolidated Balance Sheets
 (unaudited, amounts in thousands, except per share data)
 September 30, 2005
    
    
    December 31, 2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,523
    
    
    $
    6,746Short-term investments
    
    
    21,965
    
    
    
    21,339Accounts receivable, net
    
    
    15,132
    
    
    
    10,808Prepaid expenses and other current assets
    
    
    2,680
    
    
    
    4,928Total current assets
    
    
    79,300
    
    
    
    43,821Property and equipment, net
    
    
    8,958
    
    
    
    6,738Goodwill
    
    
    3,621
    
    
    
    3,621Intangible assets, net
    
    
    2,874
    
    
    
    3,025Long-term investments
    
    
    
    
    
    
    500Restricted cash
    
    
    1,934
    
    
    
    1,953Other assets
    
    
    762
    
    
    
    1,433Total assets
    
    $
    97,449
    
    
    $
    61,091LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Current portion of long-term debt obligations
    
    $
    1,834
    
    
    $
    1,743Accounts payable
    
    
    616
    
    
    
    1,271Accrued expenses
    
    
    8,244
    
    
    
    7,490Notes payable to related party
    
    
    
    
    
    
    15,422Deferred revenue
    
    
    5,577
    
    
    
    3,458Total current liabilities
    
    
    16,271
    
    
    
    29,384Deferred revenue
    
    
    9,423
    
    
    
    6,728Deferred rent
    
    
    3,767
    
    
    
    1,036Contingent purchase price
    
    
    8,155
    
    
    
    8,155Long-term debt obligations, net of current portion
    
    
    245
    
    
    
    1,572Total liabilities
    
    
    37,861
    
    
    
    46,875Redeemable convertible preferred stock, authorized 30,396,809 shares at
December 31, 2004, issued and outstanding 25,628,075 at December 31, 2004
    
    
    
    
    
    
    175,173Commitments and contingencies (Note 7)Stockholders equity (deficit):Preferred stock, $0.01 par value; authorized 5,000,000 shares,
0 issued and outstanding at September 30, 2005 and
December 31, 2004
    
    
    
    
    
    
    Convertible preferred stock, $0.01 par value; authorized 428,191 shares at
December 31, 2004, issued and outstanding
182,857 convertible preferred shares at December 31, 2004
    
    
    
    
    
    
    2Common stock, $0.01 par value; authorized 100,000,000 and
80,000,000 shares at September 30, 2005 and December 31, 2004,
respectively; issued and outstanding 37,996,100 and 2,763,961
shares at September 30, 2005 and December 31, 2004, respectively
    
    
    380
    
    
    
    28Additional paid-in capital
    
    
    229,885
    
    
    
    Deferred compensation
    
    
    (1,431
    )
    
    
    (2,530
    )Accumulated other comprehensive income
    
    
    208
    
    
    
    309Accumulated deficit
    
    
    (169,454
    )
    
    
    (158,766
    )Total stockholders equity (deficit)
    
    
    59,588
    
    
    
    (160,957
    )Total liabilities, redeemable convertible preferred stock and
stockholders equity (deficit)
    
    $
    97,449
    
    
    $
    61,091
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##### Table of Contents



ViaCell, Inc.
 
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Processing and storage revenues
    
    $
    11,555
    
    
    $
    9,552
    
    
    $
    32,718
    
    
    $
    27,397Grant and contract revenues
    
    
    135
    
    
    
    386
    
    
    
    495
    
    
    
    1,236Total revenues
    
    
    11,690
    
    
    
    9,938
    
    
    
    33,213
    
    
    
    28,633Operating expenses:Cost of processing and storage revenues:Direct costs
    
    
    2,164
    
    
    
    1,839
    
    
    
    6,136
    
    
    
    5,514Royalty expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,258
    )Total cost of processing and storage revenues
    
    
    2,164
    
    
    
    1,839
    
    
    
    6,136
    
    
    
    2,256Research and development
    
    
    3,278
    
    
    
    3,824
    
    
    
    9,879
    
    
    
    11,698Sales and marketing
    
    
    6,259
    
    
    
    4,651
    
    
    
    17,784
    
    
    
    15,081General and administrative
    
    
    2,847
    
    
    
    3,010
    
    
    
    8,978
    
    
    
    10,401Stock-based compensation(1)
    
    
    1,024
    
    
    
    793
    
    
    
    1,818
    
    
    
    2,662Restructuring
    
    
    94
    
    
    
    1,740
    
    
    
    305
    
    
    
    1,740Total operating expenses
    
    
    15,666
    
    
    
    15,857
    
    
    
    44,900
    
    
    
    43,838Loss from operations
    
    
    (3,976
    )
    
    
    (5,919
    )
    
    
    (11,687
    )
    
    
    (15,205
    )Interest income (expense):Interest income
    
    
    531
    
    
    
    139
    
    
    
    1,305
    
    
    
    402Interest expense
    
    
    (113
    )
    
    
    (360
    )
    
    
    (306
    )
    
    
    (1,118
    )Total interest income (expense), net
    
    
    418
    
    
    
    (221
    )
    
    
    999
    
    
    
    (716
    )Net loss
    
    
    (3,558
    )
    
    
    (6,140
    )
    
    
    (10,688
    )
    
    
    (15,921
    )Accretion on redeemable convertible preferred stock
    
    
    
    
    
    
    (3,314
    )
    
    
    (987
    )
    
    
    (9,944
    )Net loss attributable to common stockholders
    
    $
    (3,558
    )
    
    $
    (9,454
    )
    
    $
    (11,675
    )
    
    $
    (25,865
    )Net loss attributable to common stockholders per share:Net loss per common share, basic and diluted
    
    $
    (0.09
    )
    
    $
    (3.49
    )
    
    $
    (0.33
    )
    
    $
    (9.62
    )Weighted average shares used in basic and diluted
net loss per share computation
    
    
    37,771,959
    
    
    
    2,707,538
    
    
    
    34,877,333
    
    
    
    2,689,866
 
 (1)
    
    Allocation of stock-based compensation expense
is as follows: Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Cost of processing and storage revenues
    
    $
    5
    
    
    $
    8
    
    
    $
    15
    
    
    $
    25Research and development
    
    
    34
    
    
    
    37
    
    
    
    194
    
    
    
    532Sales and marketing
    
    
    45
    
    
    
    34
    
    
    
    165
    
    
    
    184General and administrative
    
    
    940
    
    
    
    714
    
    
    
    1,444
    
    
    
    1,921Total stock-based compensation expense
    
    $
    1,024
    
    
    $
    793
    
    
    $
    1,818
    
    
    $
    2,662
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ViaCell, Inc.
 
 Condensed Consolidated Statements of Comprehensive Loss
 (in thousands)
 (unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (3,558
    )
    
    $
    (6,140
    )
    
    $
    (10,688
    )
    
    $
    (15,921
    )Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    (46
    )
    
    
    74
    
    
    
    (101
    )
    
    
    (122
    )Comprehensive loss
    
    $
    (3,604
    )
    
    $
    (6,066
    )
    
    $
    (10,789
    )
    
    $
    (16,043
    )
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ViaCell, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 (in thousands)
 (unaudited)
 Nine Months Ended September 30,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (10,688
    )
    
    $
    (15,921
    )Adjustments for non-cash expenses to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    1,493
    
    
    
    1,980Stock-based compensation
    
    
    1,818
    
    
    
    2,662Reserve for bad debt
    
    
    372
    
    
    
    Non-cash interest expense on related party note payable
    
    
    87
    
    
    
    840Loss on disposal of property and equipment
    
    
    17
    
    
    
    269Other
    
    
    15
    
    
    
    23Changes in assets and liabilities:Accounts receivable
    
    
    (4,525
    )
    
    
    (2,227
    )Prepaid expenses and other current assets
    
    
    2,504
    
    
    
    1,948Accounts payable
    
    
    (642
    )
    
    
    (1,792
    )Accrued expenses
    
    
    352
    
    
    
    (3,029
    )Deferred revenue
    
    
    4,812
    
    
    
    3,960Deferred rent
    
    
    3,394
    
    
    
    84Net cash used in operating activities
    
    
    (991
    )
    
    
    (11,203
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,608
    )
    
    
    (1,184
    )Proceeds from maturities of investments
    
    
    29,036
    
    
    
    15,079Purchase of investments
    
    
    (29,162
    )
    
    
    (29,290
    )Changes in other assets
    
    
    2
    
    
    
    Net cash used in investing activities
    
    
    (3,732
    )
    
    
    (15,395
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    1,093
    
    
    
    71Proceeds from issuance of common stock, net
    
    
    53,249
    
    
    
    Decrease in restricted cash
    
    
    
    
    
    
    722Repayments on long-term debt obligations
    
    
    (1,244
    )
    
    
    (1,162
    )Repayment of notes payable to related party
    
    
    (15,510
    )
    
    
    Proceeds from return of security deposit on debt obligations
    
    
    203
    
    
    
    197Payments of capital lease obligations
    
    
    (64
    )
    
    
    (60
    )Net cash provided by (used in) financing activities
    
    
    37,727
    
    
    
    (232
    )Effect of change in exchange rates on cash
    
    
    (227
    )
    
    
    (98
    )Net increase (decrease) in cash and cash equivalents
    
    
    32,777
    
    
    
    (26,928
    )Cash and cash equivalents, beginning of period
    
    
    6,746
    
    
    
    39,008Cash and cash equivalents, end of period
    
    $
    39,523
    
    
    $
    12,080Supplemental disclosures of cash flow information and
non cash transactionsInterest paid
    
    $
    243
    
    
    $
    255
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ViaCell, Inc.
 
 Notes to Condensed Consolidated Financial Statements
(unaudited)
 1. Organization and Nature of Business
  ® 
   2. Summary of Significant Accounting Policies
 Basis of Presentation
  -7-




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Use of Estimates
  Redeemable Convertible Preferred Stock
  Stock-Based Compensation
 Accounting for Stock Issued to Employees, , Accounting for Stock-Based
Compensation Accounting for Stock-Based CompensationTransition and Disclosurean
amendment of FASB Statement No. 123.
 Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services,
   -8-




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss attributable to common stockholders
as reported
    
    $
    (3,558
    )
    
    $
    (9,454
    )
    
    $
    (11,675
    )
    
    $
    (25,865
    )Add: employee stock-based compensation
expense included in reported net loss
    
    
    1,024
    
    
    
    793
    
    
    
    1,818
    
    
    
    2,397Deduct: total employee stock-based
compensation expense determined under
fair value based method for all awards
    
    
    (1,298
    )
    
    
    (1,130
    )
    
    
    (3,520
    )
    
    
    (3,827
    )Pro forma net loss attributable to
common stockholders
    
    $
    (3,832
    )
    
    $
    (9,791
    )
    
    $
    (13,377
    )
    
    $
    (27,295
    )Basic and diluted net loss per shareAs reported
    
    $
    (0.09
    )
    
    $
    (3.49
    )
    
    $
    (0.33
    )
    
    $
    (9.62
    )Pro forma
    
    $
    (0.10
    )
    
    $
    (3.62
    )
    
    $
    (0.38
    )
    
    $
    (10.15
    )
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Risk-free interest rate
    
    
    4.18
    %
    
    
    2.86
    %
    
    
    3.90
    %
    
    
    2.86
    %Expected life
    
    
    5 years
    
    
    
    5 years
    
    
    
    5 years
    
    
    
    5 yearsExpected volatility
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 -9-




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Segment Information
   September 30,
    
    
    December 31,2005
    
    
    2004Long-lived tangible assetsUnited States
    
    $
    8,669
    
    
    $
    6,310Germany
    
    
    
    
    
    
    88Singapore
    
    
    289
    
    
    
    340Total long-lived tangible assets
    
    $
    8,958
    
    
    $
    6,738
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Revenues
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004United States
    
    $
    11,555
    
    
    $
    9,566
    
    
    $
    32,755
    
    
    $
    27,590Germany
    
    
    (61
    )
    
    
    291
    
    
    
    (101
    )
    
    
    834Singapore
    
    
    196
    
    
    
    81
    
    
    
    559
    
    
    
    209Total revenues
    
    $
    11,690
    
    
    $
    9,938
    
    
    $
    33,213
    
    
    $
    28,633
 Net Loss Per Common Share
  -10-




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic and diluted net loss per share:Net loss attributable to common stockholders
    
    $
    (3,558
    )
    
    $
    (9,454
    )
    
    $
    (11,675
    )
    
    $
    (25,865
    )Weighted average number of common
shares outstanding
    
    
    37,772
    
    
    
    2,708
    
    
    
    34,877
    
    
    
    2,690Basic and diluted net loss per share
    
    $
    (0.09
    )
    
    $
    (3.49
    )
    
    $
    (0.33
    )
    
    $
    (9.62
    )
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Options
    
    
    3,895
    
    
    
    4,326
    
    
    
    3,778
    
    
    
    4,241Warrants
    
    
    3,409
    
    
    
    1,429
    
    
    
    3,549
    
    
    
    1,429Convertible preferred stock
    
    
    
    
    
    
    25,811
    
    
    
    
    
    
    
    25,811
 Recent Accounting Pronouncements
 -
Share-Based Payment
 conditional asset retirement obligation Accounting for Asset
Retirement Obligations,
 -11-




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3. Property and Equipment
  September 30,
    
    
    December 31,2005
    
    
    2004Software
    
    $
    3,098
    
    
    $
    2,700Laboratory equipment
    
    
    5,072
    
    
    
    4,675Office and computer equipment
    
    
    2,509
    
    
    
    1,867Leasehold improvements
    
    
    5,562
    
    
    
    3,129Furniture and fixtures
    
    
    752
    
    
    
    717Construction in progress
    
    
    14
    
    
    
    380Property and equipment, gross
    
    
    17,007
    
    
    
    13,468Less: accumulated depreciation
    
    
    (8,049
    )
    
    
    (6,730
    )Property and equipment, net
    
    $
    8,958
    
    
    $
    6,738
   4. Intangible Assets
   September 30,
    
    
    December 31,2005
    
    
    2004Intangible assets:Trademark
    
    $
    4,400
    
    
    $
    4,400Less: accumulated amortization
    
    
    (1,526
    )
    
    
    (1,375
    )Intangible assets, net
    
    $
    2,874
    
    
    $
    3,025
 -12-




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5. Accrued Expenses
  September 30,
    
    
    December 31,2005
    
    
    2004Payroll and payroll related
    
    $
    1,028
    
    
    $
    1,016Management incentive
    
    
    634
    
    
    
    723Professional fees
    
    
    1,704
    
    
    
    2,027Accrued marketing
    
    
    1,192
    
    
    
    912Accrued restructuring
    
    
    689
    
    
    
    907Deferred rent, current
    
    
    826
    
    
    
    238Accrued taxes
    
    
    858
    
    
    
    648Other
    
    
    1,313
    
    
    
    1,019$
    8,244
    
    
    $
    7,490
 6. Long-Term Debt Obligations
  September 30,
    
    
    December 31,2005
    
    
    2004Debt facility loans
    
    $
    1,905
    
    
    $
    3,136Related party note payable
    
    
    
    
    
    
    15,422Capital lease obligations
    
    
    174
    
    
    
    179Total long-term debt obligations
    
    
    2,079
    
    
    
    18,737Less: current portion
    
    
    (1,834
    )
    
    
    (17,165
    )Total long-term debt obligations, net of current portion
    
    $
    245
    
    
    $
    1,572
 Notes Payable to Related Party
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7. Commitments and Contingencies
 Agreements
     -14-




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Litigation
  .
    - 15 -




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8. Redeemable Convertible Preferred Stock, Convertible Preferred
Stock, and Stockholders Deficit
   Balance December 31, 2004
    
    $
    175,173Issuance of Shares
    
    
    Accretion to Redemption Value
    
    
    987Conversion to Common Stock
    
    
    (176,160
    )Balance September 30, 2005
    
    $
    
   - 17 -




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Preferred Stock
  9. Warrants
     - 18 -




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##### Table of Contents



10. Restructuring
     December 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 30,(In Thousands)
    
    2004
    
    
    Additions
    
    
    Writedowns
    
    
    Adjustments
    
    
    Payments
    
    
    2005Severance related
    
    $
    421
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (421
    )
    
    $
    Contractual terminations
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    Facility related
    
    
    481
    
    
    
    
    
    
    
    
    
    
    
    275
    
    
    
    (67
    )
    
    
    689$
    907
    
    
    $
    
    
    
    $
    
    
    
    $
    275
    
    
    $
    (493
    )
    
    $
    689
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Forward-Looking Statements
  Overview
 ® 
  
    
    developing our Selective Amplification and other stem cell therapy technologies;
    
    expanding our ViaCell Reproductive Health business in the United States;
    
    expanding our
pipeline of novel stem cell and other product candidates through internal
development, and the acquisition or licensing of third party technologies;
    
    expanding
and strengthening our intellectual property position through internal
programs, third party licenses, and acquisitions;
    
    recruiting management, research,
clinical, and sales and marketing personnel; and
    
    forming alliances with larger, more
experienced biotechnology and pharmaceutical
companies, including Amgen.
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
    
    the
increasing costs of conducting clinical trials for our lead hematopoietic stem cell product
candidate, CB001;
    
    the increasing costs associated with preclinical and clinical studies for our
other stem cell therapy product candidates;
    
    the increasing costs associated with the development of ViaCyte, our oocyte cryopreservation
product candidate; and
    
    the working capital costs associated with anticipated growth of our ViaCell Reproductive Health
business within the United States;
   Revenues
    - 21 -




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Operating Expenses
    - 22 -




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- 23 -




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Results of Operations
 Three and Nine Months Ended September 30, 2005 and 2004 (table amounts in
thousands)
 Revenues:
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    
    September 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeRevenuesProcessing and storage revenues
    
    $
    11,555
    
    
    $
    9,552
    
    
    
    21
    %
    
    $
    32,718
    
    
    $
    27,397
    
    
    
    19
    %Grant and contract revenues
    
    
    135
    
    
    
    386
    
    
    
    (65
    %)
    
    
    495
    
    
    
    1,236
    
    
    
    (60
    %)Total revenues
    
    $
    11,690
    
    
    $
    9,938
    
    
    
    18
    %
    
    $
    33,213
    
    
    $
    28,633
    
    
    
    16
    %
   - 24 -




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Cost of Revenues:
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    
    September 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeCost of processing and storage revenuesDirect costs
    
    $
    2,164
    
    
    $
    1,839
    
    
    
    18
    %
    
    $
    6,136
    
    
    $
    5,514
    
    
    
    11
    %Royalty expense
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    (3,258
    )
    
    
    (100
    %)Total cost
of processing and storage revenues
    
    $
    2,164
    
    
    $
    1,839
    
    
    
    18
    %
    
    $
    6,136
    
    
    $
    2,256
    
    
    
    172
    %
    Research and Development:
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    
    September 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeResearch and developmentClinical development
    
    $
    2,377
    
    
    $
    2,075
    
    
    
    15
    %
    
    $
    7,140
    
    
    $
    6,121
    
    
    
    17
    %Pre-clinical programs
    
    
    145
    
    
    
    896
    
    
    
    (84
    %)
    
    
    546
    
    
    
    2,895
    
    
    
    (81
    %)Basic research
    
    
    595
    
    
    
    715
    
    
    
    (17
    %)
    
    
    1,793
    
    
    
    2,152
    
    
    
    (17
    %)Other research and development
    
    
    161
    
    
    
    138
    
    
    
    17
    %
    
    
    400
    
    
    
    530
    
    
    
    (25
    %)Total research and development
    
    $
    3,278
    
    
    $
    3,824
    
    
    
    (14
    %)
    
    $
    9,879
    
    
    $
    11,698
    
    
    
    (16
    %)
  - 25 -




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Sales and Marketing:
 Three Months Ended
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    September 30,2005
    
    2004
    
    Change
    
    2005
    
    2004
    
    ChangeSales & marketing
    
    $
    6,259
    
    
    $
    4,651
    
    
    
    35
    %
    
    $
    17,784
    
    
    $
    15,081
    
    
    
    18
    %
  General and Administrative:
 Three Months Ended
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    September 30,2005
    
    2004
    
    Change
    
    2005
    
    2004
    
    ChangeGeneral and administrative
    
    $
    2,847
    
    
    $
    3,010
    
    
    
    (5
    %)
    
    $
    8,978
    
    
    $
    10,401
    
    
    
    (14
    %)
  -26-




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Stock-Based Compensation:
 Three Months Ended
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    September 30,2005
    
    2004
    
    Change
    
    2005
    
    2004
    
    ChangeStock-based compensation
    
    $
    1,024
    
    
    $
    793
    
    
    
    29
    %
    
    $
    1,818
    
    
    $
    2,662
    
    
    
    (32
    %)
     Restructuring:
 Three Months Ended
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    September 30,2005
    
    2004
    
    Change
    
    2005
    
    2004
    
    ChangeRestructuring
    
    $
    94
    
    
    $
    1,740
    
    
    
    (95
    %)
    
    $
    305
    
    
    $
    1,740
    
    
    
    (82
    %)
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Interest Income (Expense):
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    
    September 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeInterest income (expense)Interest income
    
    $
    531
    
    
    $
    139
    
    
    
    282
    %
    
    $
    1,305
    
    
    $
    402
    
    
    
    225
    %Interest expense
    
    
    (113
    )
    
    
    (360
    )
    
    
    (69
    %)
    
    
    (306
    )
    
    
    (1,118
    )
    
    
    (73
    %)Total
interest income (expense), net
    
    $
    418
    
    
    $
    (221
    )
    
    
    
    
    
    $
    999
    
    
    $
    (716
    )
  Liquidity and Capital Resources
   Nine Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    Change(In thousands)
    
    2005
    
    2004
    
    2004 to 2005Net cash used in operating activities
    
    $
    (991
    )
    
    $
    (11,203
    )
    
    $
    10,212Net cash used in investing activities
    
    
    (3,732
    )
    
    
    (15,395
    )
    
    
    11,663Net cash provided by (used in) financing activities
    
    
    37,727
    
    
    
    (232
    )
    
    
    37,959Cash & cash equivalents, end of period
    
    
    39,523
    
    
    
    12,080
    
    
    
    27,443
  -28-




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.
    Off-Balance Sheet Transactions
  Other Arrangements
  -29-




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Legal Proceedings
    -30-




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-31-




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Critical Accounting Policies and Estimates
  Risk Factors that May Affect Results
 We expect to continue to incur operating losses and may never become profitable.
  -32-




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-33-




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-34-




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Our cellular therapy product candidates are at an early stage of development, and if we are not
able to successfully develop and commercialize them, we may not generate sufficient revenues to
continue our business operations.
    
    
    properly engraft into the recipients body in the desired manner;
    
    provide the intended
therapeutic benefits; or
    
    achieve benefits or a safety profile that is better or equal to existing
therapies.
    -35-




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We may not be able to sustain our current level of revenues or our recent growth rates.
 
 We may not be able to raise additional funds necessary to fund our operations.
   
 
 
 
 
 
 -36-




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
 
 
 
  If the potential of stem cell therapy to treat serious diseases is not realized, the
value of our Selective Amplification technology and our development programs could be significantly
reduced.
  We cannot market and sell CB001 or our other product candidates in the United States or in other
countries if we fail to obtain the necessary regulatory approvals or licensure.
   -37-




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-38-




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Our cell preservation activities are subject to regulations that may impose significant costs and restrictions on us.
 Cord blood preservation
   Oocyte cryopreservation.
  -39-




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We
depend on patents and other proprietary rights that may fail to protect our business.
    -40-




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CB001 and our other cellular product candidates and our ViaCyte product candidate represent new
forms of therapy or products that the marketplace may not accept.
  
 
 
 
 
 Our success will depend in part on establishing
and maintaining effective strategic partnerships and collaborations.
  Third parties may own or control patents or patent applications that are
infringed by our technologies or product candidates.
  -41-




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-42-




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We may be involved in lawsuits or other proceedings to protect or enforce our patents or the
patents of our collaborators or licensors, which could be expensive and time consuming.
    In order to commercialize CB001 or other product candidates using our Selective Amplification
technology, we may need to obtain additional license rights to third party patents, which may not
be available to us on reasonable terms, if at all.
  The successful commercialization of CB001, or any of our other potential cell therapy products,
will depend on obtaining reimbursement for use of this product candidate from third party payers.
  -43-




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We have only limited experience manufacturing cell therapy product candidates in connection with our
preclinical and clinical work to date, and we may not be able to manufacture our product candidates
in quantities sufficient for later stage clinical studies or for commercial scale.
  We are dependent on our existing suppliers and establishing relationships with certain other suppliers for certain
components of our product candidates. The loss of such suppliers or our inability to establish such
relationships may delay development or limit our ability to manufacture our stem cell therapy
products.
  -44-




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Material for clinical
studies and future cellular products must be manufactured using components made to a certain
standard, and we may have difficulty finding sources of these components made to this standard.
  If our cord blood processing and storage facility or our clinical manufacturing facilities are damaged or destroyed,
our business and prospects would be negatively affected.
   -45-




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If we are not able to recruit and retain qualified management and scientific personnel, we may fail in developing our technologies and product
candidates.
   We may face difficulties in managing and maintaining the growth of our business.
   -46-




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If we acquire other businesses or technologies and are unable to integrate them successfully
with our business, our financial performance could suffer.
  We
may be liable for reimbursement of funds received from the German grant authorities.
  Our competitors may have greater resources or capabilities or better technologies than we have, or
may succeed in developing better products or develop products more quickly than we do, and we may
not be successful in competing with them.
  -47-




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.
  in vitro )
  -48-




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Due to the nature of our cell preservation activities, harm to our reputation could have a significant
negative impact on our financial condition, and damage to or loss of our customers property held
in our custody could potentially result in significant legal liability.
   The manufacture and sale of stem cell products may expose us to product liability claims for which
we could have substantial liability.
  -49-




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We face potential liability related to the privacy of health information we obtain from
research collaborators or from providers who enroll patients and collect cord blood or human
oocytes.
   Ethical and other concerns surrounding the use of stem cell therapy may negatively affect
regulatory approval or public perception of our products and product candidates, thereby reducing
demand for our products and product candidates.
  Our business involves the use of hazardous materials that could expose us to environmental and other
liability.
  -50-




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Volatility of Our Stock Price
  -
    
    material public announcements-
    
    the data, positive or negative, generated from the development of our product candidates-
    
    setbacks or delays in any of our development programs-
    
    the outcome of material litigation-
    
    the financial results achieved by our cord blood preservation business-
    
    the impact of competition-
    
    unusual or unexpectedly high expenses-
    
    developments related to patents and other proprietary rights-
    
    market trends affecting stock prices in our industry-
    
    economic or other external factors
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Investment Risk
  Foreign Exchange Risk
  Interest Rate Risk
  -51-




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ITEM 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Changes in Securities
  Use of Proceeds from Registered Securities
  -52-




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
    
    approximately $15,510,000 to pay off all outstanding principal and
interest on promissory notes held by funds affiliated with MPM Asset Management LLC, the manager of
which served on the Companys board of directors until June 9, 2005;
    
    approximately $12,805,000 toward working capital and property and equipment, including our clinical trials for CB001 and
preclinical research and development activities relating to our product candidates; and
    
    approximately $24,985,000 in temporary investments.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS
  
 ITEM
5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  -53-




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SIGNATURES
  VIACELL, INC.November 14, 2005
    /s/ MARC D. BEERMarc D. BeerChief Executive Officer(Principal Executive Officer) November 14, 2005
    /s/ STEPHEN G. DANCEStephen G. DanceChief Financial Officer(Principal Financial Officer) -54-




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EXHIBIT INDEX
 No.
    
    Item10.1
    
    

Amendment No. 1 to Collaboration Agreement, dated August 29, 2005, between ViaCell, Inc. and Amgen Inc.*10.2
    
    
    Warrant Purchase Agreement, dated August 29, 2005, between ViaCell, Inc. and Amgen Inc.10.3
    
    
    Purchase Warrant, dated August 29, 2005.10.4
    
    

Exclusive License Agreement among the Johns Hopkins University, Zhejiang University and ViaCell, Inc. dated August 29, 2005.*10.5
    
    

Letter
Agreement dated August 1, 2005 between ViaCell, Inc. and Anne Marie Cook**31.1
    
    
    Chief Executive Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Chief Financial Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Chief Executive Officer Certification pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Chief Financial Officer Certification pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
    
    

This
exhibit has been filed separately with the Commission pursuant to an
application for confidential treatment. The confidential portions of
this exhibit have been omitted and are marked by an asterisk.**
    
    

Indicates
a management contract.
 -55-