Aastrom Biosciences' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Aastrom Biosciences, Inc. (ASTM)

Q2 2012 Earnings Call

August 7, 2012 4:30 PM ET

Executives

Brian Gibson – VP, Finance

Tim Mayleben – President and CEO

Grayson Wheatley

Analysts

Chad Messer – Needham & Company

Keay Nakae – Ascendiant

Steve Brozak – WBB Securities

Jason Kolbert – Maxim

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Aastrom Biosciences Second Quarter 2012 Conference Call. At this time, all participants are in a listen-only mode and after opening remarks we will open up for questions. Instructions for queuing up will be provided at that time. I would also like to remind you that this conference is being recorded for replay.

I will now turn the conference over to Brian Gibson, Aastrom’s Vice President of Finance.

Brian Gibson

Thank you, Michelle, and good afternoon everyone. Welcome to our second quarter 2012 conference call to discuss our most recent financial results and the progress of our development programs.

Before we begin, let me remind you that on today’s call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. In any and all of our projections, forward-looking statements represent our judgment as of today. These statements may involve risks and uncertainties that are described more fully in our filings with the SEC, which are also available on our website. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.

Joining us on the call today are Aastorm’s President and Chief Executive Officer, Tim Mayleben; and Grayson Wheatley, a cardiovascular surgeon at the Arizona Heart Institute and a principal investigator from the Phase 2b RESTORE-CLI clinical trial and the pivotal Phase 3 REVIVE-CLI clinical trial. Dr. Wheatley is with us today to discuss his experience treating patients of critical limb ischemia and his participation In Aastorm’s clinical development programs for CLI. Following our prepared remarks, we will open the call to your questions.

So let me start with the review of our financial results. For the second quarter ended June 30, 2012, Aastrom had a net loss attributable to common shareholders of $8.6 million or $0.22 per share compared to $10 million or $0.26 per share for the second quarter of 2011. The decrease in net loss reflects a non-cash change in the fair value of our outstanding warrants, which accounted for a $4.4 million decrease, offset partially by increased spending to prepare for and launch the pivotal Phase 3 REVIVE-CLI clinical trial. Our operating loss for the second quarter of 2012, which excludes the impact of the warrants were $9.3 million or $0.24 per share compared to $7.5 million or $0.19 per share a year ago.

Research and development expenses for the quarter ended June 30, 2012 were $7.1 million versus $5.3 million for the same period a year ago. The increase in R&D expense was primarily attributable to advanced preparations for the Phase 3 REVIVE-CLI clinical program and the Phase 2b RENEW program in DCM, which included clinical site identification, training and initiation of enrollment.

General and administrative expense for the quarter ended June 30, 2012 remained flat with the second quarter of 2011 at $2.2 million. At the end of the quarter, Aastrom had $28.7 million in cash and cash equivalents. Our cash used for operations was $8 million during the second quarter, which was in line with our previous forecast of $7.5 million to $8.5 million.

Looking ahead, we expect our cash spend for the third quarter of 2012 to be in the range of $7 million to $8 million as we ramp up enrollments on Phase 3 REVIVE-CLI study and launch our Phase 2b clinical trial in DCM.

I would now like to spend a moment on the warrant exchange that we completed on July 27. To remind everyone, the December 2010 warrants had three key provisions that complicated our capital structure.

First, the warrants had a cashless exercise provision, which would have resulted in no cash coming into the company upon their exercise. The warrant exercise price would have been paid in stock rather than using cash. Second, these warrants had a full-ratchet anti-dilution protection provision by the exercise price would have reset to the price of any future financings at below $3.22 per share. This has been a deterrent to attracting new long-term investors due to uncertainty on the impact of future price resets.

Finally, there was a provision called a Black-Scholes Put which gave (inaudible) the ability to put the warrants back to the company for cash in the event that more than 50% of the company is acquired. The payment will be based on a Black-Scholes valuation model, which could specifically inflate the value of the warrants, requiring a potentially large cash payment to some or all the warrant holders. This was a deterrent for potential partners and strategic investors due to the uncertainty of the cash outlay in the event of a change in control transaction.

By removing 9.7 million or 97% of the December 2010 warrants in exchange for 4.8 million shares of common stock, we have reduced our fully diluted share count by over 6% and have effectively eliminated the impact of these warrants on our capital structure since only 300,000 of these warrants remain outstanding today.

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