ASTM- National Securites Report- 1st three pages:
We are initiating coverage on Aastrom Biosciences, with a Buy rating, and $6 target. We see Aastrom as the clinical leader in the regenerative stem cell space. The Company is focused on the development of autologous cellular therapies for the treatment of cardiovascular diseases utilizing its Tissue Repair Cell (TRC) technology. We are impressed with the Phase II clinical data sets we have seen in Critical Limb Ischemia (CLI). Aastrom is working to develop its TRC product initially in CLI followed by Dilated Cardiomyopathy (DCM), two significant market opportunities. With a market capitalization of approximately $40 million and $19 million in cash we see the valuation and opportunity as compelling.
HighlightsCritical Limb Ischemia (CLI): CLI is a severe obstruction of the arteries which decreases blood flow to the extremities (feet, legs and hands) and has progressed to the point of severe pain, skin ulcers and sores. Patients suffer from severe pain caused by ischemia, tissue loss, ischemic neuropathy or a combination of these factors. The Sage Group estimates that there are greater than 1 million CLI patients in the U.S. with an incidence that is growing with an aging population. As up to 40% of the CLI patients are categorized as “no-option patients”, they are ineligible for further revascularization and 30-40% will require a major amputation within 12 months. The four-year mortality, post-amputation rate is as high as 76% in these patients. CLI is an unmet medical need today.
RESTORE-CLI Phase 2b Trial: The interim study results in CLI showed a statistically significant improvement of the composite endpoint assessing time to treatment failure (including major amputations, doubling wound size and new gangrene). Importantly, results also showed a statistically significant improvement in amputation free survival, the FDA’s traditional endpoint for Phase 3 CLI studies. Post 12-months analysis, 42% of patients had a decrease in amputations and 58% increased in wound healing. The data set was so compelling that the Company chose to end the trial, analyze the data, and move to a pivotal program, seeking an SPA. The trial could begin by Q1-2011. We see Aastrom’s transition into a well powered, well designed, SPA approved study as a value event for the company.
Dilated Cardiomyopathy (DCM): This is Aastrom’s second program using the TRC autologous platform. The Company has been investigating the administration of cells in both surgical and catheter delivery settings in both ischemic and non-ischemic DCM patients. The DCM market opportunity is large with an annual incidence of 120-150,000 patients per year.
IMPACT-DCM Phase II Trial: Encouraging initial data from the surgery trial (n=10, 5 treatment vs. 5 control) patients in an open-label trial suggests no safety issues with positive signals (a therapeutic benefit). At the AHA scientific meeting last November (2009) data presented showed that the several patients treated with TRCs demonstrated a clinically meaningful improvement in NHA heart failure classification. We are excited to see the six months follow up to this surgery trial in Q4-2010.
Autologous stem cellular therapies appeal to patients, physicians, regulators (FDA) and payers. Patients will likely be attracted to new treatment options, for dilated cardiomyopathy (DCM) and critical limb ischemia (CLI), which can improve recovery. Payers may be persuaded by improved outcomes meaning lower costs. Aastrom’s TRC technology, to this date, has demonstrated positive data in developing an alternative, new cellular therapy.
NATIONAL
SECURITIES
Established 1947, Member FINRA/SIPC
National Securities Corporation Please refer to important disclosures at the end of this document
120 Broadway, 27th Floor
New York, NY 10271
www.nationalsecurities.com
Fundamental Research:
Biotechnology
August 16, 2010
Aastrom BackgroundAastrom Biosciences was founded in 1989 as a University of Michigan spinoff. The focus of the Company is on the development and commercialization of autologous cellular therapies for severe and chronic cardiovascular diseases. The Company’s clinical programs utilize Tissue Repair Cell (TRC) technology enabling the expansion of stem and early progenitor cells from the patient’s own bone marrow. The technology directly delivers patient specific cells to diseased or damaged tissues, such as cardiac, vascular, and bone. Aastrom’s research & development portfolio addresses two Phase 2 trials in dilated cardiomyopathy (DCM) or severe heart failure and a Phase 2b trial in critical limb ischemia (CLI).
Exhibit 1: Upcoming Potential Catalysts for Aastrom Biosciences
Exhibit 2: Aastrom development pipeline
Financials: ASTM currently employees a full-time staff of 48. As of June 2010, we estimate that ASTM has approximately $19.5M in cash and cash equivalents. The Company has a spend rate of approximately $1.3M per month for the past nine-months which we estimate will continue through the rest of the fiscal year.
ASTM is not expected to generate positive cash flows from its operations for the next several years (and will only do so, when a TRC-derived product is commercialized). R&D expenditures for 3Q-2010e and 3Q-2009 were $9.04M and $8.34M respectively, marking an increase due to developmental activities associated with the IMPACT-DCM Phase 2 clinical trial.
On January 21, 2010, ASTM completed the sale of 6,509,637 units (including 740,387 units sold to the underwriter pursuant to the exercise of its over-allotment option) at a public offering price of $2.08 per unit, net proceeds of $12.4M. Each unit consisted of 1 share of common stock and warrants as shown below.
Exhibit 3: Warrants
Source: Aastrom Biosciences
ProductIndicationEventTimingSignificanceTRC - VascularCritical Limb Ischemia CLIReport RESTORE-CLI Phase 2b interim data Q1-2010COMPLETEDPresent interim results at SVS meetingQ2-2010COMPLETEDDiscuss interim findings with FDAQ2-2010COMPLETEDPresent interium results on all patients Q4-2010+6 months data set - avaialble (possible AHA Presentation)Q4-2010+Approval of SPA for Pivotal trial in CLIQ1-2011++Begin Phase III Pivotal Program in CLIQ1-2011++TRC Cardiac - CatheterDCM: Dilated CardioMyopathyInitiate enrollment of the first patient - DCM Catheter DeliveryQ1-2010COMPLETEDComplete Enrollment (N=24), Phase II DCM Catheter StudyQ4-2010+6 Months Data Set - Review for Safety and Efficacy SignalsQ2-2011++Begin Pivotal ProgramQ4-2011+TRC Cardiac - SurgicalDCM: Dilated CardioMyopathyComplete enrollment in IMPACT-DCM Phase 2 surgical trialQ1/10COMPLETEDReport interim data from the IMPACT-DCM surgical trialQ1/10COMPLETEDReport preliminary 6-month interim data on all 40 IMPACT-DCM patients Q4/10++Discuss interim findings with FDAQ1/11+Report final results on all 40 IMPACT-DCM patientsQ3/11+Stock Significance Scale: + of moderate importance; ++ higher level; +++ highlySource:National Securities Forecasts and Company reports.DiscoveryPre-ClinicalIND/CTAPhase IPhase IIPhase IIINDA / BLAVascular - Critical Limb IschemiaCardiac DCM - CatheterCardic DCM - SurgicalSource: Aastrom BiosciencesProductDevelopment StageWarrantPurchase PriceExercise PriceAmountPeriodClass A0.75 share of common stock$2.97/share4,882,2287/21/10 - 7/21/15Class B0.50 share of common stock$2.08/share 3,254,8181/21/10 - 7/21/10
National Securities Corporation Please refer to important disclosures at the end of this document
120 Broadway, 27th Floor
New York, NY 10271
www.nationalsecurities.com
Fundamental Research:Biotechnology
August 16, 2010
NASDAQ compliance, Aastrom was in danger of being delisted from the NASDAQ Capital Markets since receiving a notification, back in October 28, 2008, for not meeting a $1 minimum bid price. The Company had originally been given 60-days to comply; however, the enforcement date was extended numerous times. Finally, Aastrom was given until March 31, 2010 to regain compliance of $1 minimum bid price requirement for its continued listing. As of February 18, 2010, ASTM regained compliance by conducting an 8:1 reverse stock split and meeting the requirement.
Aastrom and Fusion Capital entered into a $30M common stock purchase agreement as of June 29, 2009 spanning a 25-month period. Aastrom holds the right to sell shares of its common stock to Fusion Capital in amounts between $100K and $4M. Fusion Capital is not obligated to buy common stock priced below $0.80 and may not purchase shares below $2.88 unless approved by shareholders. The two have engaged in a previous common stock purchase agreement, beginning October 30, 2002 and closed on January 13, 2005, for a total amount of $24M.
Bull Case: Aastrom utilizes the patient’s own cells (autologous) to promote healing by altering the microenvironment in the region of injury, thereby stimulating these tissues to repair themselves. Key attributes of autologous patient-specific stem cell therapy are the fact that no immunosuppression is required. Given the perfect match we believe that cells will tend to engraft quickly and effectively (versus allogeneic therapy). This approach also avoids the ethical issues surrounding embryonic stem cells. Aastrom’s TRC therapy is based on a mixed cell population providing all the necessary cells to promote new tissue growth leading to a more rapid regeneration of tissues. Autologous cell therapy is not a novel concept and in fact, bone marrow transplants have been around for many years; however the approval of Dendreon (NASDAQ: DNDN – not rated) Provenge, Prostate Cancer, marks a new therapeutic paradigm. We see Aastrom as the most clinically advanced stem cell therapy in development today. Interim Phase 2b data from the critical limb ischemia trial (RESTORE-CLI) demonstrated proof of concept (efficacy and safety), and we expect to the program transition to pivotal trials in 2011. Critical Limb Ischemia is a significant market and an unmet medical need. The Company’s other program is in Dilated Cardiomyopathy where the treatment options are limited and typically extreme. Aastrom’s TRC technology may well represent the potential first-to-market autologous stem cell therapy all in an approach that is considered “safe” and simple for both physicians and patients. Aastrom retains 100 % worldwide rights.
Bear Case: A number of companies have failed in the cell therapy arena until Dendreon’s recent success with Provenge, and that has been hampered by manufacturing. Bears will point to the autologous paradigm as problematic as a business model. Achieving industrial scale manufacturing for autologous stem cell therapy may be impractical. Costs of Goods Sold and margins are a potential problem especially in the out-years where there may be allogeneic alternatives (Athersys – Multi-Stem) that can be competitively priced. Utilizing cells from a patient’s own bone marrow presents its own issues. The patient may be already compromised with co-morbidities/disease as well as senescence due to aging. These cells may not have the same regenerative capabilities as cells harvested from healthy donors. Critical limb ischemia and Dilated cardiomyopathy are large and significant indications and may require large clinical trials which could be long and expensive. Proof of concept data from small Phase II trials may be miss-leading as small numbers and tremendous disease state variability can only be evaluated in a large trial. As such, Aastrom’s clinical approach may have significant risk that the Phase II results of current programs might not be replicated in pivotal trials. Bears will argue that the TRC platform itself is flawed, as the Company is only expanding the cell population and not unlocking the true regenerative power of stem cells, and as such can, at best, hope for only a moderate therapeutic effect. The Company currently has capital to fund operations through next year and lacks the resources to run two pivotal programs.
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