##### Table of Contents



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 March 31, 2011,
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM _____ TO ______
 Commission file number 0-22025
 AASTROM BIOSCIENCES, INC.
  Michigan
    
    94-3096597(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. employer
identification no.)
 24 Frank Lloyd Wright Dr. 
P.O. Box 376
Ann Arbor, Michigan
    
    48106(Address of principal executive offices)
    
    (Zip code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
  þ o
  o o
  Large accelerated filer  o
    
    Accelerated filer  o
    
    Non-accelerated filer  o
(Do not check if a smaller reporting company)
    
    Smaller reporting company  þ
 o þ
  COMMON STOCK, NO PAR VALUE
(Class)
    
    38,620,850
Outstanding at April 29, 2011




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##### 



AASTROM BIOSCIENCES, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
  
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of December 31, 2010 and March 31, 2011
    
    
    3Condensed Consolidated Statements of Operations for the quarters ended March 31, 2010 and
2011 and for the period from March 24, 1989 (Inception) to March 31, 2011
    
    
    4Condensed Consolidated Statements of Cash Flows for the quarters ended March 31, 2010 and
2011 and for the period from March 24, 1989 (Inception) to March 31, 2011
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 4. Removed and Reserved
    
    
    19Item 6. Exhibits
    
    
    19Signature
    
    
    20Exhibit Index
    
    
    21Glossary
    
    
    22EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 AASTROM BIOSCIENCES, INC.
(a clinical development stage company)
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands)
 December 31,
    
    
    March 31,2010
    
    
    2011ASSETSCurrent assets:Cash and cash equivalents
    
    $
    31,248
    
    
    $
    24,621Receivables, net
    
    
    25
    
    
    
    18Other current assets
    
    
    426
    
    
    
    439Total current assets
    
    
    31,699
    
    
    
    25,078Property and equipment, net
    
    
    1,128
    
    
    
    1,153Total assets
    
    $
    32,827
    
    
    $
    26,231LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable and accrued expenses
    
    $
    2,900
    
    
    $
    2,308Accrued employee benefits
    
    
    796
    
    
    
    467Current portion of long-term debt
    
    
    214
    
    
    
    159Warrant liabilities
    
    
    25,954
    
    
    
    24,700Total current liabilities
    
    
    29,864
    
    
    
    27,634Long-term debt
    
    
    41
    
    
    
    43Shareholders equity (deficit):Common stock, no par value; shares authorized  62,500
and 150,000, respectively; shares issued and outstanding
 38,616 and 38,618, respectively.
    
    
    225,102
    
    
    
    225,722Deficit accumulated during the development stage
    
    
    (222,180
    )
    
    
    (227,168
    )Total shareholders equity (deficit)
    
    
    2,922
    
    
    
    (1,446
    )Total liabilities and shareholders equity (deficit)
    
    $
    32,827
    
    
    $
    26,231
  3




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AASTROM BIOSCIENCES, INC.
(a clinical development stage company)
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands except per share amounts)
 March 24, 1989Quarter ended
    
    
    (Inception) toMarch 31,
    
    
    March 31,2010
    
    
    2011
    
    
    2011Revenues:Product sales and rentals
    
    $
    
    
    
    $
    9
    
    
    $
    1,868Research and development agreements
    
    
    
    
    
    
    
    
    
    
    2,105Grants
    
    
    
    
    
    
    
    
    
    
    9,901Total revenues
    
    
    
    
    
    
    9
    
    
    
    13,874Costs and expenses:Cost of product sales and rentals
    
    
    
    
    
    
    2
    
    
    
    3,039Research and development
    
    
    2,845
    
    
    
    4,372
    
    
    
    173,747Selling, general and administrative
    
    
    1,418
    
    
    
    1,895
    
    
    
    79,019Total costs and expenses
    
    
    4,263
    
    
    
    6,269
    
    
    
    255,805Loss from operations
    
    
    (4,263
    )
    
    
    (6,260
    )
    
    
    (241,931
    )Other income (expense):Decrease in fair value of warrants
    
    
    1,559
    
    
    
    1,254
    
    
    
    4,214Other income
    
    
    
    
    
    
    
    
    
    
    1,249Interest income
    
    
    34
    
    
    
    20
    
    
    
    10,739Interest expense
    
    
    (9
    )
    
    
    (2
    )
    
    
    (471
    )Total other income
    
    
    1,584
    
    
    
    1,272
    
    
    
    15,731Net loss
    
    $
    (2,679
    )
    
    $
    (4,988
    )
    
    $
    (226,200
    )Net loss per share (Basic and Diluted)
    
    $
    (0.10
    )
    
    $
    (0.13
    )Weighted average number of common shares
outstanding (Basic and Diluted)
    
    
    26,737
    
    
    
    38,617
  4




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AASTROM BIOSCIENCES, INC.
(a clinical development stage company)
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
 March 24, 1989Quarter ended
    
    
    (Inception) toMarch 31,
    
    
    March 31,2010
    
    
    2011
    
    
    2011Operating activities:Net loss
    
    $
    (2,679
    )
    
    $
    (4,988
    )
    
    $
    (226,200
    )Adjustments to reconcile net loss to net cash used for
operating activities:Depreciation and amortization
    
    
    153
    
    
    
    134
    
    
    
    6,985Loss on property held for resale
    
    
    
    
    
    
    
    
    
    
    110Amortization of discounts and premiums on investments
    
    
    
    
    
    
    
    
    
    
    (1,704
    )Stock compensation expense
    
    
    76
    
    
    
    616
    
    
    
    10,758Decrease in fair value of warrants
    
    
    (1,559
    )
    
    
    (1,254
    )
    
    
    (4,214
    )Inventory write downs and reserves
    
    
    
    
    
    
    
    
    
    
    2,240Stock issued pursuant to license agreement
    
    
    
    
    
    
    
    
    
    
    3,300Provision for losses on accounts receivable
    
    
    
    
    
    
    
    
    
    
    204Changes in operating assets and liabilities:Receivables
    
    
    23
    
    
    
    7
    
    
    
    (267
    )Inventories
    
    
    
    
    
    
    
    
    
    
    (2,335
    )Other current assets
    
    
    (39
    )
    
    
    (13
    )
    
    
    (419
    )Accounts payable and accrued expenses
    
    
    (205
    )
    
    
    (592
    )
    
    
    2,076Accrued employee benefits
    
    
    6
    
    
    
    (329
    )
    
    
    467Net cash used for operating activities
    
    
    (4,224
    )
    
    
    (6,419
    )
    
    
    (208,999
    )Investing activities:Organizational costs
    
    
    
    
    
    
    
    
    
    
    (73
    )Purchase of short-term investments
    
    
    (5,000
    )
    
    
    
    
    
    
    (217,041
    )Maturities of short-term investments
    
    
    
    
    
    
    
    
    
    
    218,745Property and equipment purchases
    
    
    (47
    )
    
    
    (148
    )
    
    
    (6,334
    )Proceeds from sale of property held for resale
    
    
    
    
    
    
    
    
    
    
    400Net cash provided used for investing activities
    
    
    (5,047
    )
    
    
    (148
    )
    
    
    (4,303
    )Financing activities:Net proceeds from issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    51,647Net proceeds from issuance of common stock and warrants
    
    
    12,426
    
    
    
    4
    
    
    
    184,680Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    (49
    )Payments received for stock purchase rights
    
    
    
    
    
    
    
    
    
    
    3,500Payments received under shareholder notes
    
    
    
    
    
    
    
    
    
    
    31Restricted cash used as compensating balance
    
    
    70
    
    
    
    
    
    
    
    Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    751Principal payments under long-term debt obligations
    
    
    (120
    )
    
    
    (64
    )
    
    
    (2,637
    )Net cash provided by (used for) financing activities
    
    
    12,376
    
    
    
    (60
    )
    
    
    237,923Net increase (decrease) in cash and cash equivalents
    
    
    3,105
    
    
    
    (6,627
    )
    
    
    24,621Cash and cash equivalents at beginning of period
    
    
    14,739
    
    
    
    31,248
    
    
    
    Cash and cash equivalents at end of period
    
    $
    17,844
    
    
    $
    24,621
    
    
    $
    24,621
  5




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##### Table of Contents



AASTROM BIOSCIENCES, INC.
(a clinical development stage company)
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. Organization and Summary of Significant Accounting Policies
    2. Basis of Presentation
    6




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AASTROM BIOSCIENCES, INC.
(a clinical development stage company)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
 Derivatives and Hedging  Contracts in Entitys Own Equity
   3. Fair Value Measurements
  
    
    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.
   7




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AASTROM BIOSCIENCES, INC.
(a clinical development stage company)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
  4. Stock-Based Compensation
     Quarter ended March 31,Service-Based Stock Options
    
    2010
    
    
    2011Expected dividend rate
    

    0 %

    
    0 %Expected stock price volatility
    

    70.5%  72.3%

    

    74.0%  78.9%Risk-free interest rate
    

    2.8%  3.1%

    

    2.7%Estimated forfeiture rate (per annum)
    

    10%

    

     10%Expected life (years)
    

        6.0  6.3

    

    6.0  6.3
  Weighted AverageRemainingWeighted Average
    
    
    Contractual Term
    
    
    Aggregate IntrinsicService-Based Stock Options
    
    Options
    
    
    Exercise Price
    
    
    (Years)
    
    
    ValueOutstanding at December 31, 2010
    
    
    4,297,209
    
    
    $
    2.43
    
    
    
    8.9
    
    
    $
    3,158,978Granted
    
    
    3,394,050
    
    
    $
    2.27Exercised
    
    
    (2,500
    )
    
    $
    1.80
    
    
    
    
    
    
    $
    2,225Forfeited or expired
    
    
    (50,034
    )
    
    $
    3.96Outstanding at March 31, 2011
    
    
    7,638,725
    
    
    $
    2.35
    
    
    
    9.3
    
    
    $
    3,732,158Exercisable at March 31, 2011
    
    
    1,131,011
    
    
    $
    4.31
    
    
    
    7.4
    
    
    $
    342,470
 8




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AASTROM BIOSCIENCES, INC.
(a clinical development stage company)
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
   5. Stock Purchase Warrants
  (i)
    
    warrants to purchase an aggregate of 740,131 shares of the Companys common stock,
issued on October 17, 2007 in connection with the Companys 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 March 31, 2011;
 (ii)
    
    Class A warrants to purchase an aggregate of 4,882,228 shares of the Companys common
stock, issued on January 21, 2010 in connection with the Companys 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
March 31, 2011; and
 (iii)
    
    warrants to purchase an aggregate of 10,000,000 shares of the Companys common
stock, issued on December 15, 2010 in connection with the Companys 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 March 31, 2011.
  9




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AASTROM BIOSCIENCES, INC.
(a clinical development stage company)
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
    October 2007 Warrants
    
    December 31, 2010
    
    
    March 31, 2011Closing stock price
    
    $
    2.56
    
    
    $
    2.50Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    100.3
    %
    
    
    83.7
    %Risk-free interest rate
    
    
    0.6
    %
    
    
    0.8
    %Expected life (years)
    
    
    2.25
    
    
    
    2.00
 January 2010 Class A Warrants
    
    December 31, 2010
    
    
    March 31, 2011Closing stock price
    
    $
    2.56
    
    
    $
    2.50Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    79.6
    %
    
    
    81.4
    %Risk-free interest rate
    
    
    1.8
    %
    
    
    2.0
    %Expected life (years)
    
    
    4.56
    
    
    
    4.31
 December 2010 Warrants
    
    December 31, 2010
    
    
    March 31, 2011Closing stock price
    
    $
    2.56
    
    
    $
    2.50Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    78.0
    %
    
    
    78.9
    %Risk-free interest rate
    
    
    2.0
    %
    
    
    2.1
    %Expected life (years)
    
    
    4.96
    
    
    
    4.71
 (in thousands)
 Warrant LiabilitiesBalance at December 31, 2010
    
    $
    25,954Decrease in fair value
    
    
    (1,254
    )Balance at March 31, 2011
    
    $
    24,700
 10




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AASTROM BIOSCIENCES, INC.
(a clinical development stage company)
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
 6. Net Loss Per Common Share
  11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
  Our Technology Platform
   Safe
 Autologous (patient specific)
 Expanded + +
 A mixture of cell types
 Minimally invasive
  12




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Clinical Development Programs
   Critical Limb Ischemia
 Background
  Clinical Programs
    13




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Dilated Cardiomyopathy
 Background
 Heart Failure: A Combined Medical and Surgical Approach
  Surgical Trial Program  DCM
   14




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##### Table of Contents



Catheter Trial Program  DCM
  Results of Operations
  in
thousands)
 Quarter ended March 31,2010
    
    
    2011Critical Limb Ischemia
    
    $
    1,175
    
    
    $
    2,353Dilated Cardiomyopathy
    
    
    1,637
    
    
    
    1,997Other
    
    
    33
    
    
    
    22Total research and development expenses
    
    $
    2,845
    
    
    $
    4,372
    15




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Liquidity and Capital Resources
        16




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Off-Balance Sheet Arrangements
  Forward-Looking Statements
   
    
    potential strategic collaborations with others;
    
    future capital needs and financing sources;
    
    adequacy of existing capital to support operations for a specified time;
    
    product development and marketing plan;
    
    features and successes of our cellular therapies;
    
    manufacturing and facility capabilities;
    
    clinical trial plans and anticipated results;
    
    anticipation of future losses;
    
    commercialization plans; and
    
    revenue expectations and operating results.
 17




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Material Weakness
  Remediation Plan
   Changes in Internal Control Over Financial Reporting
  
 18




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 4. Removed and Reserved
 
 Item 6. Exhibits
  19




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SIGNATURE
   AASTROM BIOSCIENCES, INC./s/Timothy M. MaylebenTimothy M. MaylebenPresident and Chief Executive Officer
(Principal Executive Officer)/s/Scott C. DurbinScott C. DurbinChief Financial Officer
(Principal Financial and Accounting Officer) 20




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EXHIBIT INDEX
 Exhibit No.
    
    Description10.1#
    
    Employment Agreement with Ronnda L. Bartel dated March 22, 2011, attached as Exhibit
10.1 to Aastroms Current Report on Form 8-K filed on March 25, 2011, incorporated herein by
reference.10.2#
    
    Employment Agreement with Sharon Watling, dated March 22, 2011, attached as Exhibit 10.2 to
Aastroms Current Report on Form 8-K filed on March 25, 2011, incorporated herein by
reference.10.3#
    
    Senior Executive Incentive Bonus Plan, attached as Exhibit 10.3 to Aastroms Current Report
on Form 8-K filed on March 25, 2011, incorporated herein by reference.10.4#
    
    Amendment to the 2009 Omnibus Incentive Plan, dated March 21, 2011, attached as exhibit 10.4
to Aastroms Current Report on Form 8-K filed on March 25, 2011, incorporated herein by
reference.31.1
    
    Certification by Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934 (furnished herewith).31.2
    
    Certification by Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934 (furnished herewith).32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished herewith).
 
 #
    
    Management contract or compensatory plan or arrangement covering executive officers or
directors of Aastrom. 21




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GLOSSARY
 TERM
    
    DEFINITIONAdverse 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.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.Catheter-DCM
    
    Aastroms U.S. Phase 2 clinical
trial investigating
catheter-based delivery of our
product in the treatment of
dilated cardiomyopathy.CLI  Critical Limb Ischemia
    
    An atherosclerotic 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 patients
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.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.IMPACT-DCM
    
    Aastroms U.S. Phase 2 clinical
trial investigating surgical
delivery of our product in the
treatment of dilated
cardiomyopathy.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.
 22




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TERM
    
    DEFINITIONOrphan 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.Patient Specific (Autologous)
    
    Originating from the patient
receiving treatment. (Aastrom
uses only patient specific
cells)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.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.
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