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Aastrom Raises Cash To Fund Pivotal Trial

ANN ARBOR, Mich. ( TheStreet) -- Aastrom BioSciences (ASTM) raised the cash it needs to pay for a phase III study of its personalized cellular therapy to treat severely blocked leg arteries.

The financing deal may have taken a bit longer than expected but deal terms are generally favorable towards Aastrom. A single investor bought the entire $40 million deal. Warrant "sweeteners" were avoided which could have diluted current shareholders even more.

In January, Aastrom CEO Tim Mayleben said he was "100% confident of getting the financing deal done by the end of the first quarter. Aastrom needed to raise about $30 million to pay for the phase III study of its cellular therapy. Patient screening in the critical limb ischemia study began a few weeks ago.

Aastrom shares were up 36 cents, or 20%, to $2.18 following news of the financing.

Under terms of the deal, Aastrom issued 12,300 shares of convertible preferred stock to investor Eastern Capital Limited at a price of $3,250 per preferred share. The shares accrue dividends, payable in additional preferred shares, at a rate of 11.5% per year. After five years, the each share of preferred stock is convertible into 1,000 shares of common stock, equivalent to $3.25 per share -- a premium to Aastrom's current stock price.

"This is a very shareholder-friendly deal," said Zacks analyst Jason Napodano.

Also Friday, Athersys (ATHX - Get Report), another small developer of cellular-based therapies, raised $9 million by through the sale of 4.3 million shares and another 4.3 million warrants. In other words, to raise far less money, Athersys had to essentially offer investors a 2-for-1 deal.

Aastrom's phase III study is designed to determine whether Aastrom's cellular therapy, known by the unwieldy name ixmyelocel-T and custom grown for patients from their own bone-marrow stem cells, can reduce amputations and prolong survival in patients with severe cases of critical limb ischemia (CLI). Aastrom and FDA

Patients with chronic CLI have obstructed arteries and reduced blood flow in the arms and legs, which can lead to open wounds and amputation in the most severe cases. CLI affects about 1 million people in the U.S. each year and leads to about 160,000 limb amputations each year.

Aastrom's cellular therapy significantly restored damaged tissue in the legs of patients with arteries that were severely blocked, according to results from a randomized and controlled phase II study presented in November.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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