AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 1996OCTOBER 8, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------
AASTROM BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 2834 94-3096597
(State or other (Primary Standard(PRIMARY STANDARD (IRS Employer
jurisdiction of Industrial Identification No.EMPLOYER
(STATE OR OTHER INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
incorporation or Classification Code
organization) Number)
----------------JURISDICTION OF CODE NUMBER)
INCORPORATION OR ---------------
ORGANIZATION) 24 FRANK LLOYD WRIGHT DRIVE
P.O. BOX 376
ANN ARBOR, MICHIGAN 48106
(313) 930-5555
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
R. DOUGLAS ARMSTRONG, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AASTROM BIOSCIENCES, INC.
24 FRANK LLOYD WRIGHT DRIVE
P.O. BOX 376
ANN ARBOR, MICHIGAN 48106
(313) 930-5555
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
T. KNOX BELL, ESQ. RICHARD R. PLUMRIDGE, ESQ.
DOUGLAS J. REIN, ESQ. MICHAEL A. CONZA, ESQ.
MATT KIRMAYER, ESQ. BROBECK PHLEGER & HARRISON LLP
DAYNA J. PINEDA,DAVID R. YOUNG, ESQ. 1301 AVENUE OF THE AMERICAS1633 BROADWAY
GRAY CARY WARE & FREIDENRICH NEW YORK, NEW YORK 10019
A PROFESSIONAL CORPORATION (212) 581-1600
4365 EXECUTIVE DRIVE, SUITE 1600
SAN DIEGO, CALIFORNIA 92121
----------------
Approximate date of commencement of proposed sale to the public:(619) 677-1400
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is to be filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED AGGREGATE OFFERINGREGISTERED PER SHARE(1) PRICE(1) AMOUNT OF REGISTRATION FEEFEE(2)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Common Stock, No Par Value................. $37,375,000 $11,326Val-
ue...................... 1,500,000 $7.125 $10,687,500 $3,239
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(1) Estimated solely for the purpose of computing the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission acting(2) Computed pursuant to said
SectionRule 457(c) based upon the average high and low sale
prices reported on the Nasdaq National Market on October 3, 1997.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(a), may determine.MAY DETERMINE.
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- -------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Dated November 1, 1996
3,250,000 Shares
[LOGO] AASTROM(SUBJECT TO COMPLETION)
DATED OCTOBER 8, 1997
1,500,000 SHARES
[Logo] ASTROM
BIOSCIENCES INC
Common Stock
--------------====================
COMMON STOCK
All of the shares of Common Stock, no par value per share (the "Common
Stock"), offered hereby are being sold by Aastrom Biosciences, Inc. ("Aastrom"
or the "Company").
Prior to this offering, there has been no public market for theThe Common Stock ofis traded on the Company. It is currently estimated thatNasdaq National Market under the initial public offeringsymbol
"ASTM." On October 3, 1997, the last reported sale price will be between $8.00 and $10.00 per share. See "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price. Application will be made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "ASTM.was $7.00 per share. See "Price Range of Common
Stock."
--------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 56 OF THIS PROSPECTUS.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)(3)
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Per Share........................ $ $ $
Total(3).........................Share.......................... $ $ $
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Total.............................. $ $ $
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(1) The shares of Common Stock offered hereby are being offered, on an all or
none basis, directly by the Company principally to selected institutional
investors. Cowen & Company (the "Placement Agent") has been retained to
act, on a best efforts basis, on behalf of the Company in connection with
the arrangement of this transaction. The Company has agreed (i) to pay the
Placement Agent a fee in connection with the arrangement of this financing,
and (ii) to indemnify the UnderwritersPlacement Agent against certain liabilities,
including liabilities under the Securities Act of 1933.1933, as amended. See
"Underwriting."Plan of Distribution."
(2) The termination date of this offering is , 1997, subject to extension
at the discretion of the Placement Agent to , 1997, and thereafter by
the mutual agreement of the Company and the Placement Agent. Prior to the
closing of this offering, all investor funds will be placed in escrow with
, as escrow agent (the "Escrow Agent"), in an escrow account
established for the benefit of the investors. Upon receipt of notice from
the Escrow Agent that investors have deposited the requisite funds in the
escrow account for the purchase of the shares of Common Stock offered
hereby, the Company will deposit with The Depository Trust Company the
shares of Common Stock to be credited to the accounts of the investors and
will collect the investor funds from the Escrow Agent. In the event that
investor funds are not received in the full amount necessary to satisfy the
requirements of this offering, all funds deposited in the escrow account
will be returned promptly to the investors. See "Plan of Distribution."
(3)Before deducting expenses payable by the Company, estimated to be $900,000.
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase an aggregate of up to 487,500
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
--------------
The Common Stock is offered by the several Underwriters named herein when, as
and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected
that delivery of the certificates for the shares will be made at the offices of
Cowen & Company, New York, New York, on or about , 1996.
--------------$350,000.
COWEN & COMPANY
J.P. MORGAN & CO.
, 19961997
[COLOR FLOW CHART DEPICTING "STEM CELL THERAPY METHODS"
DESCRIBING STEM CELL THERAPY UTILIZING BONE MARROW HARVEST,
PROGENITOR BLOOD CELL MOBILIZATION AND THE AASTROM CPS]
[COLOR PHOTOGRAPH OF A PROTOTYPE OF THE AASTROM CPS WITH A CLINICIAN
INNOCULATING CELLS]
A prototype of the Aastrom CPS is currently being used in a clinical trialtrials
and ongoing development activities are directed at completing production level
components of the Aastrom CPS. The Company may not market the Aastrom CPS
unless and until FDA and other necessary regulatory approvals are received.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Prospective investors should carefully consider
the information set forth under the heading "Risk Factors."
THE COMPANY
Aastrom Biosciences, Inc. is developing proprietary process technologies and
devices for a range of cell therapy applications, including stem cell therapies
and selected emerging therapies such as immunotherapy, solid tissue repair and
ex vivo gene therapy. The Company's lead product under development, the Aastrom
Cell Production System (the "Aastrom CPS"), consists of a clinical cell culture
system with disposablesingle-use cassettes and reagents for use in the rapidly growing
cell therapy market. The Company is currently conducting pre-pivotal trials at
multiple sites in the United States and Europe of the Aastrom CPS for use in
stem cell therapy market.in preparation for pivotal trials in the United States and
potential marketing in Europe. The Company believes that the Aastrom CPS method
will be less costly,a cost-effective, less invasive and less time consuming thanalternative to
currently available stem cell collection methods.methods and may enhance the clinical
utility of umbilical cord blood ("UCB") transplants by expanding the number of
cells available for transplant. For stem cell therapy, the Company has entered
into a strategic collaboration for the marketing, distribution and customer
service of the Aastrom CPS with Cobe BCT, Inc., a subsidiary of Gambro AB and a
leading provider of blood cell processing products.
The Aastrom CPS is designed as a platform product which implements the
Company's pioneering stem cell replication technology and
whichtechnology. The Company also
believes that the Company believesAastrom CPS can be modified to produce a wide variety of
other cell types for selected emerging therapies. The Aastrom CPS is currently in a pre-pivotal
clinical trial under an Investigational Device Exemption for autologous stem
cell therapy.therapies being developed by other
companies and institutions. The Company has entered into aintends to develop additional strategic
collaborationcollaborations for the development of the Aastrom CPS in stemcertain of these other
cell therapy with Cobe BCT, Inc., a
subsidiary of Gambro AB and a world leader in blood cell processing products.market segments. In ex vivo gene therapy, the Company is also
developing a proprietary directed
motion gene transfer process (the "Aastrom Gene Loader") and the Aastrom CPSGene Loader, which is being designed to enable high efficiency genetic modification andaddress the
production of gene-modified cells.
Stem cell therapy is a rapidly growing form of cell therapy used to restore
blood and immune system function to cancer patients following chemotherapy or
radiation therapy. The Company estimates that over 35,000According to an industry source, approximately 32,000 stem
cell therapy procedures were completed worldwide in 1995, and, thataccording to
another industry source, the number of such procedures isutilizing donor-derived
and patient-derived cells has been growing at a compound annual rate of overannually by approximately 15% and
20%., respectively. Other novel applications of stem cell therapiestherapy are under
development by third parties, including stem cell therapy
forwhich include the treatment of autoimmune
diseases and for augmenting recipient acceptance of organ transplants. Current stem
cell therapycollection methods, including bone marrow harvest and peripheral blood
progenitor cell mobilization, are costly, invasive and time-consuming for both
medical personnel and patients. Technologies which facilitate a more readily
available source of cells may contribute to additional growth in cell therapy
procedures. Umbilical cord
blood ("UCB")UCB is emerging as a new source of cells for stem cell therapy,
offering additional market opportunity, although the more widespread use of UCB
transplants has been restricted by cell quantity limitations.limitations, which the Company
believes may ultimately be addressed by the Aastrom CPS.
The Company believes that the Aastrom CPS will offer significant advantages
over traditional stem cell collection methods. The Aastrom CPS is intended to
be used to produce cells used for therapy from a small starting volume of bone
marrow cells. Compared with current stem cell
collection methods of harvest and infusion, the
Aastrom CPS is expected to involve onetwo patient visitcare episodes rather than
approximately fiveeight to seven visits,21 care episodes and less than twothree hours of patient
procedure time rather than in excess of twentyapproximately 16 to 39 hours of patient procedure
time and
approximately four to ten patient needle sticks rather than twenty-five or more
patient needle sticks.time. The Aastrom CPS may also permit higher and more frequent doses of
chemotherapy to be administered to cancer patients by enabling the production
of multiple doses of therapeutic stem cells from patient samples taken at the initial
collection. Further, in an evaluation of seven tumor-contaminated bone marrow
samples that were expanded with the Aastrom CPS process, the presence of breast
cancer cells in each sample was either substantially reduced or was no longer
detectable. The Company believes that the combination of passive depletion
during culture with the lower starting volume of tumor cells may result in a
tumor-free or tumor-reduced cell product for transplant.
3
Aastrom is currently conducting a pre-pivotal autologous stem cell therapy trial. Theclinical
trial in patients with Stage II, III and IV breast cancer at four U.S. sites.
This clinical trial is designed to showdemonstrate that cells produced inusing the
Aastrom CPS can by themselves safely enableprovide hematopoietic recovery of bone marrow and cells of the blood and
immune systems in accordance with trial
endpoints in such patients who have received ablativemyeloablative chemotherapy.
Based on thePending a positive outcome of this and other related trials, the Company
intends to seek FDA approval to begin a multi-center pivotal trial for use of
the Aastrom CPS in stem cell therapy. It is anticipated that the results of
this pivotal trial will be used to support the Company's Pre-Market Approval
("PMA") submission to the FDA. In the near future, theThe Company plans
to initiate a stem cell therapyhas also initiated two clinical
trialsites in France, the results of which
are expected to be used for the CE Mark registration necessary toEurope. The Company may not market the Aastrom CPS in Europe.the United
States for stem cell therapy unless and until FDA and other necessary
regulatory approvals are received and in Europe until CE Mark Registration is
obtained.
For UCB transplants, the Aastrom CPS is intended to be used to enable
production of more effective therapeutic doses of cells, which would otherwise
not be available with the small volume of UCB typically available. The Company
has initiated, under an IDE received from the FDA, a multiple-site U.S.
clinical trial for UCB expansion and transplantation in adult and pediatric
patients.
The Company's business strategy is to: (i) establish a consumable-based
business model; (ii) focus initially on the currently-reimbursed stem cell
therapy market; (iii) leverage Aastrom's cell production technology across
multiple cell therapy market opportunities; and (iv) market through
collaborative relationships.establish multiple
strategic collaborations.
For stem cell therapy, Aastrom has entered into a strategic collaboration
with Cobe BCT to supportbe the developmentCompany's exclusive worldwide marketing, distribution
and marketing ofservice provider for the Aastrom CPS in the field of stem cell
therapy.CPS. In 1993, the Company entered into a
series of agreements, inpursuant to which Cobe BCT purchased $15,000,000an aggregate of
$20,000,000 of the Company's equity securities and acquired the worldwide
distribution rights to the Aastrom CPS for stem cell therapy. Under the terms
of the collaboration, Aastrom retains manufacturing rights as well as
the majority shareand 58% to 62% of
all revenue generated by Cobe BCT's sale of the Aastrom CPS.CPS, subject to the
Company's obligation to make certain royalty payments. Aastrom also retains all
marketing and distribution rights to the Aastrom CPS for other cell types and
ex vivo gene therapy applications, including stem cells.
The Company's patent portfolio includesCompany has exclusive rights to twelve issued U.S. patents, including
patents relating to bothproduction methods and composition of matter for stem and
progenitor cell production, processes forcells and the genetic modification of stem and other cell types, andas
well as patents for cell culture devices for human cells.
As of September 30,
1996, the Company had exclusive rights to five issued U.S. and three foreign
patents, and a number of U.S. patent applications and certain corresponding
foreign applications.
34
THE OFFERING
Common Stock offered...... 3,250,000 shares
Common Stock to be out- 13,235,734 shares(1)
standing after this of-
fering...................
Use of proceeds...........Common Stock offered...................... 1,500,000 shares
Common Stock to be outstanding after this 14,772,674 shares(1)
offering.................................
Use of proceeds........................... For clinical trials, the development and manufacture
of the Aastrom CPS for use in
clinical trials, expanded clinical
trials, research and development of
other product candidates, working
capital and other general corporate
purposes.
Proposed
Nasdaq National Market symbol............. ASTM
Market symbol............
SUMMARY FINANCIAL DATA
THREE MONTHS
YEAR ENDED JUNE 30,
ENDED SEPTEMBER 30,
--------------------------------------------------------------- ---------------------------
1992----------------------------------------------------------------
1993 1994 1995 1996 1995 19961997
----------- ----------- ----------- ----------- ----------- ----------- --------------------------
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $ -- $ 784,000 $ 872,000 $ 517,000 $ 1,609,000 $ 211,000 $ 224,000378,000
Costs and expenses:
Research and development........... 1,090,000develop-
ment.................. 2,600,000 5,627,000 4,889,000 10,075,000 1,195,000 3,160,00013,357,000
General and administrative........ 272,000administra-
tive.................. 1,153,000 1,565,000 1,558,000 2,067,000 446,000 452,0001,953,000
----------- ----------- ----------- ----------- ----------- ----------- -----------------------
Total costs and expenses............. 1,362,000ex-
penses............... 3,753,000 7,192,000 6,447,000 12,142,000 1,641,000 3,612,00015,310,000
Other income, net....... 94,000 122,000 180,000 213,000 616,000 131,000 115,000644,000
----------- ----------- ----------- ----------- ----------- ----------- -----------------------
Net loss................ $(1,268,000) $(2,847,000) $(6,140,000) $(5,717,000) $(9,917,000) $(1,299,000) $(3,273,000)$(14,288,000)
=========== =========== =========== =========== =========== =========== ===========
Pro forma net============
Net loss per share(2).................. $ (.32) $ (.49)(.52) $ (.82) $ (.66) $ (.98) $ (.13) $ (.32)(1.26)
=========== =========== =========== =========== =========== =========== ===========
Pro forma weighted============
Weighted average number
of shares
outstanding(2).. 3,919,000 5,840,000......... 5,480,000 7,461,000 8,644,000 10,103,000 10,094,000 10,107,00011,315,000
=========== =========== =========== =========== =========== =========== =======================
SEPTEMBERJUNE 30, 1996
---------------------------1997
----------------------------
ACTUAL AS ADJUSTED(3)
----------------------- --------------
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..................................invest-
ments........................................... $ 7,108,000 $33,410,50017,007,000 $26,527,000
Working capital.................................................................... 6,540,000 32,842,500capital.................................. 15,600,000 25,120,000
Total assets....................................................................... 8,931,000 35,233,500assets..................................... 18,410,000 27,930,000
Deficit accumulated during the development stage................................... (30,298,000) (30,298,000)stage. (41,313,000) (41,313,000)
Total stockholders' equity......................................................... 7,618,000 33,920,500shareholders' equity....................... 16,583,000 26,103,000
- ---------------
(1) Excludes options and warrants outstanding as of June 30, 1997 to purchase
1,132,361 shares1,127,815 of Common Stock at a weighted average exercise price of $6.50 per share, assuming the
closing of this offering at a price of $9.00$5.40 per
share. Also excludes 15,711 shares which were canceled in September 1997 in
connection with the repayment of a promissory note. See "Management--
Stock"Management--Stock
Option and Employee Benefit Plans"Plans," "Certain Transactions" and NotesNote 4 and 9 of
Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share and shares used in computing
pro forma net loss per
share.
(3) Adjusted to reflect the sale by the Company of 3,250,0001,500,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $9.00$7.00 per
share, after deduction of estimated underwriting discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."
Unless otherwise indicated, all5
RISK FACTORS
In addition to the other information contained in this Prospectus, (i)
gives effect to a two-for-three reverse stock split to be effected prior toprospective
investors should consider the closing of this offering, (ii) gives effect tofollowing risk factors in evaluating the conversion of all
outstanding sharesCompany
and its business before purchasing any of the Company's Preferred Stock into 8,098,422 shares of
Common Stock upon the closing of this offering, (iii) gives effect to the
filing of an Amended and Restated Articles of Incorporation upon the closing of
this offering to, among other things, create a new class of undesignated
preferred stock and (iv) assumes no exercise of the Underwriters' over-
allotment option. See "Description of Capital Stock" and "Underwriting."offered hereby.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in "Risk
Factors."
4
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider the following risk factors in evaluating the Company
and its business before purchasing any of the Common Stock offered hereby.below.
UNCERTAINTIES RELATED TO PRODUCT DEVELOPMENT AND MARKETABILITY
The Company has not completed the development or clinical trials of any of
its cell culture technologies or product candidates and, accordingly, has not
begun to market or generate revenue from their commercialization. Furthermore,
the Company's technologies and product candidates are based on cell culture
processes and methodologies which are not widely employed. Commercialization
of the Company's lead product candidate, the Aastrom CPS, will require
substantial additional research and development by the Company as well as
substantial clinical trials. There can be no assurance that the Company will
successfully complete development of the Aastrom CPS or its other product
candidates, or successfully market its technologies or product candidates,
which lack of success would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company or its collaborators may encounter problems and delays relating
to research and development, regulatory approval and intellectual property
rights of the Company's technologies and product candidates. There can be no
assurance that the Company's research and development programs will be
successful, that its cell culture technologies and product candidates will
facilitate the ex vivo production of cells with the expected biological
activities in humans, that its technologies and product candidates, if
successfully developed, will prove to be safe and efficacious in clinical
trials, that the necessary regulatory approvals for any of the Company's
technologies or product candidates and the cells produced in such products
will be obtained or, if obtained, will be as broad as sought, that patents
will issue on the Company's patent applications or that the Company's
intellectual property protections will be adequate. The Company's product
development efforts are primarily directed toward obtaining regulatory
approval to market the Aastrom CPS as an alternative to the bone marrow
harvest and peripheral blood progenitor cell ("PBPC") stem cell collection
methods. These stem cell collection methods have been widely practiced for a
number of years, and there can be no assurance that any of the Company's
technologies or product candidates will be accepted by the marketplace as
readily as these or other competing processes and methodologies, or at all.
The failure by the Company to achieve any of the foregoing would have a
material adverse effect on the Company's business, financial condition and
results of operations.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
The approval of the United StatesU.S. Food and Drug Administration (the "FDA") will be
required before any commercial sales of the Company's product candidates may
commence in the United States, and approvals from foreign regulatory
authorities will be required before international sales may commence. Prior to
obtaining necessary regulatory approvals, the Company will be required to
demonstrate the safety and efficacy of its processes and product candidates
and the cells produced by such processes and in such products for application
in the treatment of humans through extensive preclinical studies and clinical
trials. To date, the Company has only tested
the safety of cells produced in the cell culture chamber predecessor of the
Aastrom CPS, and only in a limited numbers of patients. The Company is currently conducting a pre-pivotal clinical trialtrials to
demonstrate the safety and biological activity of patient-derived or UCB cells
produced in the Company's cell culture chamberprototype of the Aastrom CPS in a limited number of
patients with breast cancer and,
ifcancer. If the results from thisthese pre-pivotal trialtrials are
successful, the Company intends to seek clearance from the FDA to commence
its pivotal clinical trial.trials. The results of preclinical studies and clinical
trials of the Company's product candidates, however, may not necessarily be
predictive of results that will be obtained from subsequent or more extensive
clinical trials. Further, there can be no assurance that pre-pivotal or
pivotal clinical trials of any of the Company's product candidates will
demonstrate the safety, reliability and efficacy of such products, or of the
cells produced in such products, to the extent necessary to obtain required
regulatory approvals or market acceptance.
6
The ability of the Company to complete its clinical trials in a timely
manner is dependent upon many factors, including the rate of patient
enrollment. Patient enrollment is a function of many factors, including the
size of the patient population, the proximity of suitable patients to clinical
sites and the eligibility criteria for the 5
study. The Company has experienced
delays in patient accrual in its current pre-pivotal clinical trial.trials. Further
delays in patient accrual, in the Company's current pre-pivotal clinical
trialtrials or in future clinical trials, could result in increased costs
associated with clinical trials or delays in receiving regulatory approvals
and commercialization, if any. Furthermore, the progress of clinical
investigations with the Aastrom CPS and the Company's other product candidates
will be monitored by the FDA, which has the authority to cease clinical
investigations, at any time, due to patient safety or other considerations.
Any of the foregoing would have a material adverse effect on the Company's
business, financial condition and results of operations. See "--
Uncertainty"--Uncertainty of
Regulatory Approval" and "--ExtensiveApproval; Extensive Government Regulation."
The Company's current pre-pivotal trial istrials are designed to demonstrate
specific biological safety and activity of cells produced in the Aastrom CPS,
but is not designed to demonstrate long-term sustained engraftment of such
cells. The patients enrolled in this pre-pivotal trial will have undergone
extensive chemotherapy treatment prior to the infusion of cells produced in
the Aastrom CPS. Such treatments will have substantially weakened these
patients and may have irreparably damaged their hematopoietic systems. Due to
these and other factors, thereit is riskpossible that one or more of these patients may
die or suffer severe complications during the course of the pre-pivotal trial.
Further, there can be no assurance that patients receiving cells produced with
the Company's technologies and product candidates will demonstrate long-term
engraftment in a manner comparable to cells obtained from current stem cell
therapy procedures, or at all. The failure to adequately demonstrate the
safety or efficacy of the Company's technologies and product candidates,
including long-term sustained engraftment, or the death of, or occurrence of
severe complications in, one or more patients could substantially delay, or
prevent, regulatory approval of such product candidates and have a material
adverse effect on the Company's business, financial condition and results of
operations.
MANUFACTURING AND SUPPLY UNCERTAINTIES; DEPENDENCE ON THIRD PARTIES
The Company does not operate and has no current intention to operate
manufacturing facilities for the production of its product candidates. The
Company currently arranges for the manufacturingmanufacture of its product candidates and
their components, including certain cytokines, serum and media, with third
parties, and expects to continue to do so in the forseeableforeseeable future. The
Company has entered into collaborative product development and supply
agreements with SeaMED Corporation ("SeaMED") and, Ethox Corporation ("Ethox") and
Anchor Advanced Products Inc., Mid-State Plastics Division ("MSP"), for the
collaborative development and manufacture of certain components of the Aastrom
CPS.CPS and is dependent upon those suppliers to manufacture its products. The
Company is also dependent upon Immunex Corporation ("Immunex"), Life
Technologies, Inc., and Biowhittaker and
Anchor Advanced Products for the supply of certain cytokines, serum
media and injection molded materials, respectively,media to be used in conjunction with or
as components of, the Aastrom CPS. With regard to
cytokines that are not commercially available from other sources, Immunex is
currently the Company's sole supplier and few alternative supply sources
exist. Apart from SeaMED, Ethox, MSP and Immunex, the Company currently does
not have contractual commitments from any of these manufacturers or suppliers.
There can be no assurance that the Company's supply of such key cytokines,
components and other materials will not become limited, be interrupted or
become restricted to certain geographic regions. Furthermore, the Company currently only has the right to
distribute cytokines obtained from Immunex in the United States andAdditionally, there can be no
assurance that the Company will not require additional cytokines, components
and other materials to manufacture, use or market its product candidates, or
that necessary key components will be able to obtainavailable for use on a sustained basis,
if at all, by the worldwide right to
distribute such cytokines or manufacture such cytokines by or for itselfCompany in the event that the Company's agreement with Immunex is terminated.markets in which it intends to sell its
products. There can also be no assurance that the Company will be able to
obtain alternative components and materials from other manufacturers of
acceptable quality, or on terms or in quantities acceptable to the Company or
that the Company will not require additional cytokines, components and other
materials to manufacture or use its product candidates. In the event that any
of the Company's key manufacturers or suppliers fail to perform their
respective obligations or the Company's supply of such cytokines, components
or other materials become limited or interrupted, the Company would not be
able to market its product candidates on a timely and cost-competitive basis,
if at all, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
7
Certain of the compounds used by the Company in its current stem cell
expansion process involve the use of animal-derived products. The availability
of these compounds for clinical and commercial use may become limited by
suppliers or restricted by regulatory authorities, which may impose a
potential competitive disadvantage for the Company's products compared to
competing products and procedures. There can be no assurance that the Company
will not experience delays or disadvantages related to the future availability
of such materials. Any restriction on the use of such materials could have a
material adverse effect on the Company's business, financial condition and
results of operations, and there can be no assurance that the Company will be
able to develop or obtain alternative compounds.
Like SeaMED, Ethox and Ethox,MSP, other suppliers would need to meet FDA
manufacturing requirements and undergo rigorous facility and process
validation tests required by federal and state regulatory authorities. Any
significant delays in the completion and validation of such facilities could
have a material adverse effect on the
6
ability of the Company to complete
clinical trials and to market its products on a timely and profitable basis,
which in turn would have a material adverse effect on the Company's business,
financial condition and results of operations.
There can also be no assurance that the Company will be able to continue its
present arrangements with its suppliers, supplement existing relationships or
establish new relationships or that the Company will be able to identify and
obtain the ancillary materials that are necessary to develop its product
candidates in the future. The Company's dependence upon third parties for the
supply and manufacture of such items could adversely affect the Company's
ability to develop and deliver commercially feasible products on a timely and
competitive basis.
HISTORY OF OPERATING LOSSES; ANTICIPATION OF FUTURE LOSSES
The Company is a development stage company and there can be no assurance
that its product applications for cell therapy will be successful. The Company
has not yet completed the development and clinical trials of any of its
product candidates and, accordingly, has not yet begun to generate revenues
from the commercialization of any of its product candidates. Aastrom was
incorporated in 1989 and has experienced substantial operating losses since
inception. As of SeptemberJune 30, 1996,1997, the Company has incurred net operating losses
totaling approximately $30.3$41.3 million. Such losses have resulted principally
from costs incurred in the research and development of the Company's cell
culture technologies and the Aastrom CPS, general and administrative expenses,
and the prosecution of patent applications. The Company expects to incur
significant and increasing operating losses for at least the next several
years, primarily owing to the expansion of its research and development
programs, including preclinical studies and clinical trials. The amount of
future losses and when, if ever, the Company achieveswill achieve profitability, are
uncertain. The Company's ability to achieve profitability will depend, among
other things, on successfully completing the development of its product
candidates, obtaining regulatory approvals, establishing manufacturing, sales
and marketing arrangements with third parties, and raising sufficient funds to
finance its activities. No assurance can be given that the Company's product
development efforts will be successful, that required regulatory approvals
will be obtained, that any of the Company's product candidates will be
manufactured at a competitive cost and will be of acceptable quality, or that
the Company will be able to achieve profitability or that profitability, if
achieved, can be sustained.
LIMITED SALES AND MARKETING CAPABILITIES; DEPENDENCE ON COLLABORATIVE
RELATIONSHIPS
The Company has limited internal sales, marketing and distribution
capabilities. If any of the Company's product candidates are successfully
developed and the necessary regulatory approvals are obtained, the Company
intends to market such products through collaborative relationships with
companies that have established sales, marketing and distribution
capabilities. The Company has established a strategic alliance with Cobe
Laboratories, Inc. and Cobe BCT, Inc. (collectively, "Cobe") for the worldwide
distribution of the Aastrom CPS for stem cell therapy and related uses. Cobe
has the right to terminate its Distribution Agreement with the Company upon
twelve month'smonths notice upon a change of control of the Company, other than to
Cobe, or at any time after December 31, 1997, if Cobe determines that
commercialization of the Aastrom CPS for stem cell therapy on or prior to
December 31, 1998 is unlikely. See "--Consequences of Cobe Relationship."
8
The amount and timing of resources that Cobe commits to its strategic
alliance activities with the Company are, to a significant extent, outside of
the control of the Company. There can be no assurance that Cobe will pursue
the marketing and distribution of the Company's products, continue to perform
its obligations under its agreements with the Company or that the Company's
strategic alliance with Cobe will result in the successful commercialization
and distribution of the Company's technologies and product candidates. There
can also be no assurance that Cobe will be successful in its efforts to market
and distribute the Company's products for stem cell therapy. The suspension or
termination of the Company's strategic alliance with Cobe or the failure of
the strategic alliance to be successful would have a material adverse effect
on the Company's business, financial condition and results of operations.
Subject to the contractual requirements of the Cobe relationship, the
Company will seek to enter into other agreements relating to the development
and marketing of product candidates and in connection with such 7
agreements may
rely upon corporate partners to conduct clinical trials, seek regulatory
approvals for, manufacture and market its potential products. There can be no
assurance that the Company will be able to establish collaborative
relationships for the development or marketing of the Company's product
candidates on acceptable terms, if at all.all, or, if such relationships are
established, that they will be successful or sustained on a long-term basis.
The inability of the Company to establish such collaborative relationships may
require the Company to curtail its development or marketing activities with
regard to its potential products which would have a material adverse effect on
the Company's business, financial condition and results of operations.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
To date, Aastrom has funded its operations primarily through the sale of
equity securities and corporate collaborations. The Company anticipates that
the net proceeds of this offering, together with the Company's available cash
and expected interest income thereon, will be sufficient to finance itsthe
development and manufacture of the Aastrom CPS for use in clinical trials,
expanded clinical trials, other research and development and other working capital
and other corporate requirements for 18 months
or less.until late 1998. This estimate is based on
certain assumptions which could be negatively impacted by the matters
discussed under this heading and elsewhere under the caption "Risk Factors."
In order to grow and expand its business, and to introduce its product
candidates into the marketplace, the Company will need, among other things, to
raise additional funds. The development of the Company's products for the
expansion of additional cell types will require the Company to raise
additional funds or to seek collaborative partners, or both, to finance
related research and development activities.
The Company's future capital requirements will depend upon many factors,
including, but not limited to, continued scientific progress in its research
and development programs, costs and timing of conducting clinical trials and
seeking regulatory approvals and patent prosecutions, competing technological
and market developments, possible changes in existing collaborative
relationships, the ability of the Company to establish additional
collaborative relationships, and effective commercialization activities and
facilities expansions if and as required. Because of the Company's potential
long-term funding requirements, it may attempt to access the public or private
equity markets if and whenever conditions are favorable, even if it does not
have an immediate need for additional capital at that time. There can be no
assurance that any such additional funding will be available to the Company on
reasonable terms, or at all. If adequate funds are not available, the Company
may be required to delay or terminate research and development programs,
curtail capital expenditures, and reduce business development and other
operating activities. If the Company is not successful in finding, entering
into and maintaining arrangements with collaborative partners, its development
efforts could be delayed. Furthermore, there can be no assurance that the
Company will be able to implement collaborative development agreements under
acceptable terms.terms, if at all. Any of the foregoing capital constraints would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
UNCERTAINTY OF REGULATORY APPROVAL; EXTENSIVE GOVERNMENT REGULATION
The Company's research and development activities, preclinical studies,
clinical trials, and the anticipated manufacturing and marketing of its
product candidates are subject to extensive regulation by the FDA and other
regulatory authorities in the United States. These activities are also
regulated in other countries where the
9
Company intends to test and market its product candidates. The approval of the
FDA will be required before any commercial sales of the Company's product
candidates may commence in the United States. Additionally, the Company will be
required to obtain approvals from foreign regulatory authorities before
international sales may commence.
The Company's products are potentially subject to regulation as medical
devices under the Federal Food, Drug, and Cosmetic Act, or as biological
products under the Public Health Service Act, or both. Different regulatory
requirements may apply to the Company's products depending on how they are
categorized by the FDA under these laws. To date, the FDA has indicated that it
intends to regulate the Aastrom CPS for stem cell therapy as a Class III
medical device through the Center for Biologics Evaluation and Research.
However, there can be no assurance that the FDA will ultimately regulate the
Aastrom CPS for stem cell therapy as a medical device or that regulatory
approval for such product will be obtained in a timely fashion or at all.
Further, it is unclear whether the FDA will separately regulate the cell
therapies derived from the Aastrom CPS. The FDA is in the process of developing
its requirements with respect to somatic cell therapy and gene cell therapy
products, and recently proposed a new type of license for autologous cells
manipulated ex vivo and 8
intended for structural repair or reconstruction;
autologous cells are cells obtained from, and administered to, the same
patient. This proposal may indicate that the FDA will impose a similar approval
requirement on other types of autologous cellular therapies, such as autologous
cells for stem cell therapy. Any such additional regulatory or approval
requirement could significantly delay the introduction of the Company's product
candidates to the market, and have a material adverse effect on the Company's
business, financial condition and results of operations. Until the FDA issues
definitive regulations covering the Company's product candidates, the
regulatory guidelines or requirements for approval of such product candidates
will continue to be subject to significant uncertainty.
Before marketing, the Aastrom CPS or other product candidates developed by
the Company must undergo an extensive regulatory approval process. The
regulatory process, which includes preclinical studies and clinical trials to
establish safety and efficacy, takes many years and requires the expenditure of
substantial resources. Data obtained from preclinical and clinical activities
are susceptible to varying interpretations which could delay, limit or prevent
FDA approval. In addition, delays or rejections may be encountered based upon
changes in FDA policy for medical product approvals during the period of
product development and FDA regulatory review of applications submitted by the
Company for product approval. Similar delays may also be encountered in foreign
countries. There can be no assurance that, even after the expenditures of
substantial time and financial resources, regulatory approval will be obtained
for any products developed by the Company. Moreover, if regulatory approval of
a product is obtained, such approval may be subject to limitations on the
indicated uses for which it may be marketed. Further, even if such regulatory
approval is obtained, a marketed product, its manufacturer and its
manufacturing facilities are subject to continual review and periodic
inspections by the FDA, and later discovery of previously unknown problems with
a product, manufacturer or facility may result in restrictions on such product
or manufacturer, including a withdrawal of the product from the market. Failure
to comply with the applicable regulatory requirements can, among other things,
result in fines, suspensions of regulatory approvals, product recalls,
operating restrictions and criminal prosecution. Further, additional government
regulation may be established which could prevent or delay regulatory approval
of the Company's products.
The Company believes that the Aastrom CPS will be regulated in Europe as a
Class IIb medical device, under the authority of the new Medical Device
Directives ("MDD") being implemented by European Union ("EU") member countries.
In order for the Company to market its products in Europe, it must obtain a CE
Mark from a Notified Body to certify that the Company and its operations comply
with certain minimum quality standards and compliance procedures, or,
alternatively, that its manufactured products meet a more limited set of
requirements. There can be no assurance that the Company and its suppliers will
be able to meet these minimum requirements, or, if met, that the Company and
its suppliers will be able to maintain such compliance. The result of such non-
compliance would have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance,
however, that the Aastrom CPS will be regulated in Europe as a Class IIb
medical device, and, if the Aastrom CPS is not so regulated, the Company could
be forced to obtain additional regulatory approvals and could be subjected to
additional regulatory requirements and uncertainty, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Government Regulation."
10
CONSEQUENCES OF COBE RELATIONSHIP
Following the completion of this offering, Cobe will beis the largest single shareholder of the Company, beneficially owning
approximately 19%22% of the outstanding Common Stock.Stock following the completion of
this offering. In addition, Cobe has certain preemptive rights to maintain its
relative percentage ownership and voting interest in the Company, followingpursuant to
which Cobe has the option of purchasing shares in this offering andto maintain
its beneficial ownership at approximately 24% of the outstanding shares of
Common Stock. Cobe also has the right, for a period of three years
following this offering,an option, until February 2000, to purchase from
the Company an amount of Common Stock equal to 30% of the Company's fully
diluted shares after the exercise of such option, at a purchase price equal to
120% of the public market trading price of the Company's Common Stock. If such
option is exercised, Cobe would significantly increase its ownership interest
in the Company and, as a consequence of such share ownership, obtain effective
control of the Company. Such effective control would include the ability to
influence the outcome of shareholder votes, including votes concerning the
election of directors, the amendment of provisions of the Company's Restated
Articles of Incorporation or Bylaws, and the approval of mergers and other
significant transactions. Cobe also has been granted a "right of first
negotiation" in the event that the Company determines to sell all, or any
material portion, of its assets to another company or to merge with another
company. Furthermore, the Company has agreed to use reasonable and good faith
efforts to cause a nominee designated by Cobe to be elected to the Board of
Directors for as long as Cobe owns at least 15% of the outstanding Common
Stock. In addition, Edward C. Wood, Jr., the President of Cobe BCT, is a
director of the Company. The agreements establishing the Company's
relationship with Cobe provide the Company with an option (the "Put Option")
to require Cobe to purchase the lesser of 20%, or $5,000,000, in an initial
public offering ("IPO") or a private offering meeting certain minimum
requirements. In the event that the Company exercises the Put Option, Cobe
then has the option to purchase up to 40% of that offering. While the Put
Option was not exercised by the Company in connection with the IPO, Cobe
voluntarily elected to purchase an additional 714,200 shares of Common Stock
in the IPO, for an aggregate purchase price of approximately $5,000,000. The
Put Option does not apply to any public offerings, including this offering.
The Company and Cobe are evaluating whether or not the Put Option remains in
effect as to any future private offerings of the Company's equity securities.
The existence of the foregoing rights or the exercise of such control by Cobe
could have the effect of delaying, deterring or preventing certain takeovers
or changes in control of the management of the Company, including transactions
in which shareholders might otherwise receive a premium for their shares over
then-currentthen current market prices. See "Description of Capital Stock--Rights of
Cobe."
COMPETITION AND TECHNOLOGICAL CHANGE
The Company is engaged in the development of medical products and processes
which will face competition in a marketplace characterized by rapid
technological change. Many of the Company's competitors have significantly
greater resources than the Company, and have developed and may develop product
candidates and processes that directly compete with the Company's products.
Moreover, competitors that are able to achieve patent protection, obtain
regulatory approvals and commence commercial sales of their products before
the Company, and competitors that have already done so, may enjoy a
significant competitive advantage. The Company's product development efforts
are primarily directed toward obtaining regulatory approval to market the
Aastrom CPS for stem cell therapy. That market is currently dominated by the
bone marrow harvest and PBPC collection methods. The Company's clinical data,
although early, suggests that cells expanded in the Aastrom CPS using its
current process will enable hematopoietic recovery within the time frames
currently achieved by bone marrow harvest, however, neutrophil and platelet
recovery times may be slower than with PBPC collection methods. The Company is
evaluating techniques and methods to optimize the cells produced in the
Aastrom CPS to reduce the recovery time of neutrophils and platelets in
patients. There can be no assurance that if such procedure optimization does
not lead to recovery times equal to or faster than those of PBPC collection
methods, such outcome would not have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, the bone marrow harvest and PBPC collection methods have been widely
practiced for a number of years and, recently, the patient costs associated
with these procedures have begun to decline. There can be no assurance that
the Aastrom CPS method, if approved for marketing, will prove to be
competitive with these established collection methods on the basis of
hematopoietic recovery time, cost or otherwise. The Company also is aware of
certain other products manufactured or under development by competitors that
are used for the prevention or treatment of certain diseases and health
conditions which the
11
Company has targeted for product development. In particular, the Company is
aware that competitors such as Amgen, Inc., CellPro, Incorporated, Novartis,
A.G., Baxter Healthcare Corp. and Rhone-Poulenc Rorer Inc. ("RPR") are in
advanced stages of development of technologies and products for use in stem
cell therapy and other market applications currently being pursued by the
Company. In addition, Cobe, a significant shareholder of the Company, is a
market leader in the blood cell processing products industry and, accordingly,
a potential competitor of the Company. There can be no assurance that
developments by others will not render the Company's product candidates or
technologies obsolete or noncompetitive, that the Company will be able to keep
pace with new technological developments or that the Company's product
candidates will be able to supplant established products and methodologies in
the therapeutic areas that are targeted by the Company. The foregoing factors
could have a material adverse effect on the Company's business, financial
condition and results of operations.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
Aastrom's success depends in part on its ability, and the ability of its
licensors, to obtain patent protection for its products and processes,
preserve its trade secrets, defend and enforce its rights against infringement
and
9
operate without infringing the proprietary rights of third parties, both
in the United States and in other countries. The validity and breadth of
claims in medical technology patents involve complex legal and factual
questions and, therefore, may be highly uncertain. No assurance can be given
that any patents based on pending patent applications or any future patent
applications of the Company or its licensors will be issued, that the scope of
any patent protection will exclude competitors or provide competitive
advantages to the Company, that any of the patents that have been or may be
issued to the Company or its licensors will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents
and other proprietary rights held or licensed by the Company. Furthermore,
there can be no assurance that others have not developed or will not develop
similar products, duplicate any of the Company's products or design around any
patents that have been or may be issued to the Company or its licensors. Since
patent applications in the United States are maintained in secrecy until
patents issue, the Company also cannot be certain that others did not first
file applications for inventions covered by the Company's and its licensors'
pending patent applications, nor can the Company be certain that it will not
infringe any patents that may issue to others on such applications. The
Company relies on certain licenses granted by the University of Michigan and
Dr. Cremonese for the majority of its patent rights. If the Company breaches
such agreements or otherwise fails to comply with such agreements, or if such
agreements expire or are otherwise terminated, the Company may lose its rights
under the patents held by the University of Michigan and Dr. Cremonese, which
would have a material adverse effect on the Company's business, financial
condition and results of operation. See "Business--Patents and Proprietary
Rights--University of Michigan Research AgreementRights--Research and License Agreement" and
"Business--Patents and Proprietary Rights--License Agreement with J.G.
Cremonese.Agreements." The Company also relies on trade
secrets and unpatentable know-how which it seeks to protect, in part, by
confidentiality agreements with its employees, consultants, suppliers and
licensees. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or
that the Company's trade secrets or unpatentable know-how will not otherwise
become known or be independently developed by competitors.
The Company's success will also depend in part on its ability to develop
commercially viable products without infringing the proprietary rights of
others. The Company has not conducted freedom of use patent searches and no
assurance can be given that patents do not exist or could not be filed which
would have an adverse effect on the Company's ability to market its products
or maintain its competitive position with respect to its products. If the
Company's technology components, devices, designs, products, processes or
other subject matter are claimed under other existing United States or foreign
patents or are otherwise protected by third party proprietary rights, the
Company may be subject to infringement actions. In such event, the Company may
challenge the validity of such patents or other proprietary rights or be
required to obtain licenses from such companies in order to develop,
manufacture or market its products. There can be no assurance that the Company
would be able to obtain such licenses or that such licenses, if available,
could be obtained on commercially reasonable terms. Furthermore, the failure
to either develop a commercially viable alternative or obtain such licenses
could result in delays in marketing the Company's proposed products or the
inability to proceed with the development, manufacture or sale of products
requiring such licenses, which could have a material adverse
12
effect on the Company's business, financial condition and results of
operations. If the Company is required to defend itself against charges of
patent infringement or to protect its own proprietary rights against third
parties, substantial costs will be incurred regardless of whether the Company
is successful. Such proceedings are typically protracted with no certainty of
success. An adverse outcome could subject the Company to significant
liabilities to third parties, and force the Company to curtail or cease its
development and sale of its products and processes. See "Business--Patents and
Proprietary Rights."
NO ASSURANCE OF THIRD PARTY REIMBURSEMENT
The Company's ability to successfully commercialize its product candidates
will depend in part on the extent to which payment for the Company's products
and related treatments will be available from government healthcare programs,
such as Medicare and Medicaid, as well as private health insurers, health
maintenance organizations and other third party payors. Government and other
third-party payors are increasingly attempting to contain health care costs,
in part by challenging the price of medical products and services.
Reimbursement by third-party payors dependdepends on a number of factors, including
the payor's determination that use of the product
10
is safe and effective, not
experimental or investigational, medically necessary, appropriate for the
specific patient and cost-effective. Since reimbursement approval is required
from each payor individually, seeking such approvals is a time-consuming and
costly process which will require the Company to provide scientific and
clinical support for the use of each of the Company's products to each payor
separately. Significant uncertainty exists as to the payment status of newly
approved medical products, and there can be no assurance that adequate third-partythird-
party payments will be available to enable the Company to establish or
maintain price levels sufficient to realize an appropriate return on its
investment in product development. If adequate payment levels are not provided
by government and third-party payors for use of the Company's products, the
market acceptance of those products will be adversely affected.
There can be no assurance that reimbursement in the United States or foreign
countries will be available for any of the Company's product candidates, that
any reimbursement granted will be maintained, or that limits on reimbursement
available from third-party payors will not reduce the demand for, or
negatively affect the price of, the Company's products. The unavailability or
inadequacy of third-party reimbursement for the Company's product candidates
would have a material adverse effect on the Company. Finally, the Company is
unable to forecast what additional legislation or regulation relating to the
healthcare industry or third-party coverage and reimbursement may be enacted
in the future, or what effect such legislation or regulation would have on the
Company's business.
COMPETITION AND TECHNOLOGICAL CHANGE
The Company is engaged in the development of medical products and processes
which will face competition in a marketplace characterized by rapid
technological change. Many of the Company's competitors have significantly
greater resources than the Company, and have developed and may develop product
candidates and processes that directly compete with the Company's products.
Moreover, competitors that are able to achieve patent protection, obtain
regulatory approvals and commence commercial sales of their products before
the Company, and competitors that have already done so, may enjoy a
significant competitive advantage. The Company's product development efforts
are primarily directed toward obtaining regulatory approval to market the
Aastrom CPS for stem cell therapy. That market is currently dominated by the
bone marrow harvest and PBPC collection methods. The Company's clinical data,
although early, is inconclusive as to whether or not cells expanded in the
Aastrom CPS will enable hematopoietic recovery within the time frames
currently achieved by the bone marrow harvest and PBPC collection methods. In
addition, the bone marrow harvest and PBPC collection methods have been widely
practiced for a number of years and, recently, the patient costs associated
with these procedures have begun to decline. There can be no assurance that
the Aastrom CPS method, if approved for marketing, will prove to be
competitive with these established collection methods on the basis of
hematopoietic recovery time, cost or otherwise. The Company also is aware of
certain other products manufactured or under development by competitors that
are used for the prevention or treatment of certain diseases and health
conditions which the Company has targeted for product development. In
particular, the Company is aware that competitors such as Amgen, Inc.,
CellPro, Incorporated, Systemix, Inc., Baxter Healthcare Corp. and Rhone-
Poulenc Rorer Inc. ("RPR") are in advanced stages of development of
technologies and products for use in stem cell therapy and other market
applications currently being pursued by the Company. In addition, Cobe, a
significant shareholder of the Company, is a market leader in the blood cell
processing products industry and, accordingly, a potential competitor of the
Company. There can be no assurance that developments by others will not render
the Company's product candidates or technologies obsolete or noncompetitive,
that the Company will be able to keep pace with new technological developments
or that the Company's product candidates will be able to supplant established
products and methodologies in the therapeutic areas that are targeted by the
Company. The foregoing factors could have a material adverse effect on the
Company's business, financial condition and results of operations.
HAZARDOUS MATERIALS
The Company's research and development activities involve the controlled use
of hazardous materials, chemicals and various radioactive compounds. The
Company is subject to federal, state and local laws and
11
regulations governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. In the event of any contamination or injury from these
materials, the Company could be held liable for any damages that result and
any such liability could exceed the resources of the Company. Furthermore, the
failure to comply with current or future regulations could result in the
imposition of substantial fines against the Company, suspension of production,
alteration of its manufacturing processes or cessation of operations. There
can be no assurance that the Company will not be required to incur significant
costs to comply with any such laws and regulations in the future, or that such
laws or regulations will not have a material adverse effect on the Company's
business, financial condition and results of operations. Any failure by the
Company to control the use, disposal, removal or storage of, or to adequately
restrict the discharge of, or assist in the cleanup of, hazardous chemicals or
hazardous, infectious or toxic substances could subject the Company to
significant liabilities, including joint and several liability under certain
statutes. The imposition of such liabilities would have a material adverse
effect on the Company's business, financial condition and results of
operations.
POTENTIAL PRODUCT LIABILITY; AVAILABILITY OF INSURANCE
The Company is, and will continue to be, subject to the risk of product
liability claims alleging that the use of its products has adverse effects on
patients. This risk exists for product candidates tested in human clinical
13
trials as well as products that are sold commercially, if any. Further, given
the medical conditions for which the Aastrom CPS is expected to be utilized,
any product liability claim could entail substantial compensatory and punitive
damages. The assertion of product liability claims against the Company could
result in a substantial cost to, and diversion of efforts by, the Company.
There can be no assurance that the Company would prevail in any such
litigation or that product liability claims, if made, would not result in a
recall of the Company's products or a change in the indications for which they
may be used. The Company maintains product liability insurance coverage in theup to
an aggregate of $5,000,000 for claims arising from the use of its product
candidates in clinical trials. There can be no assurance that the Company will
be able to maintain such insurance or obtain product liability insurance in
the future to cover any of its product candidates which are commercialized or
that such existing or any future insurance and the resources of the Company
would be sufficient to satisfy any liability resulting from product liability
claims. Consequently, a product liability claim or other claim with respect to
uninsured or underinsured liabilities could have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends in large part upon the Company's ability
to attract and retain highly qualified scientific and management personnel.
The Company faces competition for such personnel from other companies,
research and academic institutions and other entities. There can be no
assurance that the Company will be successful in hiring or retaining key
personnel. See "Business--Employees" and "Management."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect the prevailing market price of the Common
Stock and the Company's ability to raise capital in the future. Upon
completion of this offering, the Company will have a total of 13,235,73414,772,674
shares of Common Stock outstanding, based upon the number of shares
outstanding as of September 30, 1997, all of which are eligible for sale in
the 3,250,000 shares offered
hereby will be freely tradeable without restriction under the Securities Act
of 1933, as amended (the "Securities Act") by persons other than "affiliates"
of the Company, as defined under the Securities Act. The remaining 9,985,734
shares of Common Stock outstanding are "restricted securities" as the term is
defined by Rule 144 promulgated under the Securities Act (the "Restricted
Shares"). Of the 9,985,734 Restricted Shares, 6,996,920 shares may be sold
under Rule 144,public market, subject in some cases to certain volume restrictions and
other conditions imposed thereby. An additional 152,056 shares will become eligible
for sale 90 days after completion of the offering pursuant toby Rule 144 and
701. The remaining 2,836,758 shares will be eligible for sale uponunder the expirationSecurities Act of their respective holding periods1933, as
set forth in Rule 144. The
Securities and Exchange Commission has proposed certain amendments to Rule 144
that would reduce by one year the holding periods required for shares subject
to Rule 144 to become eligible for resale in
12
the public market. This proposal, if adopted, would permit earlier resale ofamended (the "Securities Act"). However, 5,707,252 outstanding shares of
Common Stock currently subject to holding periods under Rule 144. No
assurance can be given concerning whether or when the proposal will be adopted
by the Securities and Exchange Commission. Furthermore, 9,810,503 of the
Restricted Shares are subject to lock-up agreements expiring 18090 days following the
date of this Prospectus. Such agreements provide that Cowen & Company may, in
its sole discretion and at any time without notice, release all or a portion
of the shares subject to these lock-up agreements. Upon the
expiration of the lock-up agreements, 7,148,976 of the 9,985,734 Restricted
Shares may be sold pursuant to Rule 144 or 701, subject in some cases to
certain volume restrictions imposed thereby. Certain existing
stockholdersshareholders have rights to include shares of Common Stock owned by them in
future registrationregistrations by the Company for the sale of Common Stock or to request
that the Company register their shares under the Securities Act. See
"Description of Capital Stock--Registration Rights.Rights," Following the date of this Prospectus,
the Company intends to register on one or more registration statements on Form
S-8 approximately 1,837,160 shares of Common Stock issuable under its stock
option and stock purchase plans. Of the 1,837,160 shares issuable under its
stock option and stock purchase plans, 336,254 shares are subject to
outstanding options as of September 30, 1996, 318,920 of which shares are
subject to lock-up agreements. Shares covered by such registration statements
will immediately be eligible for sale in the public market upon the filing of
such registration statements. In addition, the Company has issued warrants to
purchase 69,444 shares of Common Stock which become exercisable 90 days after
the closing of this offering and, upon the effective date of this offering,
will grant an immediately exercisable option to purchase 333,333 shares of
Common Stock, which shares are subject to a lock-up agreement. See
"Management--Benefit Plans," "Certain Transactions" and "Shares Eligible for
Future Sale.Sale" and "Plan of Distribution."
CONTROL BY EXISTING MANAGEMENT AND SHAREHOLDERS
Upon completion of this offering, the Company's directors, executive
officers, and certain principal shareholders, including Cobe, affiliated with
members of the Board of Directors and their affiliates will beneficially own
approximately 39%32.5% of the outstanding shares of Common Stock (approximately 38% if the Underwriters'
over-allotment option is exercised in full).Stock. Accordingly,
such shareholders, acting together, may have the ability to exert significant
influence over the election of the Company's Board of Directors and other
matters submitted to the Company's shareholders for approval. The voting power
of these holders may discourage or prevent certain takeovers or changes in
control of the management of the Company unless the terms are approved by such
holders. See "Principal Shareholders."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY
Prior to this offering there has been no public market forThe price of the Company's Common Stock and an active public market for the Common Stock may not develop or be
sustained. The initial public offering price will be determined through
negotiation between the Company and the Representatives of the Underwriters
based on several factors that may not be indicative of future market prices.
See "Underwriting" for a discussion of the factors considered in determining
the initial public offering price.has experienced significant
volatility. The trading price of the Common Stock and the price at which the
Company may sell securities in the future could be subject to wide
fluctuations in response to announcements of clinical results, research
activities, technological innovations or new
14
products by the Company or competitors, changes in government regulation,
developments concerning proprietary rights, variations in the Company's
operating results, announcements by the Company of regulatory developments,
litigation, disputes concerning patents or proprietary rights or public
concern regarding the safety, efficacy or other implications of the products
or methodologies to be developed by the Company or its collaborators or
enabled by the Company's technology, general market conditions, the liquidity
of the Company or its ability to raise additional funds, and other factors or
events. In addition, the stock market has experienced extreme fluctuations in
price and volume. This volatility has significantly affected the market prices
for securities of emerging biotechnology companies for reasons frequently
unrelated to or disproportionate to the operating performance of the specific
companies. These market fluctuations, as well as generalshortfalls in revenue or
earnings as compared with public market analysts' expectations, changes in
such analysts' recommendations or projections and fluctuations in the stock
markets generally may adversely affect the market price of the Common Stock.
In addition, since the Company's initial public offering in February 1997, the
average daily trading volume of the Common Stock on the Nasdaq National Market
has generally been relatively low. There can be no assurance that a more
active trading market will develop in the future.
ANTI-TAKEOVER EFFECT OF CHARTER AND BY-LAWBYLAW PROVISIONS AND MICHIGAN LAW
The Company's Restated Articles of Incorporation authorize the Board of
Directors to issue, without shareholder approval, 5,000,000 shares of
Preferred Stock with voting, conversion, and other rights and
13
preferences that
could materially and adversely affect the voting power or other rights of the
holders of Common Stock. The issuance of Preferred Stock or of rights to
purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal. The Company's Bylaws contain procedural restrictions on
director nominations by shareholders and the submission of other proposals for
consideration at shareholder meetings. The possible issuance of Preferred
Stock and the procedures required for director nominations and shareholder
proposals could discourage a proxy contest, make more difficult the
acquisition of a substantial block of Common Stock, or limit the price that
investors might be willing to pay in the future for shares of Common Stock.
The Company's Restated Articles of Incorporation eliminate the right of
shareholders to act without a meeting, do not provide for cumulative voting in
the election of directors and provide that the holders of at least two-thirds
of the outstanding shares of Common Stock must approve certain transactions
resulting in a change of control of the Company. In addition, certain
provisions of Michigan law applicable to the Company could also delay or make
more difficult a merger, tender offer or proxy contest involving the Company.
See "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
Purchasers of the Common Stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the Common Stock.
Additional dilution is likely to occur upon the exercise of outstanding
options or warrants granted by the Company. The Company has never paid cash
dividends and does not anticipate paying any cash dividends in the foreseeable
future. See "Dilution" and "Dividend Policy."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended, including, but not limited to, statements
regarding: uncertainties related to product development and marketability;
uncertainties related to clinical trials; manufacturing and supply
uncertainties and dependence on third parties; history of operating losses and
anticipation of future losses; limited sales and marketing capabilities and
dependence on collaborative relationships; future capital needs and
uncertainty of additional funding; uncertainty of regulatory approval and
extensive government regulation; consequences of Cobe relationship;
competition and technological change; uncertainty regarding patents and
proprietary rights; no assurance of third party reimbursement; hazardous
materials; and potential product liability and availability of insurance.
These statements are subject to risks and uncertainties, including those set
forth under this caption, and actual results could differ materially from
those expressed or implied in these statements. All forward-looking statements
included in this Prospectus are made as of the date hereof, and the Company
assumes no obligation to update any such forward-looking statement or reason
why actual results might differ.
15
THE COMPANY
Aastrom was incorporated in Michigan in March 1989 under the name Ann Arbor
Stromal, Inc. In 1991, the Company changed its name to Aastrom Biosciences,
Inc. The Company's principal executive offices are located at 24 Frank Lloyd
Wright Drive, P.O. Box 376, Ann Arbor, Michigan 48106, and its telephone
number is (313) 930-5555. Aastrom(TM) and the Company's stylized logo are
trademarks of the Company. Leukine and Neupogen are registered trademarks of
Immunex Corporation and Amgen, Inc., respectively.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,250,0001,500,000 shares of
Common Stock offered hereby are estimated to be $26,302,500 ($30,382,875 if
the Underwriters exercise their over-allotment option in full),$9,520,000 at an assumed
initial
public offering price of $9.00$7.00 per share and after deducting
underwriting discounts and commissions and
estimated offering expenses payable by the Company.
The Company currently intends to use approximately $5,000,000 of the net
proceeds from thisthe offering are expected to be used to fund product and clinical development ofactivities
for the Aastrom CPS, other research and development activities, including pre-pivotal and pivotal clinical trials, ofand
approximately $3,000,000 for other research activities, with the Aastrom CPS, andremaining
amount being used for working capital and other general corporate purposes,
including scheduled repayments of obligations under equipment leases. The
Company has $339,000$189,000 of outstanding equipment lease commitments as of SeptemberJune 30,
19961997, with final payments due between November 1996December 1997 and May 1999 andthat bear
interest ranging from 9.7% to 12.1%.
TheBased on its current operating plan, the Company anticipates that the net
proceeds of this offering, together with the Company's available cash and
expected interest income thereon, should be sufficient to finance the
Company'sdevelopment and manufacture of the Aastrom CPS for use in clinical trials,
expanded clinical trials, other research and development and other
working capital
and other corporate requirements for approximately 18 months.until late 1998. This estimate is based on
certain assumptions which could be negatively impacted by the matters
discussed in "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." Pending such uses, the net proceeds will be invested in short-
term, interest bearing investment grade securities.
PRICE RANGE OF COMMON STOCK
The Company effected an initial public offering of its Common Stock during
February 1997 at a price of $7.00 per share. Commencing on February 4, 1997,
the Company's Common Stock has been quoted on the Nasdaq National Market under
the symbol "ASTM." The following table sets forth, for the periods indicated,
the high and low sale prices per share of the Common Stock as reported on the
Nasdaq National Market.
HIGH LOW
---- ----
YEAR ENDED JUNE 30, 1997
3rd Quarter (from February 4, 1997).................. $ 7 5/8 $ 5 3/4
4th Quarter.......................................... 8 1/2 3 1/2
YEAR ENDING JUNE 30, 1998
1st Quarter.......................................... 9 15/16 3 1/4
2nd Quarter (through October 3, 1997)................ 8 6 7/8
On October 3, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $7.00 per share. As of August 31, 1997, there were
approximately 140 shareholders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying such cash dividends in the foreseeable
future. The Company currently anticipates that it will retain all future
earnings, if any, for use in the development of its business.
14
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30,1996, and (ii) on a pro forma as adjusted basis to reflect the
conversion of all outstanding shares of Preferred Stock into Common Stock upon
the closing of this offering and the receipt of the estimated net proceeds
from the Company's sale of 3,250,000 shares of Common Stock pursuant to this
offering. See "Use of Proceeds" and "Certain Transactions."
SEPTEMBER 30, 1996
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- ------------
Long-term portion of capital lease obligations(1).... $ 147,000 $ 147,000
Stockholders' equity(2):
Preferred stock, no par value: 10,157,647 shares au-
thorized, 9,657,648 shares issued and outstand-
ing, actual; 5,000,000 shares authorized, no
shares issued and outstanding, as adjusted....... 37,718,000 --
Common stock, no par value: 18,500,000 shares autho-
rized, 1,887,312 shares issued and outstanding,
actual; 40,000,000 shares authorized, 13,235,734
issued and outstanding, as adjusted, in each case
net of stockholder notes receivable.............. 198,000 64,218,500
Deficit accumulated during the development stage..... (30,298,000) (30,298,000)
----------- ------------
Total stockholders' equity........................... 7,618,000 33,920,500
----------- ------------
Total capitalization................................. $ 7,765,000 $ 34,067,500
=========== ============
- --------
(1) See Note 7 of Notes to Financial Statements.
(2) Excludes options and warrants to purchase 1,132,361 shares of Common Stock
at a weighted average exercise price of $6.50 per share, assuming the
closing of this offering at a price of $9.00 per share. See "Management--
Stock Option and Employee Benefit Plans" and Notes 4 and 9 of Notes to
Financial Statements.
1516
DILUTION
The Company's pro forma net tangible book value at SeptemberJune 30, 19961997 was approximately
$7,618,000$16,583,000, or $.76$1.25 per share. Pro forma netNet tangible book value per share represents
the amount of the Company's shareholders' equity, less intangible assets,
divided by 9,985,734,13,275,208, the number of shares of Common Stock outstanding as of
SeptemberJune 30, 1996, after giving effect to the automatic
conversion of all Preferred Stock into Common Stock upon the closing of this
offering.1997.
After giving effect to the sale of 3,250,0001,500,000 shares of Common Stock in this
offering at an assumed initial public offering price of $9.00$7.00 per share and after
deducting underwriting discounts and commissions and estimated offering expenses payable by the Company,
the pro forma net tangible book value of the Company as of SeptemberJune 30, 19961997 would have been
$33,920,500,$26,103,000, or $2.56$1.77 per share. This represents an immediate increase in pro forma net
tangible book value of $1.80$.52 per share to existing stockholdersshareholders and an
immediate dilution in pro forma net tangible book value of $6.44$5.23 per share to purchasers
of Common Stock in this offering, as illustrated in the following table:
Assumed initial public offering price per share............... $9.00
Pro forma netshare........................ $7.00
Net tangible book value per share as of SeptemberJune 30, 1996.................................................... $ .761997........ $1.25
Increase per share attributable to new investors............. 1.80.52
-----
Pro forma netNet tangible book value per share after this offer-
ing.......................................................... 2.56offering.......... 1.77
-----
Dilution per share to new investors........................... $6.44investors............................ $5.23
=====
Utilizing the foregoing assumptions, the following table summarizes the
total consideration paid to the Company and the average price per share paid
by the existing stockholders and by purchasers of shares of Common Stock in
this offering:
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- -------------
Existing stockholders... 9,985,734 75% $38,083,000 57% $3.81
New investors........... 3,250,000 25% 29,250,000 43% 9.00
---------- --- ----------- ---
Total................. 13,235,734 100% $67,333,000 100%
========== === =========== ===
- --------
The foregoing excludes (i) options and warrants outstanding as of June 30,
1997 to purchase 1,132,3611,127,815 shares of Common Stock at a weighted average
exercise price of $6.50$5.40 per share, assuming(ii) 6,216 shares that were issued
subsequent to June 30, 1997 upon the closingexercise of this offering atstock options, and (iii)
6,961 shares that were issued subsequent to June 30, 1997 under the Company's
1996 Employee Stock Purchase Plan. The foregoing includes 15,711 shares that
were canceled in September 1997 in connection with the repayment of a
price of $9.00 per share.promissory note. In the event such options and warrants are exercised,
investors may experience further dilution. See "Management--Stock Option and
Employee Benefit Plans"Plans," "Certain Transactions" and NotesNote 4 and 9 of Notes to
Financial Statements.
1617
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1997, and (ii) as adjusted to reflect the receipt of the estimated
net proceeds from the Company's sale of 1,500,000 shares of Common Stock
pursuant to this offering, at an assumed public offering price of $7.00 per
share. See "Use of Proceeds."
JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED
------------ ------------
Long-term portion of capital lease obligations(1).. $ 65,000 $ 65,000
Shareholders' equity(2):
Preferred stock, no par value: 5,000,000 shares
authorized, no shares issued and outstanding,
actual and as adjusted.......................... -- --
Common stock, no par value: 40,000,000 shares
authorized; 13,275,208 issued and outstanding,
actual, and 14,775,208 issued and outstanding,
as adjusted; in each case net of shareholder
notes and other................................. 57,896,000 67,416,000
Deficit accumulated during the development stage... (41,313,000) (41,313,000)
------------ ------------
Total shareholders' equity......................... 16,583,000 26,103,000
------------ ------------
Total capitalization............................. $ 16,648,000 $ 26,168,000
============ ============
- --------
(1)See Note 7 of Notes to Financial Statements.
(2) Excludes options and warrants outstanding as of June 30, 1997 to purchase
1,127,815 shares of Common Stock at a weighted average exercise price of
$5.40 per share, (ii) 6,216 shares that were issued subsequent to June 30,
1997 upon the exercise of stock options, and (iii) 6,961 shares that were
issued subsequent to June 30, 1997 under the Company's 1996 Employee Stock
Purchase Plan. Includes 15,711 shares that were canceled in September 1997
in connection with the repayment of a promissory note. See "Management--
Stock Option and Employee Benefit Plans," "Certain Transactions" and Note
4 of Notes to Financial Statements.
18
SELECTED FINANCIAL DATA
The statement of operations data for the fiscal years ended June 1994,30, 1995,
1996 and 1996,1997 and for the period from Inception to June 30, 1997 and the
balance sheet data at June 30, 19951996 and 1996,1997, are derived from, and are
qualified by reference to, the audited financial statements included elsewhere
in the Prospectus and should be read in conjunction with those financial
statements and notes thereto. The statement of operations data for the fiscal
years ended June 30, 19921993 and 1993,1994, and the balance sheet data at June 30,
1992, 1993, 1994 and 1994,1995, are derived from audited financial statements not
included herein. The information presented below for the three-month
periods ended September 30, 1995 and 1996, and as of September 30, 1996, have
been derived from the unaudited financial statements of the Company. In the
opinion of the Company's management, the unaudited financial statements have
been prepared by the Company on a basis consistent with the Company's audited
financial statements and include all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial
position and the results of operations for those periods. Operating results
for the three-month period ended September 30, 1996 are not necessarily
indicative of the results that will be achieved for the entire year ended June
30, 1997. The data set forth below are qualified by reference to, and
should be read in conjunction with, the financial statements and notes thereto
and Management's"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
THREE MONTHS
YEAR ENDED JUNE 30, ENDED SEPTEMBERINCEPTION TO
------------------------------------------------------------------ JUNE 30,
--------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
1993 1994 1995 1996 1997 1997
----------- ----------- ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS
DATA:
Revenues:
Research and development
agreements................. $ --develop-
ment agreements....... $ -- $ 49,000 $ 396,000 $ 1,342,000 $ 172,000230,000 $ 195,000
Grants...................... --2,017,000
Grants................. 784,000 823,000 121,000 267,000 39,000 29,000148,000 2,143,000
----------- ----------- ----------- ----------- ----------- ----------- ----------------------- ------------ ------------ ------------
Total revenues.............. --revenues........ 784,000 872,000 517,000 1,609,000 211,000 224,000378,000 4,160,000
Costs and expenses:
Research and development.... 1,090,000develop-
ment.................. 2,600,000 5,627,000 4,889,000 10,075,000 1,195,000 3,160,00013,357,000 38,432,000
General and administrative.. 272,000administra-
tive.................. 1,153,000 1,565,000 1,558,000 2,067,000 446,000 452,0001,953,000 9,042,000
----------- ----------- ----------- ----------- ----------- ----------- ----------------------- ------------ ------------ ------------
Total costs and expenses.... 1,362,000ex-
penses............... 3,753,000 7,192,000 6,447,000 12,142,000 1,641,000 3,612,00015,310,000 47,474,000
----------- ----------- ------------ ------------ ------------ ------------
Loss before other income and
expense..................... (1,362,000)from operations.... (2,969,000) (6,320,000) (5,930,000) (10,533,000) (1,430,000) (3,388,000)(14,932,000) (43,314,000)
----------- ----------- ------------ ------------ ------------ ------------
Other income (expense):
Interest income............. 94,000income........ 148,000 245,000 279,000 678,000 149,000 126,000676,000 2,252,000
Interest expense............ --expense....... (26,000) (65,000) (66,000) (62,000) (18,000) (11,000)(32,000) (251,000)
----------- ----------- ----------- ----------- ----------- ----------- ----------------------- ------------ ------------ ------------
Net loss..................... $(1,268,000)loss................ $(2,847,000) $(6,140,000) $(5,717,000) $(9,917,000) $(1,299,000) $(3,273,000)$ (5,717,000) $ (9,917,000) $(14,288,000) $(41,313,000)
=========== =========== =========== =========== =========== =========== ===========
Pro forma net============ ============ ============ ============
Net loss per share(1)....................... $ (.32) $ (.49)(.52) $ (.82) $ (.66) $ (.98) $ (.13) $ (.32)(1.26)
=========== =========== =========== =========== =========== =========== ===========
Pro forma weighted============ ============ ============
Weighted average number
of shares
outstanding(1).............. 3,919,000 5,840,000......... 5,480,000 7,461,000 8,644,000 10,103,000 10,094,000 10,107,00011,315,000
=========== =========== =========== =========== =========== =========== ===========
============ ============ ============
JUNE 30,
SEPTEMBER 30,
------------------------------------------------------------- -------------
1992 1993 1994 1995 1996 1996
---------- ---------- ----------- ----------- ----------- -------------------------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ------------ ------------ ------------
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term invest-
ments................. $5,640,000 $3,085,000$ 3,085,000 $ 6,730,000 $11,068,000 $10,967,000 $ 7,108,00011,068,000 $ 10,967,000 $ 17,007,000
Working capital........ 5,399,000 2,744,000 6,187,000 10,319,000 9,851,000 6,540,00015,600,000
Total assets........... 6,414,000 4,156,000 8,227,000 12,551,000 12,673,000 8,931,00018,410,000
Long-term capital lease
obligations........... 311,000 425,000 412,000 189,000 65,000
Deficit accumulated
during the development
stage..... (2,404,000)stage................. (5,251,000) (11,391,000) (17,108,000) (27,025,000) (30,298,000)(41,313,000)
Total stockholders'shareholders' eq-
uity.................. 6,104,000 3,268,000 6,985,000 11,186,000 10,850,000 7,618,00016,583,000
-
--------
(1) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share and shares used in computing pro forma net loss
per share.
1719
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its inception, the Company has been in the development stage and
engaged in research and product development, conducted both on its own behalf
and in connection with various collaborative research and development
agreements with other entities. The Company expects that its revenue sourcesdoes not expect to generate
positive cash flows from operations for at least the next several years and,
until product sales commence, the Company expects that its revenue sources
will continue to be limited to grant revenues andrevenue, research funding and milestone
payments and licensing fees from potential future corporate collaborators. The
timing and amount of such future cash payments and revenues, if any, will be
subject to significant fluctuations, based in part on the success of the
Company's research activities, andthe receipt of necessary regulatory approvals,
the timing of the achievement of certain milestones.other milestones and the extent to
which associated costs are reimbursed under grant or other arrangements.
Substantially all of the Company's revenues from product sales, if any, will
be subject to the Company's obligation to make aggregate royalty payments ranging from 2%of
up to 5%. to certain licensors of its technology. Further, under the Company's
Distribution Agreement with Cobe, Cobe will perform marketing and distribution
activities and in exchange will receive fromapproximately 38% to 42% of the
Company's product sales in the area of stem cell therapy, subject to
negotiated discounts and volume-based adjustments. Research and development
expenses may fluctuate due to the timing of expenditures for the varying
stages of the Company's research and clinical development programs. Research
and development expenses will increase as product development programs and
applications of the Company's products progress through research and
development stages. Under the Company's License Agreement with Immunex, annual
renewal fees of $1,000,000 are payable in each of the next fourthree fiscal years.
Under the Company's Distribution Agreement with Cobe, regulatory approval
activities for the Company's products for stem cell therapies outside of the
United States will be conducted, and paid for, by Cobe. As a result of these
and other factors, the Company's results of operations have fluctuated and are
expected to continue to fluctuate significantly from year to year and from
quarter to quarter and therefore may not be comparable to or indicative of the
resultsresult of operations for otherany future periods.
Over the past several years, the Company's net loss has primarily increased,
consistent with the growth in the Company's scope and size of operations. In
the near term, the Company plans additional moderate growth in employee
headcount necessary to address increasing requirements in the areas of product
development, research, clinical and regulatory affairs, quality systems and
administration. Assuming capital is available to finance such growth, the
Company's operating expenses will continue to increase as a result. At least
until such time as the Company enters into arrangements providing research and
development funding or initiates product sales, the net loss will continue to
increase as well. The Company has never been unprofitable since its inceptionprofitable and does not
anticipate having net income for at least the next several years. Through SeptemberJune
30, 1996,1997, the Company had an accumulated deficit of $30,298,000.$41,313,000. There can be
no assurance that the Company will be able to achieve profitability on a
sustained basis, if at all.
This Prospectus contains, in addition to historical information, forward-
looking statements that involve risks and uncertainties. The Company's actual
results could differ materially from the results discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include those discussed under this caption, as well as those discussed under
the caption "Risk Factors" and elsewhere in this Prospectus.
RESULTS OF OPERATIONS
THREE MONTHSYEARS ENDED SEPTEMBERJUNE 30, 1997, 1996 AND 1995
Total revenues were $224,000 for the three months ended September 30, 1996
compared to $211,000 for the same period$378,000 in 1995. These revenues consist
primarily of research and development revenue under the Company's research
collaboration with RPR, which was terminated in September 1996. See "Certain
Transactions."
Total costs and expenses were $3,612,000 for the three months ended
September 30, 1996 compared to $1,641,000 for the same period in 1995. The
increase in costs and expenses in 1996 is primarily the result of an increase
in research and development expenses to $3,160,000 in 1996 from $1,195,000 in
1995 and to a lesser extent by general and administrative expenses, which
increased to $452,000 for the three months ended September 30, 1996 from
$446,000 for the same period in 1995.
18
Interest income was $126,000 for the three months ended September 30, 1996
compared to $149,000 for the same period in 1995 and reflects a decrease in
the levels of cash, cash equivalents and short-term investments in 1996.
The Company's net loss increased to $3,273,000 for the three months ended
September 30, 1996 from $1,299,000 for the same period in 1995, primarily as a
result of increased costs and expenses in 1996.
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Total revenues were1997, $1,609,000 in 1996 and $517,000 in
1995, and $872,000 in
1994.1995. Grant revenues increaseddecreased to $148,000 in 1997 from $267,000 in 1996 fromand
were $121,000 in 1995,
which had decreased from $823,000 in 1994, reflecting the timing of grant awards and related
research activities, and fundingto the extent that such associated costs are reimbursed
under the grants. Grant revenues accounted for 17%39%, 23%17% and 94%23% of total
revenues for the years ended June 30, 1997, 1996 and 1995, respectively, and
1994, respectively.are recorded on a cost-reimbursement basis. Revenues from research and
development agreements totaled $230,000 in 1997, $1,342,000 in 1996 and
$396,000 in 1995, and
$49,000 in 1994, reflecting research funding received by the Company under
its collaboration with RPR which commenced in September 1995.1995 and ended in
20
September 1996. Revenues from RPR accounted for 52%, 83% and 48% of such
revenue in 1997, 1996 and 1995, respectively. In
September 1996, the Company's research collaboration with RPR terminated.
Total costs and expenses were $15,310,000 in 1997, $12,142,000 in 1996 and
$6,447,000 in 1995, and
$7,192,0001995. The increases in 1994. The increase in 1996 costs and expenses compared with
1995, isin 1997 and 1996 are
primarily the result of an increaseincreases in research and development expense to
$13,357,000 in 1997 from $10,075,000 in 1996 fromand $4,889,000 in 1995. Research
and development expense includes charges of $1,000,000 and $1,500,000 for the
years ended June 30, 1997 and 1996, respectively, representing license fee
payments pursuant to the Company's supply agreement with Immunex. The increase
in research and development expense reflects an increase in research, clinical
development and product development activities. The decrease in costs and
expenses in 1995, compared with 1994, is primarily the result of a decrease in
research and development expense to $4,889,000 in 1995 from $5,627,000 in
1994. General and administrative
expenses were $1,953,000 in 1997, $2,067,000 in 1996 and $1,558,000 in 1995 and $1,565,000 in 1994. The increase in general1995.
General and administrative expenses, which decreased slightly in 1997 compared
to 1996, is theare expected to increase as a result of increasing finance, legal and
other administrative and marketing expenses which are expected to continue to
increase in support of the Company's
increasing product development and research activities.
The decrease in general and administrative expense in
1995 is reflective of generally lower spending in 1995 as compared to 1994.
Interest income was $676,000 in 1997, $678,000 in 1996 and $279,000 in 1995, and $245,000 in
1994.1995.
The increasesfluctuations in interest income in 1996 and 1995 are due primarily to corresponding increaseschanges
in the levels of cash, cash equivalents and short-term investments for such
periods. Interest expense was $32,000 in 1997, $62,000 in 1996 and $66,000 in
1995, and $65,000 in 1994, reflecting varyingdecreasing amounts outstanding under capital leases during
thethese periods.
The Company's net loss was $14,288,000 in 1997, $9,917,000 in 1996 and
$5,717,000 in 1995, and
$6,140,000 in 1994.1995. The Company expects to report substantial net losses for
at least the next several years.
The Company has not generated any net incomeprofits to date and therefore has not paid
any federal income taxes since inception. At June 30, 1996,1997, the Company
had deferredCompany's
federal tax assets totaling $9,650,000 consisting primarily of net operating loss and research tax credits that begin tocredit carryforwards were $40,420,000
and $971,000, respectively, which will expire from 2004 through 2011,2012, if not
utilized. A full valuation allowance for deferred tax assetsThe Company underwent an ownership change in October 1993, which has
been provided. Utilizationresulted in a limitation under which the Company can utilize a portion of its
federal income tax carryforwards isnet operating loss carryforward amounting to $1,153,000 per year. As
of June 1997, the portion of the Company's net operating loss that remains
subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as
amended. The completion of this offeringlimitation is likely$2,490,000 and therefore is not expected to
limitultimately effect the Company's ability to utilize federal income tax carryforwards under Section 382. The
annual limitation could resultthis benefit. If certain
changes in expiration ofownership should occur again in the future, the Company's ability
to utilize its net operating lossesloss and research and development credits before their complete utilization.tax credit carryforwards may become
subject to further annual limitation.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
public and private placementssales of Preferred Stock and otherits equity investments,securities, which, from inception
through June 30, 1997, have totaled approximately $37,916,000,$57,906,000, and, to a
lesser degree, through grant funding, payments received under research
agreements and collaborations, interest
19
earned on cash, cash equivalents, and
short-term investments, and funding under equipment leasing agreements. These
financing sources have historically allowed the Company to maintain adequate
levels of cash and other liquid investments. Under the Company's primary
equipment leasing agreement, the lessor is granted a security interest in all
of the Company's property and assets.
The Company's combined cash, cash equivalents and short-term investments
totaled $10,967,000$17,007,000 at June 30, 1996, a decrease1997, an increase of $101,000$6,040,000 from June 30,
1995.1996. The primary uses of cash, cash equivalents and short-term investments
during the year ended June 30, 19961997 included $8,967,000$13,214,000 to finance the
Company's operations and working capital requirements, $445,000$424,000 in capital
equipment additions and $270,000$223,000 in scheduled debt payments. During the year
ended June 30, 1996,On February 7,
1997, the Company received $3,500,000 in equity payments from
RPR and $5,965,000 in net proceedscompleted an underwritten initial public offering of
3,000,000 shares of its Common Stock at an offering price of $7.00 per share.
On March 5, 1997, the underwriters elected to purchase an additional 250,000
shares of Common Stock pursuant to the underwriters' over-allotment option at
a price of $7.00 per share. Proceeds from the saleoffering, net of Series E Convertible
Preferred Stock.underwriters'
commissions and expenses, were $19,885,000. The Company plans to continue its
policy of investing excess funds in short-term, investment-grade, interest-bearinginterest-
bearing instruments.
The Company's combined cash, cash equivalents and short-term investments
totaled $7,108,000 as of September 30, 1996 compared to $10,967,000 at June
30, 1996. The decrease was primarily attributable to the use of $3,614,000 to
fund operations and working capital requirements during the period and to a
lesser degree by $173,000 in capital equipment purchases and $73,000 in
scheduled debt payments.
In October 1996, the Company executed a financing commitment to provide the
Company with up to $5,000,000 in additional equity funding from Cobe and
$5,000,000 under a convertible loan agreement with another current investor.
In connection with the convertible loan agreement, the Company has issued
warrants to purchase 69,444 shares of Common Stock for securing the
commitment. The warrants expire on October 15, 2000 if not exercised, and may
be exercised, in whole or in part, at a price equal to the lesser of (a) $9.00
per share, which price increases by $3.00 per share on each anniversary of the
closing of the offering being made hereby; or (b) 85% of the fair market value
of the Company's Common Stock at the time of exercise. As of the date of this
Prospectus, the Company has not obtained any financing under these
commitments. These funding commitments expire upon the closing of this
offering.21
The Company's future cash requirements will depend on many factors,
including continued scientific progress in its research and development
programs, the scope and results of clinical trials, the time and costs
involved in obtaining regulatory approvals, the costs involved in filing,
prosecuting and enforcing patents, competing technological and market
developments and the cost of product commercialization. The Company does not
expect to generate a positive cash flow from operations for at least the next
several years if
at all, due to the expected increase in spending for research and
development programs and the expected cost of commercializing its product
candidates. The Company mayintends to seek additional funding through research
and development agreements with suitable corporate collaborators, grants and
through public or private financing transactions. The Company anticipates that
the net proceeds of this offering, together with the Company's available cash
and expected interest income thereon, will be sufficient to finance itsthe
development and manufacture of the Aastrom CPS for use in clinical trials,
expanded clinical trials, other research and development and other working capital
and other corporate requirements for 18 months or less.until late 1998. This estimate is based on
certain assumptions which could be negatively impacted by the matters
discussed under this heading and elsewhere under the caption "Risk Factors."
The Company expects that its primary sources of capital for the foreseeable
future will be through collaborative arrangements and through the public or
private sale of its debt or equity securities. There can be no assurance that
such collaborationcollaborative arrangements, or any public or private financing, transaction, will be
available on acceptable terms, if at all, or can be sustained on a
long-term basis.sustained. Several factors
will affect the Company's ability to raise additional funding, including, but
not limited to, market volatility of the Company's Common Stock and economic
conditions affecting the public markets generally or some portion or all of
the technology sector. If adequate funds are not available, the Company may be
required to delay, reduce the scope of, or eliminate one or more of its
research and development programs, which may have a material adverse effect on
the Company's business. See "Risk"Risks Factors--Future Capital Needs; Uncertainty
of Additional Funding" and Notes to Financial Statements.
RECENT PRONOUNCEMENTSACCOUNTING PRONOUNCEMENT
During October 1995,March 1997, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," which
establishes a fair value based method of accounting for stock-based
compensation and incentive plans and requires additional disclosures for those
companies that elect not to adopt
20
the new method of accounting. Adoption of the new accounting pronouncement is
required for the Company's fiscal year beginning July 1, 1996 and the Company
intends to provide the additional disclosures required by the pronouncement in
its financial statements for the year ended June 30, 1997.
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121,128, "Earnings Per Share" ("SFAS 121"128") "Accounting,
which amends the standards for computing earnings per share previously set
forth in Accounting Principles Board Opinion No. 15, "Earnings per Share"
("APB 15"). SFAS 128, which will be adopted by the Company for the Impairmentperiod
ending December 31, 1997, will not have a material effect on the computation
of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which requires the Company to review
for impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable. In
certain situations, an impairment loss would be recognized. SFAS 121 will
become effective for the Company's fiscal year beginning July 1, 1996.
Management has studied the effect of implementing SFAS 121 and, based upon its
initial evaluation, does not expect it to have a significant impact on the
Company's financial condition or results of operations.
21historical net loss per share amounts.
22
BUSINESS
OVERVIEW
Aastrom is developing proprietary process technologies and devices for a
range of cell therapy applications, including stem cell therapies and selected
emerging therapies such as immunotherapy, solid tissue repair and ex vivo gene
therapy. The Company's lead product under development, the Aastrom Cell
Production System (the "Aastrom CPS"), consists of a clinical cell culture
system with disposablesingle-use cassettes and reagents for use in the rapidly growing
cell therapy market. The Company is currently conducting "pre-pivotal" trials
at multiple sites in the United States and Europe of the Aastrom CPS for use
in stem cell therapy market.in preparation for pivotal trials in the United States
and potential marketing in Europe. The Company believes that the Aastrom CPS
methodprocedure will be less costly,a cost-effective, less invasive and less time consuming
thanalternative to currently available stem cell collection methods.methods and may
enhance the clinical utility of umbilical cord blood ("UCB") transplants by
expanding the number of cells available for transplant. For stem cell therapy,
the Company has entered into a strategic collaboration for the marketing,
distribution and customer service of the Aastrom CPS with Cobe BCT, Inc., a
subsidiary of Gambro AB and a leading provider of blood cell processing
products.
The Aastrom CPS is designed as a platform product which implements the
Company's pioneering stem cell replication technology and whichtechnology. The Company believes
that the Company believesAastrom CPS can be modified to produce a wide variety of other cell
types for selected emerging therapies. The Aastrom CPS
is currently in a pre-pivotal clinical trial under an IDE for autologous stem
cell therapy.therapies being developed by other companies and
institutions. The Company has entered into aintends to develop additional strategic
collaborationcollaborations for the development of the Aastrom CPS in stemcertain of these
other cell therapy with Cobe BCT, Inc., a
subsidiary of Gambro AB and a world leader in blood cell processing products.
Additionally, Aastrom is developing products and processes for the delivery ofmarket segments. In ex vivo gene therapy, that arethe Company is
also developing the Aastrom Gene Loader, which is being designed to address
the production of gene-
modifiedgene-modified cells.
CELL THERAPY
Cell therapy isor ex vivo gene therapy involves the use of human cells to
treat a medical disorder. The most common types of cell therapy, blood and
platelet transfusions, have been widely used for many decades. More recently,
bone marrow-derived and UCB cells have been used to restore the bone marrow
and the blood and immune system cells which are damaged by chemotherapy and
radiation therapy during the treatment of many cancers.types of cancer.
Transplantation of these cells is known as stem cell therapy. Other cell
therapies have recently been used for generating skin and cartilage tissue,
and additional cell therapies are being developed by various companies and
researchers to restore immune system cells as well as bone, kidney, liver,
vascular and neuronal tissues.
Cell therapies require the collection of cells, either from the patient or a
suitably matched donor. These cells are typically processed and stored for
administration to the patient. Although cell therapy is being developed for
use in an increasing number of diseases, widespread application of new cell
therapies remains limited by the difficulties and expense associated with
current cell collection and processing procedures. The problems of current
cell collection techniques are exemplified in the area of stem cell therapy
where the patient or donor undergoes invasive, time-consuming and costly
procedures to collect the large volume of cells currently required for
effective treatment. The Company believes an alternative to collecting the
required therapeutic dose of cells is to grow these cells ex vivo from a small
starting volume. However, ex vivo cell expansion, when biologically possible,
has typically required costly techniques, facilities and operations to comply
with FDA current good manufacturing practices ("GMP"cGMP"), which are not
generally available in hospitals. As a result, cells needed for such therapies
often require specialized cell production facilities which use labor-intensive,labor-
intensive, manual cell culture techniques.
There are numerous forms of cell therapy at an early stage of development.
One such example isIn ex vivo gene therapy, in which genes are introduced into target cells in order to
selectively correct or modulate disease conditions, or to modify cells for
production of a therapeutic protein. The Company believes that the successful
practice of ex vivo gene therapy will require the development of processes and
products for the reliable, high-efficiency transfer of genes into cells and a
means to produce the necessary dose of the genetically modified cells under
GMPcGMP conditions.
STEM CELL THERAPY
Stem cell therapy is used to treat cancer patients who undergo chemotherapy
or radiation therapy at dose levels that are toxic to the hematopoietic
system, which is comprised of the bone marrow and the cells of the
23
blood and immune systems. The objective of stem cell therapy is to restore the
hematopoietic system via the infusion and subsequent engraftment of healthy
cells to replace bone marrow and result in the rapid recovery of neutrophils
and platelets that have been destroyed by chemotherapy and radiation therapy.
Stem cell therapy
22
reduces the risk of life-threatening infections and bleeding
episodes following cancer treatments. In order to treat many cancers, high
intensity chemotherapy or radiation is often required, which may severely
destroy ("myeloablation") or partially destroy ("myelosuppression") the
patient's hematopoietic system.
Cells required for effective stem cell therapy include stem cells, to
replenish depleted bone marrow and provide a long-term ongoing source of the
multilineage progenitor cells of the blood and immune systems, and early and
late stage hematopoietic progenitor cells, to provide for rapid neutrophil and
platelet recoveries. Stromal accessory cells are believed to further augment
the growth of bone marrow. In the adult, all of these cell types originate in
the bone marrow. These cells are currently collected from the donor or patient
directly through multiple syringe aspirations under anesthesia, known as bone
marrow collection, or through blood apheresis following treatment with drugs
which cause cells to be released or mobilized from the bone marrow into the
blood. This latter technique is known as a peripheral blood progenitor cell
("PBPC") collection. See "--Current Stem Cell Collection Methods."
Recently, it has been demonstrated that the blood cells found in the
umbilical cord of newborn infants include cells effective for stem cell
therapy. This source of cells is being explored by physicians as a majorsignificant
new directiondevelopment in stem cell therapy, but is currently limited by difficulties
in obtaining sufficient quantities of these cells.cells and by prolonged engraftment
times for the cells once transplanted into the patient.
Once collected, the stem cell mixture is infused intravenously and the stem
and stromal accessory cells migrate into the bone cavity where they engraft to
form a new marrow. The hematopoietic progenitor cell components of the cell
mixture provide early restoration of circulating white blood cells and
platelets. The replenished bone marrow will normally provide long-term
hematopoietic function, but complete restoration of bone marrow may take years
following myeloablative cancer therapy. When the patient's hematopoietic
system is malignant, such as in the case of leukemia, cells from a suitable
donor are generally required in order to avoid reintroducing the disease
during cell infusion. Such donor derived transplants are termed "allogeneic"
transplants. Procedures using cells derived from the patient are termed
"autologous" transplants.
STEM CELL THERAPY MARKET OPPORTUNITY
The benefits of stem cell therapy in the treatment of cancer patients have
been well established over the past two decades. Stem cell therapy, in the
form of bone marrow transplantation, was originally used in patients who had
received treatment for blood and bone marrow cancers such as leukemia, and
genetic diseases of the blood. However, because stem cell therapy has been
shown to promote the rapid recovery of hematopoietic function, it is now being
increasingly used to enable patients with other forms of cancer to receive
high dose or multicycle chemotherapy and radiation treatments. These highhigh-
intensity therapies have a greater probability of eradicating dose sensitivedose-sensitive
cancers but, because of their hematopoietic toxicity, cannot generally be
given without stem cell therapy. As a result, some patients are treated with
lower and less effective doses, and fewer cycles of therapy than might
otherwise be used.
The Company estimates that over 35,000According to an industry source, approximately 32,000 stem cell therapy
procedures were completed worldwide in 1995, and, thataccording to another
industry source, the number of such procedures isutilizing donor-derived and
patient-derived cells has been growing at a compound annual rate of overannually by approximately 15% and 20%.,
respectively. This growth has been driven by encouraging clinical results in
the treatment of dose-sensitive solid tumors, such as breast and ovarian
cancers. The Company expects that the number of stem cell therapy procedures
will continue to grow due to increased incidence and prevalence of cancer,
continued clinical demand for myelotoxic cancer treatment, and the increased
cost effectiveness of stem cell therapy treatments.
Stem cell therapy may also enhance the effectiveness of blood cell growth
factors. The timing and extent of additional cycles of chemotherapy is often
limited by the recovery of a patient's white blood cells and platelets
24
because a delayed recovery of these cells can leave the patient susceptible to
life-
threateninglife-threatening infection and bleeding episodes, and this limitation may
allow for the regrowth of residual tumor cells. Many cancer patients are
routinely treated with growth factors including G-CSF, such as Neupogen and
GM-CSF, such as Leukine, which enhance the development of mature circulating
white blood cells and platelets from the early progenitor bone-marrow derived
cells, thereby decreasing the time between cycles of therapy and the
probability of infection. However, during high dose or multi-cyclemulticycle therapy, the
stem and progenitor cells on which these growth
23
factors act are often
depleted. Without these cells, growth factors have a limited or negligible
effect. Stem cell therapy generally enhances the effectiveness of growth
factors by introducing target stem and progenitor cells for growth factors to
act upon such that patients generally exhibit a more rapid and consistent
hematopoietic recovery.
CURRENT STEM CELL COLLECTION METHODS
Currently, the bone marrow-derived cells required for stem cell therapy are
collected primarily either through the bone marrow harvest method or the PBPC
collection method.
Bone Marrow Harvest
A traditional bone marrow harvest is a costly and invasive surgical
procedure in which a physician removes approximately one liter of bone marrow
from a patient or donor. This volume of bone marrow is removed using needles
inserted into the cavity of the hip bone. The bone marrow harvest procedure
typically requires between two to four hours of operating room time, with the
physician often making more than 10090 separate puncture sites in the hip bone to
collect the necessary amount of bone marrow. Due to the length of the
procedure and the trauma to the patient, general surgical anesthesia is
administered and the patient is typicallyoften hospitalized for a day. Frequently, the
patient suffers pain from the procedure for several days after being
discharged from the hospital. Furthermore, complications resulting from the
general anesthesia or invasive nature of the procedure occur in a small
percentage of patients. Bone marrow harvest provides a reliable source of stem
and stromal accessory cells and has been the preferred source of cells in
allogeneic transplants.
PBPC Mobilization and Collection
PBPC mobilization is a newer technique in which bone marrow-derived cells are
harvested from a patient's or donor's circulating blood, rather than from bone
marrow. In a PBPC mobilization procedure, the patient receives multiple
injections of growth factors or cytotoxic drugs, or both, over the course of a
week or more, which cause stem and progenitor cells resident in the bone
marrow to mobilize into the circulating blood. The mobilized cells are then
collected by connecting the patient to a blood apheresis device, which draws
and returns large volumes of the patient's or donor's blood in order to
selectively remove the therapeutic volume of stem and progenitor cells. Each
collection procedure typically lasts for two to six hours and is typically
repeated on two to eightfive consecutive days.days, however, procedure time has
decreased and is expected to continue to decrease as the procedure is further
optimized. Specialized laboratory testing over the period of mobilization and
cell harvesting is necessary to determine that a sufficient quantity of
desired cells has been collected, adding to the cost of the procedure. The
PBPC process has become the predominant procedure in autologous stem cell
therapy.
Procedure Considerations
Although stem cell therapy is being utilized to treat more patients for a
broader range of diseases, its availability continues to be limited by the
high costs of procuring cells, the invasive nature of traditional cell
procurement techniques, and by the technical difficulties related to those
collection procedures. The Company estimatesbelieves that current costscharges for bone
marrow harvest, processing and processinginfusion are approximately $10,000 to $15,000
per procedure, with considerable variability between institutions. The Company
estimatesbelieves that current costscharges for PBPC collection, including mobilization with
growth factors,and
infusion, are approximately $12,000 to $20,000 for a two to three cycle
procedure, with considerable variability between institutions depending on the
mobilization regimen and the total volume, time and number of aphereses
required.
25
Overall costs of stem cell therapy include the costs of the cell collection
procedure,and infusion procedures, and the costs associated with supporting the patient
during post-
transplantpost-transplant recovery. Post-transplant costs include hospitalization
time, antibiotic support, management of adverse reactions to the large volume
cell infusions, and infusions of platelets and red blood cells. Any new stem
cell therapy process will generally need to provide similar recovery endpoints
to be competitive with the current procedures. In this regard, PBPC procedures
have gained popularity compared with bone marrow harvests because the number
of platelet transfusions is reduced for some patients.
24
Recently, products to implement a cell isolation method known as CD34
selection have been developed by other companies in conjunction with bone
marrow harvest and PBPC collections. CD34 selection is a process designed to
isolate specific types of cells in order to decrease storage and infusion
problems associated with the large volume of fluids collected in bone marrow
or multiple apheresis procedures. CD34 selection is used after the initial
collection of stem and progenitor cells and, therefore, does not address the
difficulties or costs associated with the basic cell collection procedures. To
date, the CD34 selection procedure has demonstrated limited therapeutic
benefit to the patient, but substantially increases the costs of the
procedure. A
future objective of CD34 selection is to assist in depleting tumor cells from
the transplant cells collected, thereby expanding the availability of stem
cell therapy to new patient populations.
UMBILICAL CORD BLOOD
Umbilical cord blood ("UCB"),UCB, which is collected directly from the umbilical cord after delivery,of newborn infants,
without pain or risk to the infant or the mother, is emerging as a new source
of cells for stem cell therapy. UCB has been reported to have stem cell
concentrations that are much higher than that typically obtained from
traditional bone marrow and PBPC collection methods. After collection, UCB is
typically frozen for later use in a stem cell therapy procedure. Storage of
UCB samples involves small volumes of cells, compared to typical bone marrow
or PBPC storage. Accordingly, the costs of collection and storage of UCB cells
are comparatively low. This source of cells is also "tumor-free," such that
UCB would be preferred for many current stem cell therapy procedures in
metastatic cancer patients. Before UCB can become a major supply source for
stem cell therapy, a coordinated UCB banking system must emerge. In this
regard, several organized UCB banking institutions have been established to date, and
the group is growing in both number and size. One current disadvantageThe establishment of these UCB
banking institutions is an initial step which may lead to a coordinated UCB
banking system.
Current disadvantages of UCB isinclude the relatively low number of available
cells.cells which may contribute to prolonged engraftment times for the cells once
transplanted into the patient. Unlike bone marrow or PBPC harvest, where the
collection of more cells to meet a particular treatment is typically
achievable, the number of cells available from a UCB donor is limited. This
problem is exacerbated by the required cryopreservation of the cells, which
causes a significant cell loss. The resultant low cell number is believed to be
responsible for the longer hematopoietic recovery times observed with UCB
transplants, as compared with bone marrow or PBPC transplants. Further,
because of the low cell number, UCB transplants are typically restricted to
small patients. Therefore, increasing the number of therapeutic cells from a
UCB sample wouldmay facilitate the more widespread use of UCB transplants. Aastrom
believes that providing the transplant site with the capability to carry out
the UCB cell expansion will be a major factor in the increased use of UCB for
stem cell therapy and a significant business opportunity.
AASTROM TECHNOLOGY
Aastrom is developing proprietary process technologies that are pioneering
the ex vivo production of human stem and progenitor cells. The Company has
also developed a proprietary cell culture device that mimics the biological
and physical environment necessary for the growth of certain human cells and
tissues, including bone marrow. The Company's initial product candidate, the
Aastrom CPS, utilizes the Company's process technology and is designed to
enable the ex vivo production of human stem and progenitor cells as an
alternative to the bone marrow harvest and PBPC mobilization methods and as an
enhancement to
enhance the clinical utility of UCB collection method.cells. The Company believes that the
Aastrom CPS may be used for other cell production processes, such as
immunotherapy and solid tissue repair, which are being developed by third
parties and, in combination with the Company's proprietary gene transfer
process, may have application in the developing field of ex vivo gene therapy.
26
CORE TECHNOLOGY
Stem Cell Growth Process
Aastrom has developed proprietary process technologies for ex vivo
production of therapeutic stem and progenitor cells as well as other key cells
found in human bone marrow. The Company's proprietary process entails the
placement of a stem cell mixture in a culture environment that mimics the
biology and physiology of
25
natural bone marrow. This process enables the stem
and early and late-stage progenitor cells needed for an effective stem cell
therapy procedure to be concurrently expanded. Growth factors can be added to
stimulate specific cell lineages to grow or to increase cell growth to meet a
particular therapeutic objective. The stem cell growth process can best be
completed with little or no additional stem cell selection or purification
procedures. This stem cell replication process can also enable or augment the
genetic modification of cells by providing the cell division step needed for
new genes to integrate into the stem cell DNA. Currently available cell
culture methods tend to result in a loss of stem cells, either through death
or through differentiation into mature cells. The Company has exclusive licenserights
to twoseveral issued U.S. patents and additional applications that cover these processes.processes and cell
compositions. See "--
Additional"--Additional Stem Cell and Other Cell Therapies."
Aastrom Cell Culture Chamber
Aastrom has developed a proprietary cell culture chamber to implement the
Company's process technology. The culture chamber produces cells on a clinical
scale and allowallows for simple, sterile recovery of the cells for therapeutic
use. The Company believes that the Aastrom cell culture chamber may also be
used for growing other human therapeutic cells, such as T-Cells and dendritic
cells used for lymphocyte therapies,immunotherapies, chondrocytes for cartilage replacement, and
mesenchymal tissues for bone and cartilage replacement. The Company holds
exclusive licensesrights to twoissued U.S. patents and additional applications for its
cell culture chamber device technology. See "--Additional Stem Cell and Other
Cell Therapies."
Efficient Gene Transfer
Aastrom has developed proprietary processes and device technology that enablesmay
enable increased efficiency of vector-mediated gene transfer into cells as
compared to conventional procedures. This directed-motion gene transfer or
gene loading technology is intended to have applicationsbeing pursued by the Company for application in
most cell and tissue types and most vector technologies. The Company intends
to develop products based upon its gene loading technologytechnology. Development of
additional products, however, will require the Company to raise additional
funds or to seek collaborative partners, or both, to finance related research
and development activities, as to which there can be no assurance of success.
Furthermore, due to the uncertainties involved, the Company is unable to
estimate the length of time such development may take. If successfully
developed into products, the Company believes that it believes willsuch products would
facilitate the advancement of numerous gene therapy protocols into the clinic
and ultimately the market. The Company has received aexclusive rights to three issued
U.S. Patentpatents, and has additional applications pending, for this technology.
See "Aastrom Product Candidates For Ex Vivo Gene Therapy."
THE AASTROM CPS
The Aastrom CPS is the Company's lead product under development fordevelopment. While
potentially applicable to multiple cell therapy applications includingsuch as
immunotherapy, solid tissue repair and ex vivo gene therapy, the Aastrom CPS
is being developed initially by the Company for stem cell therapy. The Aastrom
CPS is a proprietary system that the Company believes will enable the large
scale ex vivo production of a variety of therapeutic cells at health carehealthcare
facilities, independent laboratories, transplant centers and blood banks, and
has been designed to implement Aastrom's stem cell growth process as well as
processes for the production of other cell types.
The Aastrom CPS is comprised of several components, including single-use
disposable cassettesCell Cassettes and reagents and microprocessor-controlled instruments, which
are at various stages of development. The Cell Cassette is a single-use
disposable
cartridge which contains the Aastrom cell culture chamber and the related
media supply waste reservoirs and harvest bag. The microprocessor-
controlledmicroprocessor-controlled
instruments include the Incubator which controls the culture
27
conditions for the operation of the Cell Cassette, and the Processor which
automates the priming and harvesting of the cells from the cell cassette.Cell Cassette. The
System Manager is a user interface computer that is being developed to
simultaneously track and monitor the cell production process in over thirty
CPS Incubators and record relevant process variables and operator actions.
Prototype components of the Aastrom CPS are currently being used in a clinical
trialtrials and ongoing development activities are directed at completing other
production level components of the Aastrom CPS.
The Aastrom CPS is designed to be operated with minimal operator activity by
a medical or laboratory technician and can implement clinical scale cell
production at the patient care site. The end product of the Aastrom CPS
process is a sterile bag of cells.blood-bag container with the cell product. The control and
documentation features of the Aastrom CPS have been designed to meet GMPcGMP
requirements for the therapeutic production of cells.
26
AASTROM CPS FOR STEM CELL THERAPY
The Company's initial application for the Aastrom CPS is expected to be in
the growing field of stem cell therapy, where the Company believes that the
Aastrom CPS may address many of the limitations of existing procedures. The
Aastrom CPS is based on a comparatively simple process in which a small volume
of bone marrow cells are collected from the patient or donor using a needle
aspiration procedure typically under a local anesthetic or sedative. This cell
mixture is quantified, and an appropriate volume of cells is then inoculated
into one or more cell cassettesCell Cassettes with the necessary growth media. Therapeutic growth-Growth-
factor-stimulated cells are produced using the Aastrom CPS in approximately 12
to 13 days, with no further patient involvement. Depending upon the cell
quantity necessary for a therapeutic application, single or multiple cell
cassettesCell
Cassettes may be required, with a different volume requirement of starting
cells.cells taken from the patient at the initial visit. The Aastrom CPS has been
designed to minimize operator involvement during the cell production process,
and the steps required before and after the Aastrom CPS are standard
laboratory procedures. Cells derived from UCB may also serve as a tumor-free
source of stem and progenitor cells for expansion in the Aastrom CPS.
Potential Advantages of Aastrom CPS
The Company believes that the Aastrom CPS, if approved for commercial sale
by the FDA and foreign regulatory agencies, willmay provide certain improvements
and efficiencies over traditional cell collection and infusion processes. The
following table, illustrates some potential advantageswhich sets forth estimates based on a 1996 survey conducted
by the Company of 11 stem cell transplant physicians at different transplant
institutions throughout the Aastrom CPS compared to
approximatedUnited States, compares estimated patient visits,care
episodes and procedure time and needle sticks in connection
withfor currently established cell collection techniques:and
infusion techniques with the Aastrom CPS method of cell procurement:
PROCEDURE TIME
CELL SOURCE VISITS(1) PROCEDURE TIMECARE EPISODES(1) (HOURS) NEEDLE STICKS(2)(1)
----------- --------- ---------------------- ---------------- --------------
Bone Marrow Harvest(3)..... 6 22 100+Harvest (2)................... 8 16
PBPC Mobilization and Col-
lection(4)................ 5-7 23-27 20-30Collection (3)...... 21 39
Aastrom CPS(5)............. 1 1-2 4-10CPS (4)........................... 2 1-3
--------
(1) Includes all outpatient, inpatient, and home care episodes.
(2) Includes bone marrow aspirates, blood samples, catheter placements, and
subcutaneous injections.
(3) Includes operating room procedure and all preparatory screening and testing.
(4)recovery
procedures.
(3) Based on two toan average of three 4-hour rounds of PBPC mobilization and collection
after sequential G-CSF bloodapheresis following cell
mobilization injections.
(5) Based(4) Projections, based on data accumulated during the Company's
research and clinical trials.
Reduced Cost.The Company believes that the Aastrom CPS may provide the following benefits
when compared to current cell collection and infusion methods:
Cost-Effectiveness. The Company believes the Aastrom CPS has the potential
to cost-effectively replace more costly,the labor intensive and invasive cell collection
and infusion procedures currently employed for stem cell therapy and to reduce
physician, staff and patient time requirements.
Reduced Patient and Physician Burden. Cell production with the Aastrom CPS
is expected to require the collection of a small volume of starting material
compared to current collection procedures, eliminating the
28
requirement for general surgical anesthesia, multiple drug injections andor blood
apheresis. Patient benefits are expected to include fewer needle sticks than
with current cell collection and infusion methods and a reduction in overall
patient procedure time. Additionally, Aastrom's process for cell expansion is
expected to minimize the time requirement for physicians compared with bone
marrow harvest.
Enhanced Multicycle High-Dose Chemotherapy. The long restoration period for
the hematopoietic system following myeloablative therapy effectively limits
patients to one opportunity for cell collection prior to cancer therapy. The
Aastrom CPS may enhance the practice of multi-cycle,multicycle, high-dose chemotherapy by
providing the ability to produce a therapeutic dose of cells from a small
starting volume. The initial cell collection can be divided into multiple
samples and stored frozen until expansion at a later time is required.
Reduced Quantity of Lymphocytes. The Company believes its approach to stem
cell therapy may provide an additional benefit over current methods by
depleting potentially harmful cells such as T-cells and B-cells. These cells
are believed to be primarily responsible for graft-versus-host disease, a
common manifestation of allogeneic transplants in which the grafted donor's
cells attack the host's tissues and organs.
27
Tumor Cell Purging. Cancer patients with tumor metastases, in which the
cancer has spread to the blood and bone marrow, have not traditionally been
candidates for autologous stem cell transplants because such transplant maymight
reintroduce cancer cells into the patient. Additionally, patients may have
undetected tumor cells present in their marrow or PBPC transplant, which can
reestablish thecould
re-establish cancer in the patient following transplant. The Aastrom CPS
process may offer benefits for these groups of patients. The Company and otherCompany's initial
clinical results, as well as studies conducted by third-party investigators,
have shown that some primary human tumor cells die or do not grow during
hematopoietic cell culture. Further, theThe smaller volume of starting cells used for the
Aastrom CPS compared with BMTbone marrow harvest or PBPC transplants shallmay provide
approximately 10 to 70 fold less tumor cells in a transplant. ThisFurther, in an
evaluation of seven tumor-contaminated bone marrow samples that were expanded
with the Aastrom CPS process, the presence of breast cancer cells in each
sample was either substantially reduced or was no longer detectable. The
Company believes that this combination of passive depletion during culture
with the lower starting volume of tumor cells may result in a tumor-free or
tumor-reduced cell product for transplant. The clinical benefit of such tumor
depletion, if any, will vary depending upon the type of cancer and state of
disease.
CLINICAL DEVELOPMENT
The Company's clinical development plan is initially to obtain regulatory
approval in the United States to market the Aastrom CPS for autologous stem
cell therapy and UCB transplantation, and in Europe for more general cell
therapy applications. The Company also intends to pursue approval of the
Aastrom CPS for additional clinical indications.
The Company believes that the Aastrom CPS for stem cell therapy will be
regulated as a medical device and that the Company will be required to submit
a PMA application to, and obtain approval from, the FDA to allow it to market
this product in the United States. In order to obtain PMA approval,registration, the
Company will be required to complete clinical trials under an IDE. See "--
Government Regulation--Devices."
Aastrom is currently conducting a pre-pivotal stem cell therapy clinical
trial at four U.S. sites. This clinical trial is designed to demonstrate that
cells produced using the Aastrom CPS can alone provide hematopoietic recovery
in accordance with trial endpoints in breast cancer patients who have received
myeloablative chemotherapy. Bone marrow or mobilized PBPC obtained from the
patients by traditional methods will be available for precautionary reasons at
defined clinical stages.
Initial patient data from one trial site have been presented and demonstrate
that cells produced in the Aastrom CPS can lead to engraftment of stem cells
in patients within a recovery time frame that is comparable with that of
conventional bone marrow transplantation following ablative chemotherapy.
These patients started to recover their white blood cell counts within a
median time of approximately seven days post-transplant and reached safe
levels of neutrophils at approximately 16 days and platelets at approximately
23 days. Prior to implementing the trial protocol used for these patients, the
Company had evaluated the cells produced in the Aastrom CPS in Stage IV breast
cancer patients who had received significant prior cytotoxic therapy for their
advanced cancer.
29
The Company has also initiated clinical trials at one site for adult
patients and at another site for pediatric patients to evaluate the use of the
Aastrom CPS to expand cells obtained from UCB for use in patients who have
received myeloablative radiation or chemotherapy.
The objective of the current and anticipated future trials is to establish
the protocols for pivotal trials of the Aastrom CPS in stem cell therapy.
Provided that these pre-pivotal trials provide further evidence of the
feasibility and safety of cells produced in the Aastrom CPS, the Company
anticipates initiating pivotal clinical trials at multiple sites no earlier
than late 1997, with patient enrollment to support a PMA filing, although this
schedule is subject to numerous risks and uncertainties.
Aastrom, in partnership with Cobe, has initiated two clinical sites in
Europe to evaluate the use of Aastrom CPS cells to promote hematopoietic
recovery in breast cancer patients undergoing aggressive myelosuppressive or
myelotoxic chemotherapy. Assuming the successful completion of these and other
clinical trials, the Company intends to seek approval to market the Aastrom
CPS in Europe through CE Mark Registration. See "--Government Regulation--
Regulatory Process in Europe."
The ongoing trials were preceded by earlier studies designed to evaluate
safety and process feasibility. Aastrom completed the first feasibility trial
of its cell production system technology at the M.D. Anderson Cancer Center in
October 1995. In this trial, ten breast cancer patients, who were subjected to
myeloablative chemotherapy, were treated with cells obtained from a standard
bone marrow harvest and with cells produced from a sample of such cells with a
predecessor of the Aastrom CPS. The patients exhibited standard clinical
recoveries, providing evidence of the clinical safety of cells obtained from
the Company's cell production process and of the feasibility of cell
production with a predecessor of the Aastrom CPS by clinical personnel at an
investigational site. With this study completed, a five-patient study was then
conducted to begin to evaluate the use of cells obtained from the Company's
cell production process alone in the transplant setting.
The results from these patients provided evidence of the clinical safety of
the Aastrom CPS-produced cells in patients and that the hematopoietic recovery
endpoints specified for the trial are achievable. Four of these five patients
received the delayed administration of the precautionary bone marrow pursuant
to the trial protocol. Following further review by the FDA, the IDE was
amended to expand the trail to the four additional sites where the clinical
trail is now ongoing. The amended IDE provided for the enrollment of Stage II,
III and IV patients, and a delayed use of the precautionary bone marrow.
In a dose-ranging study conducted by the University of Michigan (the
"University") in 1993, ex vivo produced cells utilizing the Company's
proprietary cell production technology were infused into seven patients with
non-Hodgkin's lymphoma after they received myeloablative chemotherapy. These
patients also received cells obtained from either an autologous bone marrow
harvest or PBPC procedure. No safety issues attributable to the infused cells
were observed in this trial and the patients exhibited recovery profiles
consistent with traditional transplantation techniques.
Aastrom completed the first feasibility trial of its cell production system
technology under an IDE at the MD Anderson Cancer Center in October 1995. In
this trial, ten breast cancer patients, who were subjected to myeloablative
chemotherapy, were treated with cells obtained from a bone marrow harvest and
with cells produced from a sample of such cells with a predecessor of the
Aastrom CPS. The patients exhibited standard clinical recoveries, providing
evidence of the clinical safety of cells obtained from the Company's cell
production process and of the feasibility of cell production with a
predecessor of the Aastrom CPS by clinical personnel at an investigational
site.
Aastrom is currently conducting a pre-pivotal stem cell therapy clinical
trial under an IDE reviewed with the FDA. This clinical trial is designed to
demonstrate that cells produced using the Aastrom CPS can provide
hematopoietic recovery in accordance with trial endpoints in breast cancer
patients who have received myeloablative chemotherapy. Bone marrow obtained
from the patient by traditional methods will be available for precautionary
reasons at defined clinical stages. The results from the five patients accrued
at the first trial site have provided evidence of the clinical safety of the
Aastrom CPS-produced cells in patients and that the hematopoietic recovery
endpoints specified for the trial are achievable. The patients at this trial
site were Stage IV breast cancer patients who had received significant prior
cytotoxic therapies for their cancer. Four of these five patients received the
precautionary back-up marrow pursuant to the trial protocol. Preliminary
results from the first trial site were reviewed with the FDA, and the IDE was
amended to expand the trial to a second site. The amended IDE provided for the
enrollment of Stage II, III and IV patients, and a delayed use of the
precautionary back-up bone marrow. As of the date of this Prospectus, patient
accrual is ongoing and patient data from this site provides further evidence
that the hematopoietic recovery endpoints specified for the trial are
achievable.
28
The objective of the current and anticipated future trials is to establish
the protocol for the pivotal trial of the Aastrom CPS in autologous stem cell
therapy. Provided that these pre-pivotal trials provide evidence of
feasibility and safety of the cells produced in the Aastrom CPS, the Company
anticipates initiating a pivotal clinical trial at multiple sites, with the
patient enrollment typical to support a PMA filing. See "Risk Factors--
Uncertainties Related to Preclinical and Clinical Testing."
Aastrom, in partnership with Cobe, intends to initiate a clinical trial in
France in early 1997 to evaluate the use of Aastrom CPS cells to promote
hematopoietic recovery in breast cancer patients undergoing aggressive
myelosuppressive chemotherapy. The Company intends to seek approval to market
the Aastrom CPS in Europe through CE Mark Registration. See "--Government
Regulation--Regulatory Process in Europe."
The preliminary results of the Company's pre-pivotal trialtrials may not be
predictive of results that will be obtained from subsequent patients in the
trialtrials or from more extensive trials. Further, there can be no assurance that
the Company's pre-pivotal or pivotal trialtrials will be successful, or that PMA
approvalregistration or required foreign regulatory approvals for the Aastrom CPS will
be obtained in a timely fashion, or at all. See "Risk Factors--Uncertainties
Related to Clinical Trials."
BUSINESS STRATEGY
Aastrom's objective is to build a leadership position in cell therapy
process technology. The primary elements of the Company's business strategy
are as follows:
Establish Consumable Based Business Model. Aastrom's strategy is to sell the
Aastrom CPS to institutions, hospitals, and other clinical care or commercial
cell production facilities that are administering cell therapy.producing cells for patient treatments.
The Company plans to obtain ongoing revenue from the sale of single-use disposable Cell
Cassettes and related cell culture media and reagents, which are utilized in
individual cell therapy applications. After cells are cultured, in the Cell
Cassette the cassette is discarded and a new cassetteCell Cassette is utilized for a subsequent
patient.cell production
30
procedure. Cell Cassettes are specifically designed for particular cell types,
allowing for different marketing strategies for different cell therapy
indications. Along with ongoing revenue from the sale of instruments and
disposablessingle-use Cell Cassettes and reagents for cell therapy applications, the
Company believes it will be able to obtain license revenue from its stem cell
therapy applications for its proprietary stem cell processes.
Focus Initially on Established and Reimbursed Therapies. Aastrom will seek
to establish the use of the Aastrom CPS in the field of stem cell therapy for
the treatment of hematopoietic system toxicity resulting from many cancer
therapies, including those for breast cancer, lymphoma, ovarian cancer, germ
cell cancers, leukemias and aplastic anemias. Stem cell therapy is a well-establishedwell-
established and growing treatment modality in cancer therapy, and current cell
collection procedures are widely reimbursed by third party payors.
Leverage Platform Technology Across Multiple Market Opportunities. In
addition to stem cell therapy applications, the Company believes that the
Aastrom CPS may serve as a platform product that can be used to produce a
variety of other cells for multiple therapeutic applications, such as T-cells
and dendritic cells for use in lymphocyte therapies,cellular immunotherapies, chondrocytes for
cartilage replacement, and mesenchymal cells for use in certain solid tissue
therapies.repair applications. The Company believes that ifby providing systems with broad
cell processing capabilities, hospitals or other cell production facilities
may use the Aastrom CPS is well established as a method for cell
production for use in stemmultiple cell therapy the system will be positioned for
commercialization of new cell and ex vivo gene therapies that are under
development.
Market Throughapplications.
Enter Into Collaborative Relationships. The Company plans to reach end
user marketsmarket its
products and establish reimbursement for such products through collaborativecorporate
collaborations. The Company currently plans to establish corporate
relationships with companies that have
established positions in those markets. In 1993,its targeted market segments, which include immunotherapy,
solid tissue repair and ex vivo gene therapy. For the stem cell therapy market
segment, the Company has formed a strategic partnershipcollaboration with Cobe, a world leader in the marketing and
distributionleading
provider of blood cell processing equipment and disposables.systems. Under the terms of this
agreement, Cobe iswill be the Company's exclusive worldwide distributor ofmarketing,
distribution and service provider for the Aastrom CPS for stem cell therapy
applications, not includingother than stem cell gene therapy. The Company will
seek to establish additional collaborations for otherFor selected emerging cell
therapies, additional alliances will be sought by the Company to (i) secure
additional technology, such as those
therapiesgene vectors or growth factors, or regulatory
or marketing capability which may augment the Aastrom CPS or Aastrom Gene
Loader; (ii) assist with regulatory and reimbursement matters for new therapy
applications; and (iii) assist with marketing new therapy applications to
physicians. To assist the Company's product lines develop.Company in securing new strategic alliances, the
Company has entered into an agreement with Burrill & Company, LLC ("Burrill").
Under this agreement, Burrill will work with the Company to identify and
transact cell therapy collaborations, and a majority of Burrill's compensation
under the agreement is contingent upon the Company successfully entering into
new corporate alliances. See "Business--Strategic"--Strategic Relationships."
29
ADDITIONAL STEM CELL AND OTHER CELL THERAPIES
The Company believes that the Aastrom CPS hardware and disposablessingle-use Cell
Cassettes may be developed to serve as platform products for application in a
variety of other emerging cell therapies in addition to stem cell therapy. The
Company believes that the Aastrom CPS has the potential to supplant current
manual cell culture methods to produce therapeutic quantities of cell types
such as T-cells, chondrocytes, mesenchymal cells, keratinocytes, neuronal
cells and dendritic cells. CurrentlyOther than a limited application of chondrocyte
therapy, novel cell therapies are still in early stages of development by
third parties, and no assurance can be given that such cells are often produced in specialized facilities generally
using manualother cell culture techniques which limit the effective
commercialization of these cell types for therapy.therapies
will be successfully developed. Potential advantages of the Aastrom CPS in
these therapies may include: (i) reducing labor and capital costs; (ii)
enhancing process reliability; (iii) automating quality assurance; and (iv)
reducing the need for specialized, environmentally controlled facilities.facilities; and
(v) providing greater accessibility of these procedures to care providers and
patients and, in certain cases, providing a more biologically active cell
product.
Modification of such processes and application of the Company's products to
the expansion of other cell types may require substantial additional
development of specialized cell culture environments and which may need to be
incorporated within the Company's existing cell cassettes.Cell Cassettes. Such modifications
may require the Company to raise substantial additional funds, or to seek
additional collaborative partners, or both. There can be no assurancesassurance that the
Company will be able to successfully modify or develop existing or future
products to enable such additional cell production processes. Furthermore, other than a limited application of chondrocyte
therapy, novel cell therapies are still in early stages of development by
third parties. The Company's
business opportunity is dependent upon successful development and regulatory
approval of these novel cell therapies. No assurance can be given that such
novel
31
therapies will be successfully developed by other companies or approved by
applicable regulatory authorities, or that the Company's processes or product
candidates will find successful application in such therapies. In addition,
the Company may be required to obtain license rights to such technologies in
order to develop or modify existing or future products for use in such
therapies. No assurance can be given that the Company will be able to obtain
such licenses or that such licenses, if available, could be obtained on
commercially reasonable terms. See "--Business Strategy" and "--Clinical
Development" andDevelopment," "Use of Proceeds.Proceeds," and "Risk Factors--Future Capital Needs;
Uncertainty of Additional Funding."
Immunotherapies
Immunotherapy involves using cells of the immune system to eradicate a
disease target. T-cell lymphocytes and dendritic cells are being actively
investigated by other companies for this purpose, and the Company anticipates
that many of these procedures will require ex vivo cell production.
T-cells, a class of lymphocyte white blood cells, play a critical role in
the human immune system and are responsible for the human immune response in a
broad spectrum of diseases, including cancers and infectious diseases.
Cytotoxic T-lymphocytes ("CTLs") is a new process that involves collecting T-
cells from a patient and culturing them in an environment resulting in T-cells
with specificity for a particular disease target. Clinical trials by third
parties have been completed demonstratinginitiated to demonstrate CTL effectiveness for certain
diseases.effectiveness. The ex vivo
production of these cells under conditions for use in medical treatment
represents a critical step in the advancement of this therapy.
Dendritic cells (the potent antigen presenting cells) are believed to play
an important role in the function of the immune system. Researchers believe
that cultured dendritic cells could augment the natural ability of a patient
to present antigens from the infectious agents to the immune system and aid in
the generation of a cytotoxic T-cell response to the infectious agent. The
Company intends to explore application of its products and processes for the
expansion of dendritic cells.
Solid Tissue Cell Therapies
One of the newest areas of cell therapy involves the production of
chondrocytes for the restoration of cartilage. Chondrocyte therapy involves
the surgical removal of a small amount of tissue from the patient's knee and a
therapeutic quantity of chondrocytes is produced from this surgical biopsy.
The cells are then implanted into the patient's knee. Published reports
indicate that such cells then reestablish mature articular cartilage.
Currently, this cell production process is completed in highly specialized
laboratory facilities using trained scientists and manual laboratory
procedures. The Company believes that the Aastrom CPS hasmay have the potential
to reduce costs associated with the cell production procedure and, if
successfully developed by the Company for this application, may eventually
facilitate the transfer of the cell production capability away from
specialized facilities directly to the clinical care sites.
30
Other Stem Cell Therapies
Autoimmune Diseases. Stem cell therapy is under clinical investigation by
third parties for the treatment of other diseases. Clinical studies have
suggested a potential role for stem cell therapy in treatment of autoimmune
diseases such as rheumatoid arthritis, multiple sclerosis and lupus
erythematosus. The generic cause of these diseases is a malfunctioning immune
system, including T-
lymphocytes.T-lymphocytes. Clinical trials in which the patient receives
treatment resulting in immune ablation (usually involving myelotoxic cancer
drugs or radiation), followed by stem cell therapy to restore the bone marrow
and cells of the blood and immune system, have demonstrated remission of the
autoimmune disease in some patients.
Organ Transplantation. Recently, a number of academic and corporate
researchers and companies have identified the potential use of stem cell
therapy to facilitate successful solid organ and tissue transplants between
human donors and recipients, as well as using organs from non-human species
for transplantation into humans. These proposed applications are based on the
observation that donor-specific bone marrow, infused concurrent
32
with or prior to the organ transplant, can provide for reduction of the normal
immune rejection response by the transplant recipient (e.g. heart, lung, liver
or kidney transplants).
A major limitation to the use of stem cell therapy in solid organ transplant
is the limited availability of sufficient amounts of bone marrow to obtain a
desired therapeutic response of immune tolerization. This limitation is
particularly problematic when cadaveric donor organs are available,used, which has
traditionally been the source of cells for these procedures. Bone marrow is
also often available from the cadaveric donor, but only in a limited amount.
Normally this amount may be sufficient for one transplant, but a donor might
provide multiple organs for transplant into multiple recipients. Aastrom
believes that the ability to expand the available bone marrow ex vivo will
enhance the use of stem cell therapy for such transplant procedures.procedures and may
pursue development of its products for application in such therapy in the
future.
AASTROM PRODUCT CANDIDATES FOR EX VIVO GENE THERAPY
A novel form of cell therapy is ex vivo gene therapy. For this type of cell
therapy, cells procured from the patient or a donor are genetically modified
prior to their infusion into the patient. Analogous to other cell therapies,
the ability to produce a therapeutic dose of these gene-modified cells is a
major limitation to the commercialization of these cell therapies. This
limitation is further exacerbated by the additional requirement that the cells
be genetically modified under conditions that are sterile and comply with GMP.
Gene therapy is a therapeutic modality that holds the potential to
significantly impact the delivery of healthcare and the delivery of
therapeutically useful protein-based drugs within the body. Gene therapies are
generally targeted at the introduction of a missing normal gene into otherwise
defective human tissue, or the introduction of novel biologic capability into
the body via the introduction of a gene not ordinarily present (for example,
genes providing for the enhanced recognition and destruction or inhibition of
the HIV-1 virus). The major developmental focus of the ex vivo gene therapy
industry has been to identify the therapeutic gene of interest, insert it into
a suitable vector that can be used to transport and integrate the gene into
the DNA of the target cell, and then cause the gene to become expressed. ForThe
Company believes that for ex vivo gene therapy to progress to clinical
applications, a process to produce a sufficient quantity of therapeutic cells
is required as is an efficient means to insert the gene vector into target
cells. Gene therapy is still in an early stage of development by third
parties. The Company's business opportunity is dependent upon the successful
development and regulatory approval of individual gene therapy applications.
No assurance can be given that such applications will be developed or approved
or that the Company's processes or product candidates will find successful
applications in such therapies. Successful development of the Company's
processes and product candidates for application in ex vivo gene therapy will
require substantial additional research and development, including clinical
testing, and will be subject to the Company's ability to finance such
activities on acceptable terms, if at all. See "Risk Factors--Future Capital
Needs; Uncertainty of Additional Funding."
THE AASTROM CPS FOR GENE THERAPY (GT-CPS)
The Aastrom CPS has been developeddesigned to produce cells for therapy. Clinical
cell production is a limiting requirement for gene therapy to effectively move
into medical practice, and as such, the
Company believes that the Aastrom CPS may be useful in many potential ex vivo
gene therapy applications. 31
Further, the Company'sCompany anticipates that its
proprietary stem cell production process technology implemented by the Aastrom
CPS providesmay provide the conditions for clinical scale stem cell division, and
enablesenable or enhancesenhance the introduction of therapeutic genes into stem cell DNA.
The Company believes that its technology may also enable expansion of more
mature progeny of these stem cells to create a gene therapy cell product with
potential short and long term therapeutic effect.
The Company has two principal objectives for the development of Aastrom GT-
CPS: (i) the enablement of stem cell gene therapies for a variety of
hematologic and other disorders, based on the GT-CPS's ability to enable large
scale stem cell division ex vivo; and (ii) the enablement of gene transfer and
therapeutic cell production by local and regional primary patient care
facilities and ancillary service laboratories.
33
THE AASTROM GENE LOADER
The Aastrom Gene Loader product technology, which is under development, is
being designed to enhance the efficiency and reliability of the transfer of
new therapeutic genes, which are carried by vectors, into the target cell.
This process, which is typically inefficient in many human cells has represented a major hurdle preventinginhibits many
ex vivo gene therapies from moving forward in the clinic. The Aastrom Gene
Loader willis being designed to incorporate the Company's proprietary directed
motion gene transfer technology
andtechnology. Complete product development is expected to
incorporate single-use sterile disposables, operated by
dedicated instrumentation.
A major product objective of the Aastrom Gene Loader is the enhancement of
gene transfer efficiencies and reliability. Improving gene vector efficiencies
may enable a wide spectrum of gene therapies currently unable to realize
clinical application.require additional funding sources or collaborations with others, or both.
The Company believes that these issues represent a general bottleneck for
other companies pursuing ex vivo gene therapy clinical applications. The
Company's technology under development may favorably influence these gene
therapy applications, the development of which are impeded due to low
transduction efficiencies and the resultant need for use of extreme quantities
of gene vectors and/or target "delivery" tissues.
STRATEGIC RELATIONSHIPS
On October 22, 1993, the Company entered into a Distribution Agreement (the
"Distribution Agreement") with Cobe a subsidiary of Gambro AB, for Cobe to be the Company's exclusive,
worldwide distributor ofmarketing, distribution and service provider for the Aastrom CPS for
stem cell therapy applications (the "Stem Cell Therapy Applications"). Under
the terms of the Company's Distribution Agreement with Cobe, other than with
respect to sales to affiliates, the Company is precluded from selling the
Aastrom CPS to customers for stem cell therapy applications. The Company has,
retainedhowever, reserved the right to marketsell the Aastrom CPS for uses outside the Stem
Cell Therapy Applications, such as forfor: (i) all diagnostic or
other non-therapeutic clinical applications; (ii) all gene therapy or gene
transfer applications, including those for stem cells; (iii) all non-human
applications; (iv) certain permitted clinical research applications; and (v)
all applications that are labeled not for production ofhuman use. The Company has also
reserved the unconditional right to sell other cells and tissues.products under development,
including but not limited to products based upon its gene loading technology.
The initial term of the Distribution Agreement expires on October 22, 2003,
and Cobe has the option to extend the term for an additional ten-year period.
The Company is responsible for the expenses to obtain FDA and other regulatory
approval in the United States, while Cobe is responsible for the expenses to
obtain regulatory approval in foreign countries to allow for worldwide
marketing of the Aastrom CPS for Stem Cell Therapy Applications. See "Risk
Factors--Consequences of Cobe Relationship."
Under the terms of the Distribution Agreement, the Company will realize
approximately 60% and 58% to 62% of the net sales price at which Cobe ultimately sells
the Aastrom CPS in the United States and Europe, respectively, for Stem Cell Therapy Applications, subject to certain
negotiated discounts and volume-
based adjustments.volume-based adjustments and subject to the
obligation of the Company to make aggregate royalty payments of up to 5% to
certain licensors of its technology. The Company is also entitled to a premium
on United States sales in any year in which worldwide sales exceed specified
levels.
The Distribution Agreement may be terminated by Cobe upon twelve (12) months
prior notice to the Company in the event that any person or entity other thatthan
Cobe beneficially owns more than 50% of the Company's outstanding Common Stock
or voting securities. The Distribution Agreement may also be terminated by
Cobe at any time after December 31, 1997 if Cobe determines that
commercialization of the Aastrom CPS for stem cell therapy on or prior to
December 31, 1998 is unlikely.
32
In conjunction with the Distribution Agreement, the Company also entered
into a Stock Purchase Agreement with Cobe (the "Cobe Stock Agreement"),
whereby Cobe acquired certain option, registration, preemptive and other
rights pertaining to shares of the Company's stock. Pursuant to such
preemptive rights, Cobe elected to purchase 714,200 shares of Common Stock in
the Company's initial public offering in February 1997. See "Description of
Capital Stock--Rights of Cobe.Cobe" and "Certain Transactions."
The Company has entered into a Strategic Planning Consulting Services and
Collaboration Agreement (the "Consulting Agreement") with Burrill, pursuant to
which Burrill will advise the Company on potential strategic alliances and
seek to identify potential collaborations. Pursuant to the Consulting
Agreement, Burrill will be paid a monthly retainer of $10,000 and will be
reimbursed for expenses incurred pursuant to an approved budget.
34
Aastrom has issued Burrill an immediately exercisable warrant to purchase
100,000 shares of Common Stock at an exercise price of $7.24 and a second
warrant, which vests over a one-year period, to purchase 100,000 shares at an
exercise price of $7.24. The Consulting Agreement is terminable by either
party following periods of up to 30 days following notice.
The Consulting Agreement also provides for payments to Burrill that are
based on the timing and amount of proceeds Aastrom may receive from any future
strategic alliances. In the event that the Company enters into strategic
alliances (which exclude minor technology license agreements and customary
manufacturing or supply agreements that do not involve equity investments in
Aastrom, as well as performance pursuant to any of Cobe's existing agreements
with Aastrom), the Company will pay Burrill a success fee ranging from 4% to
7.5% of the proceeds in connection with the strategic alliance. In addition to
the success fee, Aastrom will issue to Burrill additional warrants to purchase
up to 500,000 shares of Common Stock, depending upon the achievement of
certain milestones.
MANUFACTURING
The Company has no current intention of internally manufacturing its product
candidates and, accordingly, is developing relationships with third party
manufacturers which are FDA registered as suppliers for the manufacture of
medical products.
OnIn May 10, 1994, the Company entered into a Collaborative Product Development
Agreement with SeaMED Corporation, ("SeaMED"). Pursuant to this agreement, the
Company and SeaMED will collaborate on the further design of certain
instrument components in the Aastrom CPS, and enable SeaMED to manufacture
pre-production units of the instrument components for laboratory and clinical
evaluation. The Company is paying SeaMED for its design and pre-
productionpre-production
work on a "time and materials" basis, utilizing SeaMED's customary hourly
billing rates and actual costs for materials. Subject to certain conditions,
the Company has committed to enter into a manufacturing agreement with SeaMED
for commercial manufacture of the instrument components for three years after
shipment by SeaMED of the first commercial unit pursuant to a pricing formula
set forth in the agreement. The Company retains all proprietary rights to its
intellectual property which is utilized by SeaMED pursuant to this agreement.
OnIn November 8, 1994, the Company entered into a Collaborative Product
Development Agreement with Ethox Corporation ("Ethox"). Pursuant to this
Agreement,agreement, the Company and Ethox will collaboratecollaborated on the further design of certain
bioreactor assembly and custom tubing kit components of the Aastrom CPS, and enable Ethox to manufacture pre-production units of such components
for laboratory and clinical evaluation.CPS. The
Company is paying Ethox for its design and production work on a "time and
materials" basis, utilizing Ethox's customary hourly billing rates and actual
costs for materials. The Company retains all proprietary rights to its
intellectual property which are utilized by Ethox pursuant to this Agreement.agreement.
35
In AprilMarch 1996, the Company entered into a five-year License and Supply
Agreement with Immunex to purchase and resell certain cytokines and ancillary
materials for use in conjunction with the Aastrom CPS. The agreement required
the Company to pay Immunex an initial up-front fee of $1,500,000 to be
followed by subsequent annual feerenewal payments equal to $1,000,000 per year
during the term of the agreement in addition to payment for supplies purchased
by the Company. In August 1997, the Company and Immunex amended the agreement
to expand the Company's territorial rights to use and sell such materials to a
worldwide basis. Unless earlier terminated or renewed by the Company for an
additional five-year term, the agreement will expire in April 2001. The
agreement may be terminated by either party effective immediately upon written
notice of termination to the other party in the event that such party
materially breaches the agreement and such breach continues unremedied after
notice and expiration of a specified cure period or in the event that a
bankruptcy proceeding is commenced against a party and is not dismissed or
stayed within a 45-day period. In addition, Immunex has the right to cease the
supply to the Company of cytokines and ancillary materials if the Company
fails to purchase a minimum amount of its forecasted annual needs from Immunex
after notice to the Company and expiration of a specified cure period. The
Company also has the right to terminate the agreement at any time subject to
the payment to Immunex of a specified amount for liquidated damages. Immunex
may terminate the agreement inIn the
event that Immunex elects to cease to supply to the Company failscytokines and
ancillary materials or is prevented from supplying such materials to purchasethe
Company by reason of force majeure, limited manufacturing rights will be
transferred to the Company under certain circumstances. There is, however, no
assurance that the Company could successfully manufacture the compounds itself
or identify others that could manufacture these compounds to acceptable
quality standards and costs, if at all.
In December 1996, the Company entered into a minimum amountCollaborative Supply Agreement
with Anchor Advanced Products, Inc., Mid-State Plastics Division ("MSP").
Under this agreement, MSP will conduct both pre-production manufacturing
development and commercial manufacturing and assembly of the Cell Cassette
component of the Aastrom CPS for the Company. During the initial phase of the
seven-year agreement, the Company will pay MSP for its development activities
on a time and materials basis. Upon reaching certain commercial manufacturing
volumes, MSP will be paid by the Company on a per unit basis for Cell
Cassettes delivered to the Company under a pricing formula specified in the
agreement. Throughout the term of this agreement, the Company has agreed to
treat MSP as its preferred supplier of Cell Cassettes, using MSP as its
supplier of at least 60% of its forecasted annual needs.requirements for Cell Cassettes.
There can be no assurance that the Company will be able to continue its
present arrangements with its suppliers, supplement existing relationships or
establish new relationships or that the Company will be able to identify and
obtain the ancillary materials that are necessary to develop its product
candidates in the future. The Company's dependence upon third parties for the
supply and manufacture of such items could adversely affect the Company's
ability to develop and deliver commercially feasible products on a timely and
competitive basis. See "Risk Factors--Manufacturing and Supply Uncertainties;
Dependence on Third Parties."
PATENTS AND PROPRIETARY RIGHTS
The Company's success depends in part on its ability, and the ability of its
licensors, to obtain patent protection for its products and processes. The
Company has exclusive rights to twelve issued U.S. patents and its licensors are seekingone patent protection for technologies
relatedwith
respect to (i) human stem and progenitor cell production processes; (ii)
bioreactors and systems for stem and progenitor cell production and production
of other cells; and (iii) gene transfer devices and processes. Thewhich the Company has exclusive license rightsreceived notice of allowance that present
claims to five issued United States patents that together
claim (i) certain methods for ex vivo stem cell division andas well as ex
vivo human hematopoietic stem cell stable genetic transformation optimization ofand expanding
and harvesting a human hematopoietic progenitorstem cell cultures and
increasing the metabolism or growth factor secretion of stromal cells, in a
33
continuously or periodically perfused liquid culture medium;pool; (ii) certain devicesapparatus
for the simultaneous culture ofcell culturing, including a bioreactor suitable for culturing human stem
cells andor human hematopoietic cells;
and (iii) certain methods of infecting or
transfecting target cells with genetic vectors.vectors; and (iv) a cell composition containing
human stem cells or progenitor cells, or genetically modified stem cells, when
such cells are produced in an ex vivo medium exchange culture. Patents
equivalent to two of these United StatesU.S. patents have also been issued in other
jurisdictions: one in Australia and another in Canada and under the European
Patent Convention. These eighttwelve
36
issued patents, in addition to the one patent with respect to which the Company
has received notice of allowance, are due to expire beginning in 2006, through
2013.2014. In addition, the Company and its exclusive licensors have filed
applications for patents in the United States and equivalent applications in
certain other countries claiming other aspects of the Company's products and
processes, including five United Statesa number of U.S. patent applications and corresponding
applications in other countries related to various components of the Aastrom
CPS. Of these pending patent
applications, the Company has received notices of allowance for certain claims
in a United States application relating to methods for obtaining ex vivo stem
cell division, and claims in a European Patent Convention application and in a
United States application relating to methods for efficient proliferation of
hematopoietic cells in culture.
The validity and breadth of claims in medical technology patents involve
complex legal and factual questions and, therefore, may be highly uncertain. No
assurance can be given that any patents based on pending patent applications or
any future patent applications of the Company or its licensors will be issued,
that the scope of any patent protection will exclude competitors or provide
competitive advantages to the Company, that any of the patents that have been
or may be issued to the Company or its licensors will be held valid if
subsequently challenged or that others will not claim rights in or ownership of
the patents and other proprietary rights held or licensed by the Company.
Furthermore, there can be no assurance that others have not developed or will
not develop similar products, duplicate any of the Company's products or design
around any patents that have been or may be issued to the Company or its
licensors. Since patent applications in the United States are maintained in
secrecy until patents issue, the Company also cannot be certain that others did
not first file applications for inventions covered by the Company's and its
licensors' pending patent applications, nor can the Company be certain that it
will not infringe any patents that may issue to others on such applications.
The Company relies on certain licenses granted by the University of Michigan
and Dr. Cremonese for the majority of its patent rights. If the Company
breaches such agreements or otherwise fails to comply with such agreements, or
if such agreements expire or are otherwise terminated, the Company may lose its
rights under the patents held by the University of Michigan and Dr. Cremonese,
which would have a material adverse effect on the Company's business, financial
condition and results of operation.operations. See "--University of
Michigan Research Agreement"--Research and License Agreement" and "--License Agreement
with J.G. Cremonese.Agreements."
The Company also relies on trade secrets and unpatentable know-how which it
seeks to protect, in part, by confidentiality agreements. It is the Company's
policy to require its employees, consultants, contractors, manufacturers,
outside scientific collaborators and sponsored researchers, and other advisors
to execute confidentiality agreements upon the commencement of employment or
consulting relationships with the Company. These agreements provide that all
confidential information developed or made known to the individual during the
course of the individual's relationship with the Company is to be kept
confidential and not disclosed to third parties except in specific limited
circumstances. The Company also requires signed confidentiality or material
transfer agreements from any company that is to receive its confidential data.
In the case of employees, consultants and contractors, the agreements generally
provide that all inventions conceived by the individual while rendering
services to the Company shall be assigned to the Company as the exclusive
property of the Company. There can be no assurance, however, that these
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets or unpatentable know-how
will not otherwise become known or be independently developed by competitors.
The Company's success will also depend in part on its ability to develop
commercially viable products without infringing the proprietary rights of
others. The Company has not conducted freedom of use patent searches and no
assurance can be given that patents do not exist or could not be filed which
would have an adverse effect on the Company's ability to market its products or
maintain its competitive position with respect to its products. If the
Company's technology components, devices, designs, products, processes or other
subject matter are claimed under other existing United States or foreign
patents or are otherwise protected by third party 34
proprietary rights, the
Company may be subject to infringement actions. In such event, the Company may
challenge the validity of such patents or other proprietary rights or be
required to obtain licenses from such companies in order to develop,
manufacture or market its products. There can be no assurances that the Company
would be able to obtain such licenses or that such licenses, if available,
could be obtained on commercially reasonable terms. Furthermore, the failure to
either develop a commercially viable alternative or obtain such licenses could
result in delays in marketing the Company's proposed products or the inability
to proceed with
37
the development, manufacture or sale of products requiring such licenses,
which could have a material adverse effect on the Company's business,
financial condition and results of operations. If the Company is required to
defend itself against charges of patent infringement or to protect its own
proprietary rights against third parties, substantial costs will be incurred
regardless of whether the Company is successful. Such proceedings are
typically protracted with no certainty of success. An adverse outcome could
subject the Company to significant liabilities to third parties and force the
Company to curtail or cease its development and sale of its products and
processes.
Certain of the Company's and its licensors' research has been or is being
funded in part by the Department of Commerce and by a Small Business
Innovation Research Grant obtained from the Department of Health and Human
Services. As a result of such funding, the United StatesU.S. Government has certain rights
in the technology developed with the funding. These rights include a non-exclusive,non-
exclusive, paid-up, worldwide license under such inventions for any
governmental purpose. In addition, the government has the right to require the
Company to grant an exclusive license under any of such inventions to a third
party if the government determines that (i) adequate steps have not been taken
to commercialize such inventions, (ii) such action is necessary to meet public
health or safety needs or (iii) such action is necessary to meet requirements
for public use under federal regulations. Additionally, under the federal Bayh
Dole Act, a party which acquires an exclusive license for an invention that
was partially funded by a federal research grant is subject to the following
government rights: (i) products using the invention which are sold in the
U.S.United States are to be manufactured substantially in the U.S.,United States,
unless a waiver is obtained; (ii) if the licensee does not pursue reasonable
commercialization of a needed product using the invention, the government may
force the granting of a license to a third party who will make and sell the
needed product; and (iii) the U.S. governmentGovernment may use the invention for its
own needs.
UNIVERSITY OF MICHIGAN RESEARCH AGREEMENT AND LICENSE AGREEMENTAGREEMENTS
In August 1989, the Company entered into a Research Agreement ("Research(the "Research
Agreement") with the University, pursuant to which the Company funded a
research project at the University under the direction of Stephen G. Emerson,
M.D., Ph.D., as the principal inventor, together with Michael F. Clarke, M.D.,
and Bernhard O. Palsson, Ph.D., as co-inventors. Pursuant to thisthe Research
Agreement, the Company was granted the right to acquire an exclusive,
worldwide license to utilize all inventions, know-how and technology derived
from the research project. By Extension Agreements, the Company and the
University extended the scope and term of the Research Agreement through
December 1994.
OnIn March 13, 1992, the Company and the University entered into the License
Agreement, as contemplated by the Research Agreement. There have been
clarifying amendments to the License Agreement, datedin March 13, 1992, October 8, 1993
and June 21, 1995. Pursuant to this License Agreement, (i) the Company acquired
exclusive worldwide license rights to the patents and know-how for the
production of blood cells and bone marrow cells as described in the
University's research project or which resulted from certain further research
conducted through December 31, 1994, and (ii) the Company is obligated to pay to
the University a royalty equal to 2% of the net sales of products which are
covered by the University's patents. Unless it is terminated earlier at the
Company's option or due to a material breach by the Company, the License
Agreement will continue in effect until the latest expiration date of the
patents to which the License Agreement applies.
LICENSE AGREEMENT WITH J. G. CREMONESE
In July 1992, the Company entered into a License Agreement with Joseph G.
Cremonese pursuant to which the Company obtained exclusive worldwide license
rights for all fields of use, to utilize U.S. Patent No. 4,839,292, entitled
"Cell Culture Flask Utilizing a Membrane Barrier," which patent was issued to
35
Dr. Cremonese on June 13, 1989, and to utilize any other related patents that
might be issued to Dr. Cremonese. Pursuant to thisthe License Agreement, the
Company has reimbursed Dr. Cremonese for $25,000 of his patent costs. Under
the terms of the License Agreement, the Company is to pay to Dr. Cremonese a
royalty of 3% of net sales of the products which are covered by said patent,
subject to specified minimum royalty payments ranging from $20,000 to $50,000
per year, commencing in calendar year 1997. Unless it isearlier terminated, earlier at
the Company's option or due to default by the Company, the
License
38
Agreement will continue in effect until the latest expiration date of the
patents to which the License Agreement applies.applies, which latest expiration date
is currently August 2009. The License Agreement may be terminated by either
party upon default by the other party of any of its obligations under the
agreement without cure after expiration of a 30-day notice period. The Company
also has the right to terminate the License Agreement at any time without
cause upon 30 days prior written notice to Dr. Cremonese.
GOVERNMENT REGULATION
The Company's research and development activities and the manufacturing and
marketing of the Company's products are subject to the laws and regulations of
governmental authorities in the United States and other countries in which its
products will be marketed. Specifically, in the United States, the FDA, among
other activities, regulates new product approvals to establish safety and
efficacy of these products. Governments in other countries have similar
requirements for testing and marketing. In the U.S.,United States, in addition to
meeting FDA regulations, the Company is also subject to other federal laws,
such as the Occupational Safety and Health Act and the Environmental
Protection Act, as well as certain state laws.
REGULATORY PROCESS IN THE UNITED STATES
To the Company's knowledge, it is the first to develop a cell culture system
for ex vivo human cell production to be sold for therapeutic applications.
Therefore, to a certain degree, the manner in which the FDA will regulate the
Company's products is uncertain.
The Company's products are potentially subject to regulation as medical
devices under the Federal Food, Drug, and Cosmetic Act, and as biological
products under the Public Health Service Act, or both. Different regulatory
requirements may apply to the Company's products depending on how they are
categorized by the FDA under these laws. To date, the FDA has indicated that
it intends to regulate the Aastrom CPS product for stem cell therapy as a
Class III medical device through the Center for Biologics Evaluation and
Research. However, there can be no assurance that FDA will ultimately regulate
the Aastrom CPS as a medical device.
Further, it is unclear whether the FDA will separately regulate the cell
therapies derived from the Aastrom CPS. The FDA is still in the process of
developing its requirements with respect to somatic cell therapy and gene cell
therapy products and has recently issued a draft documentdocuments concerning the
regulation of umbilical cord blood stem cell products, as well as cellular and
tissue-based products. If the FDA adopts the regulatory approach set forth in
the draft document, the FDA may require separate regulatory approval for such
cells in some cases. The FDA also recently proposed a new type of license,
called a biologic license application ("BLA"), for autologous cells
manipulated ex vivo and intended for structural repair or reconstruction. This
proposal may indicate that the FDA will extend a similar approval requirement
to other types of autologous cellular therapies, such as autologous cells for
stem cell therapy. Any such additional regulatory or approval requirements
could significantly delay the introduction of the Company's product candidates
to the market, and have a material adverse impact on the Company.
Approval of new medical devices and biological products is a lengthy
procedure leading from development of a new product through preclinical and
clinical testing. This process takes a number of years and the expenditure of
significant resources. There can be no assurance that the Company's product
candidates will ultimately receive regulatory approval.
Regardless of how the Company's product candidates are regulated, the
Federal Food, Drug, and Cosmetic Act and other Federal statutes and
regulations govern or influence the research, testing, manufacture, safety,
labeling, storage, recordkeeping, approval, distribution, use, reporting,
advertising and promotion of such products. Noncompliance with applicable
requirements can result in civil penalties, recall, injunction or seizure of
products, refusal of the government to approve or clear product approval
applications or to allow the Company to enter into government supply
contracts, withdrawal of previously approved applications and criminal
prosecution.
3639
DEVICES
In order to obtain FDA approval of a new medical device sponsors must
generally submit proof of safety and efficacy. In some cases, such proof
entails extensive clinical and preclinical laboratory tests. The testing,
preparation of necessary applications and processing of those applications by
the FDA is expensive and may take several years to complete. There can be no
assurance that the FDA will act favorably or in a timely manner in reviewing
submitted applications, and the Company may encounter significant difficulties
or costs in its efforts to obtain FDA approvals which could delay or preclude
the Company from marketing any products it may develop. The FDA may also
require postmarketing testing and surveillance of approved products, or place
other conditions on the approvals. These requirements could cause it to be
more difficult or expensive to sell the products, and could therefore restrict
the commercial applications of such products. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing. For patented technologies, delays
imposed by the governmental approval process may materially reduce the period
during which the Company will have the exclusive right to exploit such
technologies.
If human clinical trials of a proposed device are required and the device
presents significant risk, the manufacturer or distributor of the device will
have to file an IDE applicationsubmission with the FDA prior to commencing human clinical
trials. The IDE applicationsubmission must be supported by data, typically including the
results of pre-clinical and laboratory testing. If the IDE applicationsubmission is
approved,granted, human clinical trials may commence at a specified number of
investigational sites with the number of patients approved by the FDA.
The FDA categorizes devices into three regulatory classifications subject to
varying degrees of regulatory control. In general, Class I devices require
compliance with labeling and recordkeeping regulations, GMPs, 510(k) pre-
market notification, and are subject to other general controls. Class II
devices may be subject to additional regulatory controls, including
performance standards and other special controls, such as postmarket
surveillance. Class III devices, which are either invasive or life-sustaining
products, or new products never before marketed (for example, non-
"substantially equivalent" devices), require clinical testing to demonstrate
safety and effectiveness and FDA approval prior to marketing and distribution.
The FDA also has the authority to require clinical testing of Class I and
Class II devices.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent, the manufacturer or distributor
must submit a PMA application to the FDA. A PMA application must be supported
by extensive data, including preclinical and human clinical trial data, to
prove the safety and efficacy of the device. Upon receipt, the FDA conducts a
preliminary review of the PMA application. If sufficiently complete, the
submission is declared filed by the FDA. By regulation, the FDA has 180 days
to review a PMA application once it is filed, although PMA application reviews
more often occur over a significantly protracted time period, and may take
approximately one year or more from the date of filing to complete.
Some of the Company's products may be classified as Class II or Class III
medical devices. The Company has submitted and obtained FDA approval for
several IDEs for the Aastrom CPS,
and is currently conducting pre-pivotal clinical studies under these IDEs. The
Company believes that the Aastrom CPS product will be regulated by the FDA as
a Class III device, although there can be no assurance that the FDA will not
choose to regulate this product in a different manner.
The Company and any contract manufacturer are required to be registered as a
medical device manufacturer with the FDA. As such, they will be inspected on a
routine basis by the FDA for compliance with the FDA's GMP regulations. These
regulations will require that the Company and any contract manufacturer
manufacture products and maintain documents in a prescribed manner with
respect to manufacturing, testing, distribution, storage, design control and
service activities, and that adequate design and service controls are
implemented. The Medical Device Reporting regulation requires that the Company
provide information to the FDA on deaths or serious injuries alleged to be
associated with the use of its devices, as well as product malfunctions that
are 37
likely to cause or contribute to death or serious injury if the
malfunction were to recur. In addition, the FDA prohibits a company formfrom
promoting an approved device for unapproved applications and reviews company
labeling for accuracy.
40
BIOLOGICAL PRODUCTS
For certain of the Company's new products which may be regulated as
biologics, the FDA requires (i) preclinical laboratory and animal testing,
(ii) submission to the FDA of an investigational new drug ("IND") application
which must be effective prior to the initiation of human clinical studies,
(iii) adequate and well-controlled clinical trials to establish the safety and
efficacy of the product for its intended use, (iv) submission to the FDA of a
product license application ("PLA") and establishment license application
("ELA") and (v) review and approval of the PLA and ELA as well as inspections
of the manufacturing facility by the FDA prior to commercial marketing of the
product.
Preclinical testing covers laboratory evaluation of product chemistry and
formulation as well as animal studies to assess the safety and efficacy of the
product. The results of these tests are submitted to the FDA as part of the
IND. Following the submission of an IND, the FDA has 30 days to review the
application and raise safety and other clinical trial issues. If the Company
is not notified of objections within that period, clinical trials may be
initiated. Clinical trials are typically conducted in three sequential phases.
Phase I represents the initial administration of the drug or biologic to a
small group of humans, either healthy volunteers or patients, to test for
safety and other relevant factors. Phase II involves studies in a small number
of patients to assess the efficacy of the product, to ascertain dose tolerance
and the optimal dose range and to gather additional data relating to safety
and potential adverse effects. Once an investigational drug is found to have
some efficacy and an acceptable safety profile in the targeted patient
population, multi-center Phase III studies are initiated to establish safety
and efficacy in an expanded patient population and multiple clinical study
sites. The FDA reviews both the clinical plans and the results of the trials
and may request the Company to discontinue the trials at any time if there are
significant safety issues.
The results of the preclinical tests and clinical trials are submitted to
the FDA in the form of a PLA for marketing approval. The testing and approval
process is likely to require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all.
Additional animal studies or clinical trials may be requested during the FDA
review period that may delay marketing approval. After FDA approval for the
initial indications, further clinical trials may be necessary to gain approval
for the use of the product for additional indications. The FDA requires that
adverse effects be reported to the FDA and may also require post-marketing
testing to monitor for adverse effects, which can involve significant expense.
Under current requirements, facilities manufacturing biological products
must be licensed. To accomplish this, an ELA must be filed with the FDA. The
ELA describes the facilities, equipment and personnel involved in the
manufacturing process. An establishment license is granted on the basis of
inspections of the applicant's facilities in which the primary focus is on
compliance with GMPcGMP and the ability to consistently manufacture the product
in the facility in accordance with the PLA. If the FDA finds the inspection
unsatisfactory, it may decline to approve the ELA, resulting in a delay in
production of products. Although reviewed separately, approval of both the PLA
and ELA must be received prior to commercial marketing of a cellular biologic.
As part of the approval process for human biological products, each
manufacturing facility must be registered and inspected by FDA prior to
marketing approval. In addition, state agency inspections and approvals may
also be required for a biological product to be shipped out of state.
REGULATORY PROCESS IN EUROPE
The Company believes that the Aastrom CPS will be regulated in Europe as a
Class IIb medical device, under the authority of the new Medical Device
Directives ("MDD") being implemented by European Union ("EU") member
countries. This classification applies to medical laboratory equipment and
supplies including, 38
among other products, many devices that are used for the
collection and processing of blood for patient therapy. Certain ancillary
products (e.g., biological reagents) used with the Aastrom CPS may be
considered Class III medical devices.
The MDD regulations vest the authority to permit affixing of the "CE Mark"
with various "Notified Bodies." These are private and state organizations
which operate under license from the EU to certify that
41
appropriate quality assurance standards and compliance procedures are followed
by developers and manufacturers of medical device products or, alternatively,
that a manufactured medical product meets a more limited set of requirements.
Notified Bodies are also charged with responsibility for determination of the
appropriate standards to apply to a medical product. Receipt of permission to
affix the CE Mark enables a company to sell a medical device in all EU member
countries. Other registration requirements may also need to be satisfied in
certain countries, although there is a general trend among EU member countries
not to impose additional requirements beyond those specified for CE Mark
certification.
COMPETITION
The biotechnology and medical device industries are characterized by rapidly
evolving technology and intense competition. The Company's competitors include
major pharmaceutical, medical device, medical products, chemical and
specialized biotechnology companies, many of which have financial, technical
and marketing resources significantly greater than those of the Company. In
addition, many biotechnology companies have formed collaborations with large,
established companies to support research, development and commercialization
of products that may be competitive with those of the Company. Academic
institutions, governmental agencies and other public and private research
organizations are also conducting research activities and seeking patent
protection and may commercialize products on their own or through joint
ventures. The Company's product development efforts are primarily directed
toward obtaining regulatory approval to market the Aastrom CPS for stem cell
therapy. That market is currently dominated by the bone marrow harvest and
PBPC collection methods. The Company's clinical data, although early, is
inconclusive as to whether or notsuggests
that cells expanded in the Aastrom CPS using its current process will enable
hematopoietic recovery within the time frames currently achieved by the
bone
marrow harvest, however, neutrophil and platelet recovery times may be slower
than with PBPC collection methods. The Company is evaluating techniques and
methods to optimize the cells produced in the Aastrom CPS to reduce the
recovery time of neutrophils and platelets in patients. There can be no
assurance that if such procedure optimization does not lead to recovery times
equal to or faster than those of PBPC collection methods, such outcome would
not have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the bone marrow harvest and
PBPC collection methods have been widely practiced for a number of years and,
recently, the patient costs associated with these procedures have begun to
decline. There can be no assurance that the Aastrom CPS method, if approved
for marketing, will prove to be competitive with these established collection
methods on the basis of hematopoietic recovery time, cost or otherwise. The
Company is aware of certain other products manufactured or under development
by competitors that are used for the prevention or treatment of certain
diseases and health conditions which the Company has targeted for product
development. In particular, the Company is aware that competitors such as
Amgen, Inc., CellPro, Incorporated, Systemix, Inc.Novartis, A.G., Baxter Healthcare Corp.
and RPR are in advanced stages of development of technologies and products for
use in stem cell therapy and other market applications currently being pursued
by the Company. In addition, Cobe, a significant stockholdershareholder of the Company,
is a market leader in the blood cell processing products industry and,
accordingly, a potential competitor of the Company. There can be no assurance
that developments by others will not render the Company's product candidates
or technologies obsolete or noncompetitive, that the Company will be able to
keep pace with new technological developments or that the Company's product
candidates will be able to supplant established products and methodologies in
the therapeutic areas that are targeted by the Company. The foregoing factors
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's products under development are expected to address a broad
range of existing and new markets. The Company believes that its stem cell
therapy products will, in large part, face competition by existing procedures
rather than novel new products. The Company's competition will be determined
in part by the potential indications for which the Company's products are
developed and ultimately approved by regulatory authorities. In addition, the
first product to reach the market in a therapeutic or preventive area is often
at a significant competitive advantage relative to later entrants to the
market. Accordingly, the relative speed with 39
which the Company or its
corporate partners can develop products, complete the clinical trials and
approval processes and supply commercial quantities of the products to the
market are expected to be important competitive factors. The Company's
competitive position will also depend on its ability to attract and retain
42
qualified scientific and other personnel, develop effective proprietary
products, develop and implement production and marketing plans, obtain and
maintain patent protection and secure adequate capital resources. The Company
expects its products, if approved for sale, to compete primarily on the basis
of product efficacy, safety, patient convenience, reliability, value and
patent position.
FACILITIES
The Company leases approximately 20,000 square feet of office and research
and development space in Ann Arbor, Michigan under a lease agreement expiring
in May 1998. The lease is renewable at the option of the Company for up to an
additional five-year term. The Company believes that its facilities will be
adequate for its currently anticipated needs. Contract manufacturing or
additional facilities will be required in the future to support expansion of
research and development and to manufacture products.
EMPLOYEES
As of September 30, 1996,August 31, 1997, the Company employed approximately 6172 individuals
full-time. A significant number of the Company's management and professional
employees have had prior experience with pharmaceutical, biotechnology or
medical product companies. None of the Company's employees are covered by
collective bargaining agreements, and management considers relations with its
employees to be good.
LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings, although from
time to time it may become involved in disputes in connection with the
operation of its business.
4043
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information concerning directors and executive officers and directors of the Company:Company, and their respective
ages as of August 31, 1997, are as follows:
NAME AGE POSITION
---- --- --------
Robert J. Kunze(2)(3)............ 61.................... 62 Chairman of the Board;Board and Director
R. Douglas Armstrong, Ph.D.(3)... 43(2)........ 44 President, and Chief Executive Officer;Officer and Director
James Maluta..................... 49Maluta.......................... 50 Vice President, Product Development
Todd E. Simpson.................. 35Simpson....................... 36 Vice President, Finance & Administration;Administration,
Chief Financial Officer; Secretary;Officer, Secretary and Treasurer
Walter C. Ogier.................. 39Ogier....................... 40 Vice President, Marketing
Thomas E. Muller, Ph.D...........Ph.D. .............. 61 Vice President, Regulatory Affairs
Alan K. Smith, Ph.D.............. 41Ph.D. ................. 42 Vice President, Research
Stephen G. Emerson, M.D., Ph.D... 42 Director; Scientific Advisor
Albert B. Deisseroth, M.D.,
Ph.D.(2)........................ 55 Director; ...... 43 Director and Scientific Advisor
G. Bradford Jones(1)(3).......... 41(2)............... 42 Director
Horst R. Witzel, Dr.-Ing......... 69Dr.-Ing.............. 70 Director
Edward C. Wood, Jr.(1)(3)........ 51(2)............. 52 Director
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Executive Committee.
All directors hold office until the next annual meetingelection of stockholdersthe class for which
such directors have been chosen and until their successors have been duly
elected and qualified. The Company's Bylaws provide that the Board of
Directors will consist of between five and nine members, and the number of
directors is currently set at sevensix members. The Bylaws also provide that the
Board of Directors will serve staggered three-year terms, or until their
successors are elected and qualified. The terms of office of the Company's
current directors expire as follows: Mr. Jones Dr. Deisseroth and Mr. Wood, 1999; Mr. Kunze
and Dr. Emerson, 1998; and Dr. Armstrong and Dr. Witzel, 1997. Pursuant to the
Stock Purchase Equity Commitment with Cobe, dated October 29, 1996, the
Company agreed to use reasonable and good faith efforts to cause a nominee of
Cobe, who most be deemed by the Board of Directors to be qualified, to be
elected to the Board of Directors for so long as Cobe owns at least 15% of the
outstanding shares of Common Stock. There are no family relationships among
the directors or officers of the Company. Officers of the Company are elected
by and serve at the discretion of the Board of Directors. There are no family relationships among
the directors or officers of the Company.
Robert J. Kunze, a director of the Company since its inception in 1989, is a
founder of the Company and served as its President and Chief Executive Officer
through May 1991. SinceMr. Kunze is a general partner of McFarland and Dewey, an
investment bank. From 1987 through early 1997, he has beenwas a General Partner of H&Q
Life Science Venture Partners, a venture capital fund specializing in medical
products and biotechnology investments. Previous to that, Mr. Kunze was
Managing Partner of Hambrecht & Quist Venture Partners. Prior to that he
served as a senior executive with W.R. Grace & Co. and General Electric. Mr.
Kunze also serves on the Board of Directors of Escalon Medical Corporation.
R. Douglas Armstrong, Ph.D. joined the Company in June 1991 as a director
and as its President and Chief Executive Officer. From 1987 to 1991, Dr.
Armstrong served in different capacities, including as Executive Vice
President and a Trustee of the La Jolla Cancer Research Foundation ("LJCRF"),
a 250-employee scientific research institute located in San Diego, California.
Dr. Armstrong received his doctorate in Pharmacology and Toxicology from the
Medical College of Virginia, and has held faculty and staff positions at Yale
University, University of California, San Francisco, LJCRF and University of
Michigan. Dr. Armstrong also serves on the Board of Directors of Nephros
Therapeutics, Inc.
44
James Maluta joined the Company in August 1992 as Vice President, Product
Development. Mr. Maluta has a broad background in the development and
manufacturing of medical devices, with over 25 years of experience in the
industry, principally with OHMEDA and with Cobe BCT, Inc. While with Cobe BCT,
Inc., Mr. Maluta was Program Manager for the Cobe Spectra Apheresis System, a
device for blood cell processing and apheresis. Mr. Maluta held other
engineering management positions and also was director of Quality Assurance
for Cobe BCT. Mr. Maluta received his degree in electrical engineering from
the University of Wisconsin.
41
Wisconsin, Madison.
Todd E. Simpson joined the Company in January 1996 as Vice President,
Finance and Administration and Chief Financial Officer and is also the
Company's Secretary and Treasurer. Prior to that, Mr. Simpson was Treasurer of
Integra LifeSciences Corporation ("Integra"), a biotechnology company, which
acquired Telios Pharmaceuticals, Inc. ("Telios") in August 1995 in connection
with the reorganization of Telios under Chapter 11 of the U.S. Bankruptcy
Code. Mr. Simpson served as Vice President of Finance and Chief Financial
Officer of Telios up until its acquisition by Integra and held various other
financial positions at Telios after joining that company in February 1992.
Telios was a publicly-held company engaged in the development of
pharmaceutical products for the treatment of dermal and ophthalmic wounds,
fibrotic disease, vascular disease, and osteoporosis. From August 1983 through
February 1992, Mr. Simpson practiced public accounting with the firm of Ernst
& Young, LLP. Mr. Simpson is a Certified Public Accountant and received his
B.S. degree in Accounting and Computer Science from Oregon State University.
Walter C. Ogier joined the Company in March 1994 as Director of Marketing
and was promoted to Vice President, Marketing during 1995. Prior to that, Mr.
Ogier was at Baxter Healthcare Corporation's Immunotherapy Division, where he
served as Director, Business Development from 1992 to 1994 and as Manager,
Marketing and Business Development in charge of the company's cell therapy
product lines from 1990 to 1992. Mr. Ogier previously held positions with
Ibbottson Associates and with the Business Intelligence Center at SRI
International (formerly Stanford Research Institute). Mr. Ogier received his
B.A. degree in Chemistry from Williams College in 1979 and his Masters of
Management degree from the Yale School of Management in 1987.
Thomas E. Muller, Ph.D. joined the Company in May 1994 as Vice President,
Regulatory Affairs. Prior to that, Dr. Muller was Director, Biomedical Systems
with W.R. Grace & Company in Lexington, Massachusetts. Prior to this, Dr.
Muller was Vice President, Engineering and Director of Research and
Development with the Renal Division of Baxter Healthcare in Deerfield,
Illinois. Dr. Muller has also served as Adjunct Professor at Columbia
University and as Visiting Professor at the University of Gent, Belgium. Dr.
Muller graduated from the Technical University in Budapest, Hungary, in 1956
with a B.S. in Chemical Engineering. Dr. Muller received his M.S. degree in
1959 and was awarded a Ph.D. in 1964, both in Polymer Chemistry, from McGill
University.
Alan K. Smith, Ph.D. joined the Company in November 1995 as Vice President,
Research. Previously, Dr. Smith was Vice President of Research and Development
at GeneticGeneic Sciences, Inc., a developmental stage bone marrow transplantation
company. Prior to that, Dr. Smith held the position of Director, Cell
Separations Research and Development of the Immunotherapy Division of Baxter
Healthcare Corporation. In this capacity, he was responsible for the research
and development activities for a stem cell concentration system approved for
clinical use in Europe and currently in pivotal clinical trials in the United
States. Dr. Smith has also held positions as Research and Development Manager
at BioSpecific Technologies, as Director of Biochemistry at HyClone
Laboratories and as a member of the Board of Directors of Dallas Biomedical.
Dr. Smith received his B.S. degree in Chemistry from Southern Utah State
College in 1976 and a Ph.D. in Biochemistry from Utah State University in
1983.
Stephen G. Emerson, M.D., Ph.D., a director since the inception of the
Company in 1989, is a scientific founder of the Company and has been an active
advisor of the Company since that time. Dr. Emerson has been a Professor of
Medicine at the University of Pennsylvania since 1994 where he serves as head
of Hematology and Oncology. From 1991 to 1994, Dr. Emerson was an Associate
Professor of Medicine at the University of Michigan. Dr. Emerson received his
doctorate degrees in Medicine and Cell Biology/Immunology from Yale
45
University. He completed his internship and residency at Massachusetts General
Hospital and his clinical and research fellowship in hematology at the Brigham
and Women's Hospital, the Dana-Farber Cancer Institute and Children's Hospital
Medical Center.
Albert B. Deisseroth, M.D., Ph.D. a director since August 1991, currently
serves as an Ensign Professor of Medicine and the Chief, Section of Medical
Oncology at Yale University and is a professor at both the University of Texas
Graduate School of Biomedical Sciences and the University of Texas Health
Science Center Medical
42
School in Houston, Texas. Prior to that, Dr. Deisseroth had been Chairman of
the Department of Hematology and a Professor of Medicine and Cancer Treatment
and Research at the University of Texas, M.D. Anderson Cancer Center in
Houston, Texas. Previous to this, Dr. Deisseroth served as Professor of
Medicine at the University of California, San Francisco, and Chief,
Hematology/Oncology at the San Francisco Veteran's Administration Medical
Center. Dr. Deisseroth received his doctorate degrees in Medicine and
Biochemistry from the University of Rochester. Dr. Deisseroth is currently a
member of the Scientific Advisory Boards of Ingenex, Inc., Genvec, Inc. and
Incell.
G. Bradford Jones, a director since April 1992, is a general partner of
Brentwood V Ventures, L.P., the general partner of Brentwood Associates V,
L.P. Brentwood Associates V, L.P. is a partnership organized by the firm
Brentwood Venture Capital, which Mr. Jones joined in 1981. Mr. Jones was
elected to the Board of Directors of the Company pursuant to the terms of the
Series B Preferred Stock Purchase Agreement dated April 7, 1992 with the
Company, of which Brentwood Associates V, L.P. is a party. Mr. Jones received
a B.A. degree in Chemistry and an M.A. degree in Physics from Harvard
University and M.B.A. and J.D. degrees from Stanford University. Mr. Jones
also serves on the Board of Directors of Interpore International, ISOCOR, Onyx
Acceptance Corporation, Plasma & Materials Technologies, and several
privately-held companies.
Horst R. Witzel, Dr.-Ing., a director since June 1994, served as Chairman of
the Board of Executive Directors of Schering AG in Berlin, Germany from 1986
until his retirement in 1989, whereupon he became a member of the Supervisory
Board of Schering AG until 1994. Prior to that, Dr. Witzel held various
leadership positions in research and development with Schering AG where he was
responsible for worldwide production and technical services. Dr. Witzel
received his doctorate in chemistry from the Technical University of West
Berlin. Dr. Witzel also serves on the Board of Directors of The Liposome
Company, Inc. and Cephalon, Inc. and is a member of the Supervisory Board of
Brau and Brunnen AG.
Edward C. Wood, Jr., a director since August 1994, has served as president
of Cobe BCT, Inc., a division of Cobe Laboratories, Inc., since 1991. Cobe is
a subsidiary of Gambro AB, a Swedish company, and is a world leader inleading provider of
blood cell processing products. Prior to that, Mr. Wood held various positions
in manufacturing, research and development, and marketing with Cobe. Mr. Wood
received degrees in chemistry from Harvey Mudd College and in management from
the University of Colorado.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Restated Articles of Incorporation
that limit the liability of its directors for monetary damages arising from a
breach of their fiduciary duty as directors, except under certain
circumstances which include breach of the director's duty of loyalty to the
Company or its shareholders, acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of the law.
The Company's Bylaws provide that the Company shall indemnify its directors
to the fullest extent authorized or permitted by the Michigan Business
Corporation Act. Additionally, the Company has entered into an Indemnification
Agreement, originally dated as of December 14, 1993 (the "Indemnification
Agreement"), with certain of its directors, officers and other key personnel,
which may, in certain cases, be broader than the specific indemnification
provisions contained under applicable law. The Indemnification Agreement may
require the Company, among other things, to indemnify such officers, directors
and key personnel against certain liabilities that may arise by reason of
their status or service as directors, officers or employees of the Company, to
advance the expenses incurred by such parties as a result of any threatened
claims or proceedings brought against them as to which they could be
indemnified, and to cover such officers, directors and key employees under the
Company's directors' and officers' liability insurance policies to the maximum
extent that insurance coverage is maintained.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification by
the Company will be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
4346
EXECUTIVE COMPENSATION
The following table summarizessets forth information concerning the compensation paid to or earned byof
the
Company's Chief Executive Officer and all other executive officers of the Company whose salary and bonuseach of the Company's five
other most highly compensated executive officers (the "Named Executive
Officers") for services rendered in all capacities to the Company, during the
fiscal yearyears ended June 30, 1996 exceeded $100,000 (the
"named executive officers"):and 1997.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION
----------------------------------------------------------- SHARES
NAME AND 1996 OTHER ANNUALPRINCIPAL UNDERLYING ALL OTHER
PRINCIPAL
POSITION YEAR SALARY ($) BONUS ($)OPTIONS COMPENSATION ($) COMPENSATION ($)
------------------ ---- ---------- --------- ---------------- ---------------------------- ------------
R. Douglas Armstrong,
1996 $156,962 $55,000Ph.D. ................. 1997 $ 183,583 -- $8,885(1)
Ph.D...................333,333 $ 7,108(1)
President and Chief
Ex-
ecutiveExecutive Officer 1996 156,962 $ 55,000 -- 8,885(1)
James Maluta............ 1996 $118,942 $10,0001997 130,354 -- 120,000 --
Vice President, Product
Development 1996 118,942 10,000 -- --
Walter C. Ogier......... 1997 120,265 -- 80,000 --
Vice President,
Marketing 1996 106,250 7,500 6,667 --
Todd E. Simpson......... 1997 125,593 12,500 75,000 --
Vice President, Finance 1996 60,779(2) -- 40,000 48,061(3)
and Administration
and Chief Financial
Officer
Alan K. Smith, Ph.D. ... 1997 128,685 -- 75,000 60(3)
Vice President,
Research 1996 77,740(4) -- 40,000 76,000(3)
Thomas E. Muller, Ph.D.. 1996 $118,5601997 119,517 -- --20,000 --
Vice President,
Regula-
toryRegulatory Affairs Walter C. Ogier......... 1996 $106,250 $ 7,500118,560 -- 6,667 --
Vice President, Market-
ing
- --------
(1) Consists of vacation pay topay.
(2) Mr. Simpson began his employment with the Company in January 1996.
(3) Consists of relocation expenses.
(4) Dr. ArmstrongSmith began his employment with the Company in 1996.
1996 Option GrantsOctober 1995.
47
The following table containsprovides information about thewith respect to stock option grants
to the named executive officers in 1996:Named Executive Officers during the year ended June 30, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZEDREALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
------------------------------------------------------------ ------------------------------------------------------------------- ---------------------
NUMBER OF % OF TOTAL
SECURITIESSHARES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE PER EXPIRATION
NAME GRANTED (#)GRANTED(2) IN FISCAL YEAR ($/SH)SHARE(2) DATE 5% ($) 10%
($)- ---- ------------------ ---------------------------- -------------- ----------- ---------- -------- ------------------- ----------
R. Douglas Armstrong,
Ph.D. ................. -- -- -- -- -- --Ph.D................... 333,333 42.5% $7.00 2/3/07 $3,800,750 $6,052,060
James Maluta............ -- -- -- -- -- --120,000 15.3 7.00 2/3/07 1,368,271 2,178,744
Walter C. Ogier......... 80,000 10.2 7.00 2/3/07 912,181 1,452,496
Todd E. Simpson......... 75,000 9.6 7.00 2/3/07 855,170 1,361,715
Alan K. Smith, Ph.D..... 75,000 9.6 7.00 2/3/07 855,170 1,361,715
Thomas E. Muller, Ph.D.. 6,667 4.3% 1.20 02/14/06 5,000 12,734
Walter C. Ogier......... 6,667 4.3% 1.20 02/14/06 5,000 12,73420,000 2.6 7.00 2/3/07 228,045 363,124
- --------
(1) The 5% and the 10% assumed annual rates of compounded stock price appreciation
are establishedmandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of the future Common Stock price. Ifprice of
the Common Stock.
(2) Each of these options was granted under the Company's Amended and Restated
1992 Incentive and Non-Qualified Stock Option Plan (the "1992 Plan") at an
exercise price equal to the fair market value of $1.20the Common Stock on the
date of grant. With the exception of the option grant forto Dr. Armstrong,
which is immediately exercisable, all such options vest over a four-year
period, subject to continued employment with the options granted
in 1996 were to appreciate at the rates indicated, it would be $1.95 per
share (at a 5% compounded appreciation) and $3.11 per share (at a 10%
compounded appreciation) on the date of expiration of those options.
44
Option Exercises and Year-End ValuesCompany.
The following table provides information aboutwith respect to exercises of stock
options during the numberyear ended June 30, 1997, and unexercised options held as
of shares issued
upon option exerciseJune 30, 1997, by the named executive officers during 1996, and the
value realized by the named executive officers. The table also provides
information about the number and value of options held by the named executive
officers at June 30, 1996:Named Executive Officers.
AGGREGATED OPTION EXERCISES
IN LASTAND FISCAL YEAR
AND FY-ENDYEAR-END OPTION VALUES
NUMBER OF SECURITIESSHARES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED IN-THE-MONEYTHE-MONEY OPTIONS AT FY-END (#)JUNE
OPTIONS AT FY-END ($)(1)JUNE 30, 1997 30, 1997(2)
------------------------- -------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED($)REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------------------- ----------- ----------- ------------- ----------- -------------
R. Douglas Armstrong,
Ph.D................... -- -- 333,333 -- -- --$ 41,667 --
James Maluta............ 29,999 86,847 16,66816,667 $99,169 -- $48,254120,000 -- $ 15,000
Walter C. Ogier......... -- -- 22,083 92,917 130,842 86,533
Todd E. Simpson......... -- -- 12,500 102,500 74,063 172,313
Alan K. Smith, Ph.D..... -- -- 15,000 100,000 88,875 157,500
Thomas E. Muller, Ph.D.. -- -- 15,000 18,334 29,925 $36,576
Walter C. Ogier......... 5,000 9,975 13,750 21,250 27,431 42,39422,083 31,251 130,842 69,162
- --------
(1) The option value"Value Realized" represents the fair market value of the underlying securitiesshares
of Common Stock on the exercise date, minus the aggregate exercise price
of such options,
multiplied by the number of shares of Common Stock subject to the option.
For purposes of this calculation, a fair marketoptions.
(2) The value of $3.20 per share
was used,"in-the-money" stock options represents the difference
between the exercise price of such options and the fair market value of
the securities$7.125 per share of Common Stock as determined by the
Board of Directors on June 30, 1996.1997, the closing price of
the Common Stock reported on the Nasdaq National Market on such date.
48
No compensation intended to serve as incentive for performance to occur over
a period longer than one fiscal year was paid pursuant to a long-term
incentive plan during the last fiscal year to any of the persons named in the
Summary Compensation Table.Named Executive
Officers. The Company does not have any defined benefit or actuarial plan with
any of the persons named in the Summary Compensation TableNamed Executive Officers under which benefits are determined
primarily by final compensation or average final compensation and years of
service.
EMPLOYMENT AGREEMENTS
The Company has a policy of entering into employment agreements with all of
its employees, and has entered into such agreements with all of its executive
officers other than Dr. Armstrong. Such employment agreements generally
establish salary levels (which are subject to periodic review) and provide for
customary fringe benefits such as vacation leave, sick leave and health
insurance. The agreements also generally provide for the protection of
confidential information and the assignment to the Company of inventions
conceived by the employee during his or her employment and permit the
termination of the employment relationship by either party upon fourteen days
prior written notice.
The following is a summary of the employment agreements
between the Company and its executive officers.
The Company entered into employment agreements with no defined terms with James Maluta, Walter C.
Ogier, Thomas E. Muller, Ph.D., Alan K. Smith, Ph.D. and Todd E. Simpson in
June 1992, February 1994, April 1994, October 1995 and December 1995,
respectively. Pursuant to these agreements, the Company agreed to pay Messrs.
Maluta, Ogier, Muller, Smith and Simpson annual base salaries of $90,000,
$87,500, $110,000, $122,500 and $122,500, respectively, certain of which base
salaries have been increased by the Board of Directors and are subject to
annual review and adjustment. Pursuant to the terms of the foregoing
employment agreements, either party may generally terminate the employment
relationship without cause at any time upon 14 days prior written notice to
the other party or immediately with cause upon notice.
45
STOCK OPTION AND EMPLOYEE BENEFIT PLANS
1989 STOCK OPTION PLAN
In 1989, the Company established the 1989 Stock Option Plan. As of September
30, 1996,1997, options to purchase an aggregate of 932,266 shares of Common Stock
have been exercised at $0.15 per share. Options to purchase 13,127 shares of
Common Stock at $0.15 per share were cancelled unexercised. No additional shares remain available
for grant under the 1989 Stock Option Plan.
ANCILLARY PLAN
In 1991, the Company established an Ancillary Plan to grant options to
individuals who were not eligible to receive options under the 1989 Stock
Option Plan. Options to purchase an aggregate of 7,498 shares of the Company's
Common Stock were granted under the Ancillary Plan, of which options to
purchase 4,328 shares have been exercised at $0.15 per share and the remaining
options to purchase 3,170 shares have been cancelled. No additional shares
remain available for grant under the Ancillary Plan.
AMENDED AND RESTATED 1992 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Incentive and Non-Qualified Stock
Option Plan, (the "1992 Plan"), providing for the grant of
options to purchase 666,667 shares of Common Stock. The Company allocated an
additional 100,000 shares of Common Stock during 1992, an additional 333,333
shares of Common Stock in 1994 and an additional 800,000 shares of Common
Stock in 1996 to the 1992 Plan, resulting in a total share reserve of
1,900,000 shares. The 1992 Plan was amended and restated to its current form
in 1996. Options under the 1992 Plan for a total of 462,840508,530 shares have been
exercised as of September 30, 1996.1997. As of September 30, 1996,1997, options to
purchase 336,2541,076,908 shares of Common Stock were outstanding with a weighted average exercise price of $1.27
per share.outstanding.
The 1992 Plan provides for grants to employees and officers of "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended, provided that such employee or
49
officer is an employee on the date of grant. The 1992 Plan also provides for
grants to employees, officers, consultants or service providers of
nonqualified stock options. The 1992 Plan previously has been administered by
the Board of Directors, but is currently administered by the Compensation
Committee of the Board of Directors (the "Committee"). Each option granted
pursuant to the 1992 Plan is authorized by the Committee and evidenced by a
notice in such form as the Committee may from time to time determine.
The exercise price of each incentive stock option granted under the 1992
Plan must be at least equal to the fair market value of a share of Common
Stock on the date of grant, except for incentive stock options granted to
individuals who, at the time of grant, own stock possessing more than 10% of
the total combined voting power of the Company, which options must have an
exercise price of at least 110% of the fair market value of a share of Common
Stock on the date of grant and must expire five years from the date of grant.
The exercise price of each nonqualified stock option granted under the 1992
Plan must be at least 85% of the fair market value of the shares on the date
of grant. No option shall be treated as an incentive stock option to the
extent that such option would cause the aggregate fair market value
(determined as of the date of grant of such option) of the shares with respect
to which incentive stock options are exercisable by such optionee for the
first time during any calendar year to exceed $100,000. The terms of all
incentive stock options and nonqualified stock options granted under the 1992
Plan may not exceed ten years. The exercise price may be paid in cash or, at
the Committee's discretion, by delivery of previously owned shares of the
Company's Common Stock, by a combination of cash and shares, or any other form
of legal consideration acceptable to the Committee. Options under the 1992
Plan generally may not be granted after April 2006.
46
The 1992 Plan provides that ifIn the Company isevent of a party to any merger in which
the Company is not the surviving entity, any consolidation or dissolution
(other than the merger or consolidationtransfer of control of the Company, with one or more of its
wholly-owned subsidiaries),as defined under the
1992 Option Plan, the Company must cause any successor corporation to assume
the options or substitute similar options for outstanding optionoptions or continue
such options in effect. In the event that any successor to the Company in a
merger, consolidation or dissolution will not assume the options or substitute
similar options, then with respect tothe options held by optionees
performing services for the Company, the time for exercising such options will
be acceleratedbecome exercisable in full and such options
will be terminated if not exercised prior to such merger, consolidation or
dissolution. The vesting of certain options granted to executive officers of
the Company accelerates if such officer is terminated following a change of
control.
1996 OUTSIDE DIRECTORS STOCK OPTION PLAN
A total of 150,000 shares of Common Stock have been reserved for issuance
under the Company's 1996 Outside Directors Stock Option Plan (the "Directors
Plan"). As of the effective dateSeptember 30, 1997, options to purchase 30,000 shares of this offering, no optionsCommon
Stock have been granted under the Directors Plan. The Directors Plan provides
for the automatic granting of non-qualified stock options to directors of the
Company who are not employees of the Company ("Outside Directors"). Under the
Directors Plan, each Outside Director serving on the effective date of this
Offering or elected after the date of this offering will automatically be granted an option
to purchase 5,000 shares of Common Stock on the effective
date of this offering or on the date of his or her election or
appointment. In addition, each serving Outside Director will thereafter
automatically be granted an option to purchase 5,000 shares of Common Stock
following each annual meeting of stockholdersshareholders after their election, provided
that the Outside Director continues to serve in such capacity and that the
Outside Director has served continuously as a director for at least six
months. The exercise price of the options in all cases will be equal to the
fair market value of the Common Stock on the date of grant. Options granted
under the Directors Plan generally vest over a one-year period in equal
monthly installments and must be exercised within ten years from the date of
grant.
1996 EMPLOYEE STOCK PURCHASE PLAN
A total of 250,000 shares of the Company's Common Stock have been reserved
for issuance under the Company's 1996 Employee Stock Purchase Plan (the
"Purchase Plan"), none. As of whichSeptember 30, 1997, 6,961 shares of Common Stock have
been issued.issued under the Purchase Plan. The Purchase Plan permits eligible
employees to purchase Common Stock at a discount through payroll deductions,
during sequential 24-month offering periods. Each offering period is divided
into four consecutive six-month purchase periods. Unless otherwise provided by
the Board of Directors prior to the commencement of an offering period, the
price at which stock is purchased under the Purchase Plan for such offering
period is equal to 85% of the lesser of the fair market value of the
50
Common Stock on the first day of such offering period or the last day of the
purchase period of such offering period. The initial offering period will
commence on the effective date of this offering.
SECTION 401(K) PLAN
Effective January 1, 1994, the Company adopted the Aastrom Biosciences, Inc.
401(k) Plan (the "Plan"). The Plan is intended to be a qualified retirement
plan under the Internal Revenue Code. Employees of the Company are eligible to
participate in the Plan upon the completion of three consecutive months of
employment. Participants may make salary deferral contributions to the Plan of
up to 15% of compensation, subject to the limitations imposed under the
Internal Revenue Code. The Company may, but is not required to, make matching
contributions to the Plan based on the participants' salary-defined
contributions. Employer contributions are subject to a graduated vesting
schedule based upon an employee's years of service with the Company. It is not
anticipated that the Company will make any contributions to the Plan for the
19971998 Plan Year. All contributions to the Plan are held in a trust which is
intended to be exempt from income tax under Section 501(a) of the Internal
Revenue Code. The Plan's trustees are R. Douglas Armstrong and Todd E.
Simpson. Participants may direct the investment of their contributions among
specified Merrill Lynch investment funds. The Plan may be amended or
terminated by the Company at any time, subject to certain restrictions imposed
by the Internal Revenue Code and the Employee Retirement Income Security Act
of 1974.
47
COMPENSATION OF DIRECTORS
DirectorsEach Outside Director receives a cash payment of $1,000 for each meeting of
the Company do not receiveBoard of Directors attended in person and a cash payment of $500 for services provided as a
director, however, directors who are not employeeseach
telephonic meeting of the Company willBoard of Directors attended telephonically. In lieu
of such cash payments for attending meetings, Mr. Kunze receives $5,000 per
month for his services as Chairman of the Board of Directors, which payments
have been approved through the date of the Company's 1997 annual meeting of
shareholders. Directors also receive reimbursement for expenses incurred in
attending each meeting of the Board of Directors and its committees. In
addition, Outside Directors receive annual grants of options to purchase
shares of Common Stock in accordance with the Directors Plan. No stock options nor any other form of non-cash compensation
was granted to directors of the Company during the Company's fiscal year
ending June 30, 1996. See "Stock"--Stock
Option and Employee Benefit Plans--1996 Outside Directors Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During the fiscal year ended June 30, 1996,1997, Robert J. Kunze, formerly an
officer of the Company until 1991, R. Douglas Armstrong,who served as
President and Chief Executive Officer of the Company until 1991 and G. Bradford Jonescurrently
serves as its Chairman of the Board, and Albert B. Deisseroth, M.D., Ph.D., a
former director of the Company, were initially the members of the Compensation
Committee of the Board of Directors. Dr. Armstrong resigned
fromCurrently, all of the Company's directors
comprise the Compensation Committee, and was replaced by Albert B. Deisseroth,
M.D., Ph.D. on April 30, 1996, however,including Mr. Kunze continues to beand R. Douglas
Armstrong, Ph.D., the Company's President and Chief Executive Officer. During
the last fiscal year, none of the executive officers who serve on the Board of
Directors participated in deliberations regarding their own compensation. No
member of the Board of Directors of the Company serves as a member of this committee.
48the
board of directors or compensation committee of an entity that has one or more
executive officers serving as members of the Company's Board of Directors.
51
CERTAIN TRANSACTIONS
During the last three fiscal years, the Company sold Preferred Stock to
certain holders of more than 5% of the outstanding shares of the Company, or
to their affiliates, as described below.
In April 1995, the Company sold 775,001 shares of Series D Preferred Stock
at a price per share of $4.00 to the following investors: (i) H&Q Life Science
Technology Fund I purchased 167,001 shares for a purchase price of $668,004,
(ii) H&Q London Ventures purchased 100,000 shares for a purchase price of
$400,000, (iii) Brentwood Associates V, L.P. ("Brentwood") purchased 231,250
shares for a purchase price of $925,000, (iv) Windpoint Partners II, L.P.
purchased 89,250 shares for a purchase price of $357,000, and (v) the State
Treasurer of the State of Michigan ("Michigan") purchased 187,500 shares for a
purchase price of $750,000. In May 1995, Cobe purchased 1,250,000 shares of
Series D Preferred Stock for a purchase price of $5,000,000. Upon the closing
of thisthe Company's initial public offering in February 1997, each outstanding
share of Series D Preferred Stock will bewas converted into two-thirds of a share of
Common Stock.
In April 1995, Dr. Armstrong and Dr. Emerson agreed to grant to Brentwood an
option to purchase up to 28,000 shares and 14,667 shares of Common Stock,
respectively, and, together with two other shareholders of the Company, an
aggregate of up to 66,667 shares of Common Stock at a purchase price of
$100,000. Brentwood exercised this option in April 1996, purchasing an
aggregate of 66,667 shares of Common Stock at a purchase price of $100,000
from such shareholders.
In September 1995, the Company and RPR entered into a collaborative
relationship for use of the Aastrom CPS as a component of its lymphoid cell
therapy program. OnDuring September 6, 1996, RPR notified the Company that it would
not exercise its option to continue the collaboration. As a result, $3,500,000
million of option payments previously paid to the Company by RPR were converted into
205,882 shares of the Company's Series E Preferred Stock. Upon the closing of
the Company's initial public offering in February 1997, each outstanding share
of Series E Preferred Stock was converted into two-thirds of a share of Common
Stock.
In October 1995, the Company repurchased 62,500 shares of Series D Preferred
Stock from Brentwood at the original purchase price of $250,000 and in
December 1995 resold these shares to Northwest Ohio Venture Fund, a
shareholder of the Company, for a total purchase price of $250,000.
In January 1996, the Company sold 1,411,765 shares of Series E Preferred
Stock at a price per share of $4.25 to the following investors: (i) Michigan
purchased 470,588 shares for a total purchase price of $1,999,999, and (ii)
SBIC Partners, L.P. purchased 941,777941,177 shares for a total purchase price of
$4,000,002.
Upon the closing of this offering, each share of Series E
Preferred Stock will be converted into two-thirds of a share of Common Stock.
OnIn November 18, 1993, in connection with the purchase of Common Stock upon
exercise of stock options granted to R. Douglas Armstrong under the 1989 Stock Option Plan to R.
Douglas Armstrong, the Company's President and Chief Executive Officer, the
Company loaned to Dr. Armstrong $120,000 at an interest rate of 4% per annum
pursuant to a full recourse promissory note. Interest onDuring September 1997, Dr.
Armstrong repaid the outstanding principal under the note is payable on an annual basis and principal andplus $18,467 in
accrued but unpaid
interest is due on June 30, 1997. Dr. Armstrong isby surrendering 15,711 shares of Common Stock to the President and Chief
Executive Officer and is a director of the Company.
OnCompany,
which shares were cancelled.
In October 20, 1993, in connection with the purchase of Common Stock upon
exercise of stock options granted to Stephen G. Emerson under the 1989 Stock Option Plan and the
1992 Plan to Stephen G. Emerson, a director of the Company, the Company loaned
to Dr. Emerson $47,303 at an interest rate of 6% per annum pursuant to a full
recourse promissory note. Interest on the note is payable on an annual basis,
and all principal and accrued but unpaid interest is due on June 30, 1997.1998. The
loan is secured by 258,687the shares of Common Stock held by Dr. Emerson. During May
1997, the Company and Dr. Emerson is a directorentered into an agreement, pursuant to which
Dr. Emerson may repay the outstanding balance under the note by surrendering
shares of Common Stock to the Company.
In October 1996, the Company executed a financing commitment with Cobe to
provide the Company with up to $5,000,000 (the "Equity Commitment") and up to
$5,000,000 in funding from Michigan under a convertible loan commitment
agreement ("Convertible Loan Commitment"). As of the date of this Prospectus,
the Company has not obtained any financing under these commitments. Both the Equity Commitment and the
Convertible Loan Commitment will terminate upon the
consummation of this offering.
49
Under the terms of the Equity Commitment, the Company has an option to sell
up to $5,000,000 of Series F Preferred Stock at a price of $6.00 per share to
Cobe upon at least ninety days notice, which notice may be given at any time
until September 1, 1997. Cobe's obligation to purchase such shares will
terminateterminated in February 1997 upon the closing of
this offering. Although no shares of Series F
Preferred Stock are outstanding, any outstanding shares of Series F Preferred
Stock would convert upon the closing of this offering into Common Stock based
upon a conversion price of 80% of the price of two-thirds of a share of Common
Stock sold in this offering. To the extent shares are sold to Cobe under the
Equity Commitment, Cobe's preemptive right in the Company's next financing and
the Company's Put Option to Cobe would be reduced.
Upon the sale of $5,000,000 of Series F Preferred Stock under the Equity
Commitment, the Company becomes entitled to borrow funds from Michigan under
the Convertible Loan Commitment.initial public offering. The Company may borrow such funds upon at
least 45 days notice, which notice may be given during a period commencing on
October 15, 1996 and ending on November 1, 1997. Upon the completion by the
Company of a Qualifying Financing (as defined in the Convertible Loan
Commitment), the Company has the option to repay outstanding principal and
interest under the Convertible Loan Commitment in cash or to convert such
borrowings into convertible Preferred Stock at a conversion price equivalent
to 90% of the price per share in such financing. Under certain circumstances,
the Convertible Loan Commitment converts or is convertible into Series G
Preferred Stock. Interest accrues at an annual rate of 10% under the
Convertible Loan Commitment, and the Company may repay such principal and
interest at any time without penalty.
The Company has issued warrants to Michigan
to purchase 69,444 shares of Common Stock as
52
consideration for securing the Convertible Loan Commitment and
has agreed to issue additional warrants to purchase 8,333 shares of Common
Stock for each $1,000,000 borrowed under the Convertible Loan Commitment, as
adjusted to the level of borrowing. The warrants become exercisable 90 days
after the closing of this offering.Commitment. The warrants
expire on October 15, 2000 if not exercised, and may be exercised, in whole or
in part, at a price equal to the lesser of (a) $9.00 per share, which price
increases by $3.00 per share uponon each anniversary of the closing of the offering made hereby;February 7, 1998, 1999 and 2000; and
(b) 85% of the fair market value of the Company's Common Stock at the time of
exercise.
50Cobe Laboratories, Inc. purchased 714,200 shares of Common Stock in the
Company's initial public offering at the initial public offering price of
$7.00 per share. See "Description of Capital Stock--Rights of Cobe."
The Company has entered into employment agreements with certain of its
executive officers. See "Management--Employment Agreements." The Company has
also entered into an Indemnification Agreement with certain of its directors,
officers and other key personnel. See "Management--Limitation of Liability and
Indemnification Matters."
The Company believes that all of the foregoing transactions were on terms no
less favorable to the Company than would be obtained from unrelated third
parties. Any future transactions between the Company and its executive
officers, directors and affiliates will be on terms no less favorable to the
Company than can be obtained from unaffiliated third parties, and any material
transactions with any such person will be approved by a majority of the
members of the Company's Board of Directors and by a majority of the
disinterested members of the Company's Board of Directors.
53
PRINCIPAL STOCKHOLDERSSHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the outstanding shares of the Company's Common Stock as of September 30,
1996,August
31, 1997, and as adjusted to give effect to the sale of 3,250,0001,500,000 shares of
Common Stock in this offering assuming (a) conversion of all of the Company's
outstanding shares of Preferred Stock into Common Stock and (b) no exercise of
the Underwriters' over-allotment option, and as adjusted to reflect the sale
of shares offered in this offering,by (i) by each person known by the Company knows to be
the beneficial owner of 5% or more of the outstanding shares of Common Stock,
(ii) each named executive officer listed in the Summary Compensation Table,Named Executive Officer, (iii) each director of the Company, and
(iv) all executive officers and directors of the Company as a group.
PERCENTAGE
BENEFICIALLY OWNED(1)
----------------------------------------------------
NUMBER OF SHARES BENEFICIALLYOF
COMMON STOCK BEFORE THE AFTER THE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- ---------------- ------------------- ------------ ------------------------------- ---------- ---------
Cobe Laboratories, Inc.(2)...................... 3,214,199 24.2% 21.7%
1185 Oak Street
Lakewood, CO 80215
State Treasurer of the State of Michigan(3)..... 1,408,168 10.5 9.5
Custodian of Certain Retirement Systems
c/o Venture Capital Division
430 West Allegan
Lansing, MI 48992
H&Q Life Science(2)......... 1,061,334 10.6% 8.0%
Technology Fund ILondon Ventures............................. 816,666 6.1 5.5
One Bush Street, 18th Floor
San Francisco, CA 94104
H&Q London Ventures......... 816,666 8.2% 6.2%
One Bush Street, 18th Floor
San Francisco, CA 94104
State Treasurer of the State 1,338,724 13.4% 10.1%
of Michigan,(3)............
Custodian of certain re-
tirement systems
c/o Venture Capital Divi-
sion
430 West Allegan
Lansing, MI 48992
SBIC Partners, L.P.......... 627,451 6.3% 4.7%
201 Main Street, Suite 2302
Fort Worth, TX 76102
Brentwood Associates V, 745,831 7.5% 5.6%
L.P.(4)....................
11150 Santa Monica Blvd.,
Suite 1200
Los Angeles, CA 90025
Wind Point Partners II, 559,500 5.6% 4.2%
L.P........................
676 N. Michigan Ave., Suite
3300
Chicago, IL 60611
Cobe Laboratories, Inc.(5).. 2,499,999 25.0% 18.9%
1185 Oak Street
Lakewood, CO 80215
R. Douglas Armstrong, 501,555 5.0% 3.8%
Ph.D.(6)...................(4).................. 822,888 6.0 5.4
Albert B. Deisseroth, M.D., 25,000Ph.D.(5)............ 28,333 * *
Ph.D. .....................
Stephen G. Emerson, M.D., 256,789 2.6% 1.9%
Ph.D. .....................(6).............. 260,122 2.0 1.8
G. Bradford Jones(7)........ 745,831 7.5% 5.6%............................ 381,220 2.9 2.6
Robert J. Kunze(8).......... 1,061,334 10.6% 8.0%.............................. 46,810 * *
James Maluta(9)............. 83,333................................. 83,332 * *
Thomas E. Muller, Ph.D.(10). 15,000..................... 24,167 * *
Walter C. Ogier(11)......... 20,833............................. 31,667 * *
Todd E. Simpson(12)............................. 17,500 * *
Alan K. Smith, Ph.D.(13)........................ 18,988 * *
Horst R. Witzel, Dr.- 8,237Dr.-Ing.(14)................... 14,620 * *
Ing.(12)...................
Edward C. Wood, Jr.(13)..... 2,499,999 25.0% 18.9%(15)......................... 3,220,532 24.2 21.8
All officers and directors 5,237,911 52.1% 39.4% as a group (12 per-
sons)(14)..................(16)...................................... 4,950,179 36.1 32.5
- --------
* Represents less than 1% of outstanding Common Stock or voting power.
51
(1) Shares beneficially owned and percentage of ownership are based on
9,985,73413,285,511 shares of Common Stock outstanding before this offering and
13,235,73414,785,511 shares of Common Stock to be outstanding after the closing of
this offering. Beneficial ownership is determined in accordance with the
rules of the SECSecurities and Exchange Commission and generally includes
voting or disposition power with respect to securities.such shares.
(2) Robert J. Kunze, Chairman of the Board of the Company, is a general
partner of H&Q Life Science Venture Partners. See footnote 8, below.
(3) Does not include 69,444 shares issuable upon exercise of warrants held by
Michigan that are exercisable 90 days after the closing of this offering.
(4) G. Bradford Jones, a director of the Company, is a general partner of
Brentwood Associates V Ventures, L.P., which is the general partner of
Brentwood Associates V, L.P. See footnote 7, below.
(5) In addition, pursuantPursuant to a Stock Purchase Agreement dated October 22, 1993an agreement between Cobe and the Company, Cobe has an option
to purchase the number of shares in this offering necessary to maintain
its current percentage ownership of the Company. As of the date of this
Prospectus, the Company is not aware of Cobe's determination with respect
to this option. In addition, Cobe has an option to purchase from the
Company an amount of Common Stock equal to 30% of the Company's fully
diluted shares after the exercise of such option, at a purchase price
equal to 120% of the public market trading price of the Company's Common
Stock for a three-year period following the closing of this offering.Stock. The option expires on February 6, 2000. Cobe also has a right"right of
first negotiationnegotiation" in the event the Company receives any proposal
concerning, or otherwise decides to pursue, a merger, consolidation or
other transaction in which all or a majority of the Company's equity
securities or all or substantially all of the Company's assets, or any
material portion of
54
the assets of the Company used by the Company in performing its obligations
under Cobe's distribution agreement with the Distribution AgreementCompany would be acquired by a
third party outside of the ordinary course of business. Edward C. Wood,
Jr., a director of the Company, is the President of Cobe BCT, Inc., an
affiliate of Cobe. See footnote 13, below.
(6) Does not include15, below and "Description of Capital
Stock--Rights of Cobe."
(3) Includes 69,444 shares issuable upon exercise of warrants held by the
State Treasurer of the State of Michigan ("Michigan") that are exercisable
until October 15, 2000.
(4) Includes 333,333 shares issuable upon exercise of options held by Dr.
Armstrong that are exercisable within the 60-day period following August
31, 1997. Also includes 15,711 shares that were surrendered to the Company
and cancelled in payment of the outstanding balance under a promissory
note subsequent to August 31, 1997. See "Certain Transactions." Dr.
Armstrong's address is 24 Frank Lloyd Wright Drive, Ann Arbor, MI 48106.
(5) Includes 3,333 shares issuable upon exercise of options held by Dr.
Deisseroth that are exercisable within the effective date60-day period following August
31, 1997. Dr. Deisseroth resigned from his position as a director of this
offering.the
Company in October 1997. 6,250 of the shares held by Dr. Deisseroth are
subject to vesting and a right of repurchase by the Company until December
15, 1997.
(6) Includes 3,333 shares issuable upon exercise of options held by Dr.
Emerson that are exercisable within the 60-day period following August 31,
1997. Also includes 90,000 shares which, to the Company's knowledge, Dr.
Emerson intends to transfer as a gift.
(7) Consists of 745,831Includes 370,831 shares held by Brentwood Associates V, L.P. See
footnote 4, above. Mr. Jones, as
a general partner of Brentwood Associates V Ventures, L.P., which is the
general partner of Brentwood Associates V, L.P., may be deemed to
beneficially own such shares, but Mr. Jones disclaims beneficial ownership
of all such shares except to the extent of his pecuniary interest therein.
(8) Consists of 1,061,334 shares held by H&Q Life Science Technology Fund I.
See footnote 2, above. Mr. Kunze, as a general partner of H&Q Life Science
Venture Partners, may be deemed to beneficially own such shares, but Mr.
Kunze disclaims beneficial ownership of all such shares except to the
extent of his pecuniary interest therein.
(9) Includes 16,668Also includes 3,333 shares issuable upon exercise of options held by Mr.
MalutaJones that are exercisable within the 60-day period following September
30, 1996. Also includes 66,665August 31,
1997.
(8) Includes 3,333 shares issuable upon exercise of options held by Mr. Kunze
that are exercisable within the 60-day period following August 31, 1997.
(9) Consists of shares held of record by James Maluta and Deborah Vincent, as
Trustees, with shared voting and investment power, of the James Maluta and
Deborah Vincent Living Trust dated October 26, 1993.
(10) Consists of 15,000 shares issuable upon exercise of options held by Dr. Muller
that are exercisable within the 60-day period following September
30, 1996.August 31, 1997.
(11) Includes 15,83326,667 shares issuable upon exercise of options held by Mr.
Ogier that are exercisable within the 60-day period following September
30, 1996.August 31,
1997.
(12) Consists of shares issuable upon exercise of options held by Mr. Simpson
that are exercisable within the 60-day period following August 31, 1997.
(13) Includes 2,23717,500 shares issuable upon exercise of options held by Dr.
Smith that are exercisable within the 60-day period following August 31,
1997.
(14) Includes 8,620 shares issuable upon exercise of options held by Dr.
Witzel that are exercisable within the 60-day period following September
30, 1996.
(13) Consists of 2,499,999 shares held by Cobe. See footnote 5, above.August 31,
1997.
(15) Mr. Wood, as the President of Cobe BCT, Inc., an affiliate of Cobe, may
be deemed to beneficially own such shares held by Cobe, but Mr. Wood disclaims
beneficial ownership of all such shares. (14) Includes 69,7383,333 shares issuable
upon exercise of options that are exercisable within the 60-day period
following September 30, 1996. Does
not include 333,333August 31, 1997. Mr. Wood's address is 1201 Oak Street,
Lakewood, CO 80215.
(16) Includes 444,452 shares issuable upon exercise of options that are
exercisable uponwithin the effective date of60-day period following August 31, 1997. Does not
include any shares which Cobe may elect to purchase in this offering.
52offering
pursuant to its contractual preemptive rights. See footnote 2, above.
55
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, theThe authorized capital stock of the Company will consistconsists of 40,000,000 shares of
Common Stock, no par value, per
share, and 5,000,000 shares of Preferred Stock, no par
value per share.value.
COMMON STOCK
As of September 30, 1996, without giving effect to the conversion of each
share of Preferred Stock into Common Stock upon the closing of this offering,August 31, 1997, there were 1,887,31213,285,511 shares of Common Stock
outstanding held by approximately 140 shareholders of record by 32
shareholders.record. The holders of
Common Stock are entitled to one vote per share on all matters to be voted
upon by the Company's shareholders. Subject to preferences that may be
applicable to outstanding shares of Preferred Stock, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of any liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of holders of Preferred Stock
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are set forth in the Company's Restated Articles of
Incorporation, which Articles may only be amended by the holders of at least
two-thirds of the outstanding shares of Common Stock. The rights of the
holders of Common Stock are also subject to, and may be adversely affected by,
the rights of the holders of any shares of any Preferred Stock which the
Company may designate and issue in the future.
PREFERRED STOCK
As of the closing of the offering, noNo shares of Preferred Stock will beare outstanding. Thereafter, theThe Board of Directors will beof the
Company is authorized, without further shareholder approval, to issue up to
5,000,000 shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted or imposed upon any
unissued shares of Preferred Stock and to fix the number of shares
constituting any series and the designations of such series. The issuance of
Preferred Stock may have the effect of delaying or preventing a change in
control of the Company. The issuance of Preferred Stock could decrease the
amount of earnings and assets available for distribution to the holders of
Common Stock or could adversely affect the rights and powers, including voting
rights, of the holders of the Common Stock. In certain circumstances, such
issuance could have the effect of decreasing the market price of the Common
Stock. The Company currently has no plans to issue any shares of Preferred
Stock.
MICHIGAN LAW AND CERTAIN CHARTER PROVISIONS
The Company is a Michigan corporation and is subject to certain anti-
takeover provisions of the Michigan Business Corporation Act (the "MBCA")
which could delay or make more difficult a merger or tender offer involving
the Company. Chapter 7A of the MBCA prevents, in general, an "interested
shareholder" (defined generally as a person owning 10% or more of a
corporation's outstanding voting shares) from engaging in a "business
combination" (as defined therein) with a Michigan corporation unless: (a) the
Board of Directors issues an advisory statement, holders of 90% of the shares
of each class of stock entitled to vote approve the transaction, and holders
of two-thirds of the "disinterested" shares of each class of stock approve the
transaction; or (b) the interested shareholder has been an interested
shareholder for at least five years and has not acquired beneficial ownership
of any additional shares of the corporation subsequent to the transaction
which resulted in such shareholder being classified as an interested
shareholder, and meets certain requirements, including, but not limited to,
provisions relating to the fairness of the price and the form of consideration
paid; or (c) the Board of Directors, by resolution, exempts a particular
interested shareholder from these provisions prior to the interested
53
shareholder becoming an interested shareholder. The MBCA also contains certain
other provisions which could have anti-takeover effects, including, but not
limited to, Section 368, which pertains to "greenmail."
The Company's Bylaws provide that the Board of Directors is divided into
three classes of directors, with each class serving a staggered three-year
term. The classification system of electing directors may tend to
56
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company and may maintain the incumbency of the Board of
Directors, as it generally makes it more difficult for shareholders to replace
a majority of the directors. The Company's Restated Articles of Incorporation
eliminate the right of shareholders to act without a meeting, and do not provide
for cumulative voting in the election of directors.directors and provide that the
holders of at least two-thirds of the outstanding shares of Common Stock must
approve certain transactions resulting in a change of control of the Company.
The amendment of any of these provisions would require approval by holders of
at least two-
thirdstwo-thirds of the outstanding shares of outstanding Common Stock.
The foregoing and other statutory provisions and provisions of the Company's
Restated Articles of Incorporation could have the effect of deterring certain
takeovers or delaying or preventing certain changes in control or management
of the Company, including transactions in which shareholders might otherwise
receive a premium for their shares over then-current market prices.
REGISTRATION RIGHTS
Pursuant to the Amended and Restated Investors Rights Agreement, dated as of
April 7, 1992, as amended (the "Investors Agreement"), the provisions of which
are incorporated into the agreements relating to the purchase of the Company's
Series D and Series E Preferred Stock, certain holders of outstanding shares
of Common Stock including shares of Common Stock issuable
upon conversion of the Preferred Stock (the "Registrable Securities"), are entitled to certain demand and incidental registration
rights with respect to such shares, subject to certain customary limitations.
Under the Investors Agreement, subject to certain exceptions, the holders of
at least 50% of the Registrable Securities (as defined therein) may require
the Company to use its diligent best efforts to register Registrable
Securities for public resale on one occasion (so long as such registration
includes at least 20% of the Registrable Securities or a lesser percentage if
the anticipated aggregate offering price net of underwriting discounts and
commissions would exceed $2 million). In addition, whenever the Company
proposes to register any of its securities under the Act, holders of
Registrable Securities are entitled, subject to certain restrictions
(including customary underwriters "cut back" limitations), to include their
Registrable Securities in such registration. Subject to certain limitations,
the holders of Registrable Securities may also require the Company to register
such shares on Form S-3 no more than once every twelve months, provided that
the anticipated aggregate proceeds would exceed $500,000. The Company is
required to bear all registration and selling expenses (other than
underwriter's discounts and commissions and more than a single special counsel
to the selling shareholders) in connection with the registration of
Registrable Securities in one demand registration and two piggy-back
registrations. The participating investors are required to bear all expenses
in connection with the registration of Registrable Securities on Form S-3.
Registration rights may be transferred to an assignee or transferee provided
that such assignee or transferee acquires at least 66,667 shares of the
Registrable Securities held by the transferring holder (13,333 shares in the
case of a transfer from the holder of certain stock options). These
registration rights may be amended or waived (either generally or in a
particular instance) only with the written consent of the Company and the
holders of a majority of the Registrable Securities then outstanding.
The registration rights granted under the Investors Agreement shall not be
exercisable by a holder during the period in which the holder may sell all of
the holder's shares under Rule 144 or Rule 144A during a single 90-day period.
Pursuant to the Stock Purchase Agreement between the Company and Cobe, dated October 22, 1993 by and
between Cobe and the Company (the "Cobe Stock Agreement"), the Company granted
to Cobe certain stock registration rights for any and all of the Company's
Common Stock which Cobe acquires by conversion or otherwise. Cobe's stock
registration rights commence 30 months following an initial public offering,during August 2000, or earlier in the event of
any termination of the Distribution Agreement. Pursuant to Cobe's registration
rights, Cobe is entitled to two demand registration rights, and an unlimited
number of piggyback registration rights. Cobe's stock registration rights are
subject to 54
customary underwriter's "cut back" requirements. The registration
rights granted to Cobe shall not be exercisable during the period in which
Cobe has the ability to sell all of its shares pursuant to Rule 144 during a
single ninety-day90-day period. Subject to certain conditions, these registration rights
may be transferred with the transfer of stock to certain affiliates of the
transferor or to a transferee who acquires the greater of 66,667 shares or 20%
of the transferor's registrable stock.
57
RIGHTS OF COBE
Pursuant to the Cobe Stock Agreement, Cobe purchased an aggregate of
$10,000,000 of shares of the Company's Series C Preferred Stock. Such shares
of Series C Preferred Stock will automatically convertconverted into 1,666,666 shares of
Common Stock upon consummationthe closing of the offering.Company's initial public offering in
February 1997.
Pursuant to the Cobe Stock Agreement, Cobe also has certain preemptive
rights to purchase a portion of any new stock issued by the Company, subject
to certain exceptions, so as to enable Cobe to maintain its relative
percentage ownership and voting power interests in the Company. Pursuant to
such preemptive rights, Cobe elected to purchase 714,200 shares of Common
Stock for approximately $5,000,000 in the Company's initial public offering in
February 1997. Under the terms of the Cobe Stock Agreement, the Company also
has the right to require Cobe to purchase stock issued by the Company in
certain qualifying offerings, under certain circumstances (the "Put Option").
The Put Option may generally require Cobe to purchase up to 25% of the stock
issued by the Company in a qualifying offering upon the same terms and
conditions as the underwriters or other purchasers participating in the
offering provided that Cobe shall not be required to purchase stock having an
aggregate purchase price of more than $5
million.$5,000,000. If the Company exercises itsthe
Put Option with respect to any such qualifying offering, Cobe has the option
to purchase the greater of up to 40% of the number of shares to be offered in
the qualifying offering or the number of shares necessary to maintain its
percentage ownership interest in the Company. Additionally, for a three-year period followingThe Put Option was not exercised
by the Company's completion ofCompany in connection with its initial public offering in February
1997. The Put Option does not apply to any public offerings, including this
offering. The Company and Cobe are evaluating whether or not the Put Option
remains in effect as to any future private offerings of stock,the Company's equity
securities.
Additionally, until February 2000, Cobe will havehas an option to purchase from the
Company a quantity of new shares of the Company's Common Stock at a price
equal to 120% of the public market trading price for the Company's Common
Stock. The quantity of Common Stock to be purchased if Cobe exercises this
option shall be equal to 30% of the Company's fully diluted shares after the
exercise of this option.
In the Cobe Stock Agreement, the Company also granted to Cobe a "right of
first negotiation" in the event the Company receives any proposal concerning,
or otherwise decides to pursue, a merger, consolidation or other transaction
in which all or a majority of the Company's equity securities or all or
substantially all of the Company's assets, or any material portion of the
assets of the Company used by the Company in performing its obligations under
the Distribution Agreement would be acquired by a third party outside of the
ordinary course of business.
Pursuant to the Stock Purchase Commitment Agreement with Cobe, dated October
29, 1996, the Company agreed to use reasonable and good faith efforts to cause
a nominee of Cobe, who must be deemed by the Board of Directors to be
qualified, to be elected to the Board of Directors for as long as Cobe owns at
least 15% of the outstanding shares of Common Stock.
55RIGHT OF FIRST REFUSAL
Pursuant to the Investors Agreement and the agreement relating to the
purchase of the Company's Series E Preferred Stock, certain shareholders of
the Company have a right of first refusal to purchase their pro rata share
(determined on a fully diluted basis) of any new issuances of shares of Common
Stock or Preferred Stock, or of options, warrants or other rights to purchase
such shares, other than issuances (i) in public offerings, (ii) in connection
with acquisitions, or (iii) under the Company's stock option plans.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company. Its telephone number in New York, New York is (212)
509-4000.
58
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect the prevailing market price of the Common
Stock and the Company's ability to raise capital in the future. Upon
completion of this offering, the Company will have 13,235,73414,772,674 shares of Common
Stock outstanding, assuming no exercisebased upon the number of anyshares outstanding options
under anyas of the Company's option plans after September
30, 1996. Of these
shares,1997, all of which are eligible for resale in the 3,250,000 shares of Common Stock soldpublic market, subject
in this offering will be
freely transferable without restriction under the Securities Act unless they
are heldsome cases to certain volume restrictions and other conditions imposed by the Company's affiliates as that term is used in
Rule 144 under the Securities Act. The remaining 9,985,734However, 5,707,252 outstanding shares (the "Restricted Shares") were issued and
sold by the Company in private transactions in reliance upon exemptions from
registration contained in the Act. A total of
6,873 Restricted Shares held for
more than three years by shareholders whoCommon Stock are not affiliates of the Company
and who are not subject to the lock-up agreements described below will be
eligible for sale in the public market in reliance upon Rule 144(k)
immediatelyexpiring 90 days following the commencement of this offering. A total of 8,735,744
additional outstanding shares will be eligible for sale in the public market
commencing 180 days from the
date of this Prospectus without restriction,
other than volume limitations in certain instances, upon the expiration of
certain lock-upProspectus. Such agreements referred to below. As of the date 90 days after the
date of this Prospectus, 31,014 additional shares will be available for sale
pursuant to Rule 144 or 701 under the Act, and 1,212,103 Restricted Shares
will have been held for less than two years and will not be eligible for sale
in the market until they have met the two-year holding period requirements of
Rule 144. The executive officers and directors of the Company, and certain
other stockholders and optionholders of the Company, have executed 180-day
lock-up agreements.provide that Cowen & Company may, in
its sole discretion and at any time without notice, release someall or alla portion
of the shares subject to these lock-up agreements at any time without notice.
In general, under Rule 144, a person (or persons whose shares are
aggregated), stockholders, including an affiliate, who has beneficially owned
shares for at least two years is entitledagreements. Certain existing
shareholders have rights to sell in broker transactions,
within any three-month period, commencing 90 days after this offering, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding Common Stock (approximately 132,357 shares immediately after this
offering assuming no exercise of the Underwriters' over-allotment option) or
(ii) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the sale, subject to the filing of a Form 144 with
respect to the sale and other limitations. In general, shares issued in
compliance with Rule 701 may be sold by non-affiliates subject to the manner
of sale requirements of Rule 144, but without compliance with the other
requirements of Rule 144. Affiliates may sell shares they acquired under Rule
701 in compliance with the provisions of Rule 144, except that there is no
required holding period. A person who is not an affiliate, has not been an
affiliate within three months prior to sale and has beneficially owned the
Restricted Shares for at least three years, is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above.
The Company intends to file a registration statement under the Securities
Act to register Common Stock reserved for issuance under its 1992 Plan,
Directors Plan and Purchase Plan. Such registration statement is expected to
become effective approximately 90 days after the date of this Prospectus.
Shares issued upon exercise of outstanding stock options under such plan after
the effective date of such registration statement generally will be available
for sale in the public market. As of September 30, 1996, options to purchase a
total of 336,254include shares of Common Stock were outstanding and 1,100,906 options
remained availableowned by them in
future registrations by the Company for grantthe sale of Common Stock or to request
that the Company register their shares under the 1992 Plan. No options have been granted
under the Directors Plan.Securities Act. See "Plan of
Distribution" and "Description of Capital Stock--Registration Rights."
59
PLAN OF DISTRIBUTION
The Company has also agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock offered hereby are being offered, on an all or
any securities convertible
into or exercisable or exchangeablenone basis, for Common Stock orsale by the Company principally to selected investors. The
Placement Agent has been retained to act as agent for the Company in
connection with the arrangement of such offers and sales on a best efforts
basis. The Placement Agent is not obligated and does not intend to itself take
(or purchase) any rights to acquire
Common Stock for a period of 180 days after the date of this Prospectus,
without the prior written consent of the Underwriters, subject to certain
limited exceptions (including exercises of stock options).
Prior to this offering, there has been no public market for the Common Stock
of the Company. No prediction can be made regarding the effect, if any,shares offered hereby. It is anticipated that the
sale or availabilityPlacement Agent will obtain indications of interest from potential investors
for sale of shares of additional Common Stock will
have on the market price of the Common Stock. Nevertheless, sales of
substantial numbers of shares by existing stockholders or by stockholders
purchasing in their offering could have a negative effect on the market price
of the Common Stock.
56
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Cowen & Company and J.P. Morgan Securities Inc., have severally agreed to
purchase from the Company the following respective number of shares offered hereby and that effectiveness of Common
Stockthe
Registration Statement of which this Prospectus forms a part will not be
requested, and no investor funds will be accepted, until indications of
interest have been received for all of the shares offered hereby. Confirmation
and definitive prospectuses will be distributed to all investors at the initial public offering price lesstime
of pricing, informing investors of the underwriting discounts and
commissions set forthclosing date, which will be scheduled
for three business days after pricing. No investor funds will be accepted
prior to the effectiveness of the Registration Statement. Prior to the closing
date, an escrow account with the Escrow Agent will be established for the
benefit of the investors. Prior to the closing date, the Placement Agent from
time to time will cause to be wired to or deposited with the Escrow Agent
funds or checks of the investors delivered in payment for the shares offered
hereby. The Placement Agent will promptly place all investor funds in the
escrow account. Such investor funds will be wired to or deposited with the
Escrow Agent not later than 12:00 noon on the cover page of this Prospectus:
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
Cowen & Company................................................
J.P. Morgan Securities Inc.....................................
---------
Total........................................................ 3,250,000
=========
The Underwriting Agreement provides thatdate following the obligationsdate on which
it is received by the Placement Agent. Any checks delivered to the Escrow
Agent shall be made payable to or endorsed to the order of the Underwriters
are subjectEscrow Agent.
The Escrow Agent, upon receipt of such checks, will present such checks for
payment to certain conditions precedentthe drawee-bank under such checks. Any checks not honored by the
drawee-bank after the first presentment for payment will be returned to the
Company. Upon receipt of funds or checks from the Placement Agent, the Escrow
Agent will credit such funds and the amount of such checks to the escrow
account. The Escrow Agent will invest such funds in accordance with Rule 15c2-
4 promulgated under the Securities Exchange Act of 1934, as amended. Prior to
the closing date, the Escrow Agent will advise the Company that payment for
the purchase of the shares offered hereby has been affirmed by the investors
and that the Underwritersinvestors have deposited the requisite funds in the escrow
account with the Escrow Agent. Upon receipt of such notice, the Company will
purchase alldeposit with The Depository Trust Company the shares to be credited to the
respective accounts of the Common Stock offered herebyinvestors. Investor funds, together with interest
thereon, if any, will be collected by the Company through the facilities of
such sharesthe Escrow Agent on the scheduled closing date. This offering will not
continue after the closing date, as extended by the parties. In the event that
investor funds are purchased.not received in the full amount necessary to satisfy the
requirements of this offering, all funds deposited in the escrow account will
promptly be returned.
The Company has been advised byagreed to pay the RepresentativesPlacement Agent, as the Placement Fee, an
aggregate of 6% of the Underwriters thatgross proceeds of the Underwriters propose to offersale of the shares of Common
Stock to the public at
the initial public offering price set forth on the cover page of this
Prospectusoffered hereby and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallot, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 487,500
additional shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 3,250,000, and the Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on
the same terms as those on which the 3,250,000 shares are being offered.
The Company has agreed to indemnify the several UnderwritersPlacement Agent against certain
liabilities, including liabilities under the Securities Act.
The Company and its directors and officers, and certain of its officers and other
stockholders and optionholders,shareholders, have entered into agreements providing that, for a period of 18090
days after the date of this Prospectus, they will not, without the prior
written consent of Cowen & Company, offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exchangeable for, or warrants to purchase, any shares of Common Stock, or
grant any option to purchase or right to acquire, or acquire any option to
dispose of any shares of Common Stock, except in certain limited
circumstances. See "Shares Eligible for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
57
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock has been determined by negotiations between the Company and the
Representatives of the Underwriters. Among the factors considered in such
negotiations were prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies that the Company and the Representatives of the
Underwriters believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development, and other factors deemed relevant.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is . Its
telephone number in , is .
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Pepper, Hamilton & Scheetz, Detroit, Michigan. Michael B. Staebler,
a partner at Pepper, Hamilton & Scheetz, is the beneficial owner of 3,333
shares of Common Stock. Gray Cary Ware &
Freidenrich, A Professional Corporation, San Diego, California, has acted as
special counsel to the Company in connection with thethis offering. Certain legal
matters in connection with this offering will be passed upon for the UnderwritersPlacement
Agent by Brobeck Phleger & Harrison LLP, New York, New York.
60
EXPERTS
The balance sheets of the Company as of June 30, 19951996 and 1996,1997, and the
statements of operations, stockholders'shareholders' equity, and cash flows for the years
ended June 30, 1994, 1995, 1996 and 19961997 and the cumulative period from March 24,
1989 (inception)(Inception) to June 30, 19961997 included in this Prospectus have been so
included herein in reliance on the report of Coopers & Lybrand L.L.P.,Price Waterhouse LLP, independent
accountants, given uponon the authority of thatsaid firm as experts in accounting and
auditing.
The statements in this Prospectus concerning the patents and patent
applications either owned or licensed by the Company under the captions "Risk
Factors--Uncertainty Regarding Patents and Proprietary Rights" and "Business--
Patents and Proprietary Rights" and the other references herein concerning the
patents and patent applications either owned or licensed by the Company have
been reviewed and approved by Oblon, Spivak, McClelland, Maier & Neustadt,
P.C., Arlington, Virginia, patent counsel to the Company, as experts on such
matters, and are included herein in reliance upon that review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549,, a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act of 1933, as amended, with respect to the Common
Stock offered hereby. The Company is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended, and in accordance
therewith files reports and other information with the Securities and Exchange
Commission. This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part thereof. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, if such contract or document is filed as an
exhibit to the Registration Statement, reference is made to the copy of such
contract or document filed as an exhibit, to the Registration Statement, each such statement being qualified
in all respects by such reference to such exhibit.reference. The Registration Statement, including
exhibits and schedules thereto, may be inspected without charge at the Commission's principal office inpublic
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C., 20549 and copiesat the regional offices of the Commission located
at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 10661. Copies of all or any part
thereofof such materials may be obtained from such office afterthe Commission upon the payment of
certain fees prescribed by the Commission. The Company intends to furnish to its shareholders annualSuch reports containing
financial statements audited by its independent certified public accountants
and make available to its stockholders quarterly reports containing unaudited
financial data forother information
may also be inspected without charge at the first three quarters of each fiscal year.
58Commission's Web site, located at
http://www.sec.gov.
61
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants........................................Accountants......................................... F-2
Balance Sheets as of June 30, 1995 and 1996 and September 30, 1996
(Unaudited).............................................................1997............................... F-3
Statements of Operations for the years ended June 30, 1994, 1995, 1996 and 1996,1997
and for the period from March 24, 1989 (Inception) to June 30, 1996,
for the three months ended September 30, 1995 and 1996 (Unaudited) and
for the period from March 24, 1989 (Inception) to September 30, 1996
(Unaudited).............................................................1997...... F-4
Statements of Stockholders'Shareholders' Equity from March 24, 1989 (Inception) to June
30, 1996 and for the three months ended September 30, 1996
(Unaudited).............................................................1997................................................................. F-5
Statements of Cash Flows for the years ended June 30, 1994, 1995, 1996 and 1996,1997
and for the period from March 24, 1989 (Inception) to June 30, 1996,
for the three months ended September 30, 1995 and 1996 (Unaudited) and
for the period from March 24, 1989 (Inception) to September 30, 1996
(Unaudited).............................................................1997...... F-6
Notes to Financial Statements............................................Statements............................................. F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Aastrom Biosciences, Inc.:
We have audited the accompanying balance sheetsand Shareholders of
Aastrom Biosciences, Inc.
(a Michigan corporation inIn our opinion, the development stage) as of June 30, 1995 and
1996,accompanying balance sheets and the related statements
of operations, stockholders'of shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Aastrom Biosciences, Inc. (a
development stage company) at June 30, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1994, 19951997, and 1996, andfor the cumulative period from March 24, 1989 (inception)(Inception) to June 30,
1996.1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management. Ourmanagement; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards. Those standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit
also includesstatements, assessing the accounting principles used and significant estimates
made by management, as well asand evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In ourthe
opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Aastrom Biosciences, Inc.
as of June 30, 1995 and 1996, and the results of its operations and its cash
flows for the years ended June 30, 1994, 1995 and 1996, and the cumulative
period from March 24, 1989 (inception) to June 30, 1996, in conformity with
generally accepted accounting principles.expressed above.
Price Waterhouse LLP
Detroit, Michigan
August 9, 1996
To the Board of Directors of
Aastrom Biosciences, Inc.:
The financial statements herein have been adjusted to give effect to the 2
for 3 reverse stock split of the Company's outstanding Common Shares as
described more fully in Note 1 to the financial statements. The above report
is in the form that will be signed by Coopers & Lybrand L.L.P. upon the
effectiveness of such split assuming that, from October 31, 1996 to the
effective date of such split, no other events shall have occurred that would
affect the accompanying financial statements or notes thereto.
Coopers & Lybrand L.L.P.
Detroit, Michigan
October 31, 199615, 1997
F-2
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
PRO FORMA
STOCKHOLDERS'
JUNE 30,
EQUITY AT
------------------------- SEPTEMBER 30, SEPTEMBER 30,
1995--------------------------
1996 1996 1996
------------------------- ------------- -------------
(UNAUDITED) (UNAUDITED)1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...........equivalents........................ $ 2,680,000 $10,967,00010,967,000 $ 5,908,0001,943,000
Short-term investments. 8,388,000investments........................... -- 1,200,000
Receivables............ 99,00015,064,000
Receivables...................................... 81,000 220,000229,000
Prepaid expenses....... 105,000expenses................................. 437,000 378,000126,000
------------ ----------- -----------------------
Total current assets. 11,272,000assets........................... 11,485,000 7,706,00017,362,000
PROPERTY, NET............ 1,279,000NET...................................... 1,188,000 1,225,0001,048,000
------------ ----------- -----------------------
Total assets.........assets................................... $ 12,551,000 $12,673,00012,673,000 $ 8,931,00018,410,000
============ =========== =======================
LIABILITIES AND STOCKHOLDER'SSHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses...... $ 328,000expenses............ $ 1,192,000 $ 841,0001,508,000
Accrued employee expenses..............expenses........................ 97,000 130,000 97,000 80,000
Current portion of capital lease obligations........... 270,000obligations..... 223,000 192,000124,000
Deferred revenue....... 225,000revenue................................. 122,000 53,000--
------------ ----------- -----------------------
Total current liabilities......... 953,000liabilities...................... 1,634,000 1,166,0001,762,000
CAPITAL LEASE OBLIGATIONS............. 412,000OBLIGATIONS.......................... 189,000 147,00065,000
COMMITMENTS (Note 7)
STOCKHOLDERS'SHAREHOLDERS' EQUITY:
Preferred Stock, no par value,value; shares authorized--8,540,000,authorized--
9,951,765 and
10,157,647,
respectively,5,000,000, respectively; shares issued and
outstanding--8,040,001,outstanding--
9,451,766 and 9,657,648,
respectively (none--pro
forma), (liquidation
preference of
$34,560,000 and
$35,375,000 at June 30,
1996 and September 30,
1996, respectively)..... 28,253,0000, respectively..................... 34,218,000 37,718,000 $ --
Common Stock, no par value,value; shares authorized--17,000,000,authorized--
18,500,000 and
18,500,000,
respectively,40,000,000, respectively; shares issued and
outstanding--1,731,463,outstanding--
1,886,479 and 1,887,312,
respectively
(9,985,734--pro forma).. 241,00013,275,208, respectively............ 324,000 365,000 38,083,00058,073,000
Deficit accumulated during the development stage................... (17,108,000)stage... (27,025,000) (30,298,000) (30,298,000)
Stockholder(41,313,000)
Shareholder notes receivable.............. (198,000) (167,000)receivable....................... (167,000) (167,000)
Stock purchase rights.... --rights.............................. 3,500,000 -- --
Unrealized losses on investments............. (2,000)investments................... -- -- --(10,000)
------------ ----------- ----------- -----------------------
Total stockholders'
equity................ 11,186,000shareholders' equity....................... 10,850,000 7,618,000 $ 7,618,00016,583,000
------------ ----------- ----------- ===========------------
Total liabilities and stockholders'
equity..............shareholders' equity..... $ 12,551,000 $12,673,00012,673,000 $ 8,931,00018,410,000
============ =========== =======================
The accompanying notes are an integral part of these financial statements.
F-3
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
MARCH 24,
MARCH 24, 1989
1989 THREE MONTHS ENDED (INCEPTION)
YEAR ENDED JUNE 30,
---------------------------------------
MARCH 24, 1989
(INCEPTION) SEPTEMBER 30, TO
-------------------------------------- TO
JUNE 30,
------------------------ SEPTEMBER 30,
1994 1995 1996 1996 1995 1996 1996
-----------1997 1997
----------- ------------ ------------ ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)--------------
REVENUES:
Research and development
agreements............ $ 49,000develop-
ment agreements...... $ 396,000 $ 1,342,000 $ 1,787,000230,000 $ 172,000 $ 195,000 $ 1,982,000
Grants................. 823,0002,017,000
Grants................ 121,000 267,000 1,995,000 39,000 29,000 2,024,000
-----------148,000 2,143,000
----------- ------------ ------------ ----------- ----------- ------------
Total revenues....... 872,000revenues...... 517,000 1,609,000 3,782,000 211,000 224,000 4,006,000378,000 4,160,000
COSTS AND EXPENSES:
Research and development........... 5,627,000develop-
ment................. 4,889,000 10,075,000 25,075,000 1,195,000 3,160,000 28,235,00013,357,000 38,432,000
General and administrative........ 1,565,000adminis-
trative.............. 1,558,000 2,067,000 7,089,000 446,000 452,000 7,541,000
-----------1,953,000 9,042,000
----------- ------------ ------------ ----------- ----------- ------------
Total costs and expenses............ 7,192,000ex-
penses............. 6,447,000 12,142,000 32,164,000 1,641,000 3,612,000 35,776,000
-----------15,310,000 47,474,000
----------- ------------ ------------ ----------- ----------- ------------
LOSS BEFORE OTHER INCOME
AND EXPENSE............ (6,320,000)FROM OPERATIONS.... (5,930,000) (10,533,000) (28,382,000) (1,430,000) (3,388,000) (31,770,000)
----------- ----------- ------------ ------------ ----------- ----------- ------------(14,932,000) (43,314,000)
OTHER INCOME (EXPENSE):
Interest income........ 245,000income....... 279,000 678,000 1,576,000 149,000 126,000 1,702,000676,000 2,252,000
Interest expense....... (65,000)expense...... (66,000) (62,000) (219,000) (18,000) (11,000) (230,000)
-----------(32,000) (251,000)
----------- ------------ ------------ ----------- ----------- ------------
Other income......... 180,000income........ 213,000 616,000 1,357,000 131,000 115,000 1,472,000
-----------644,000 2,001,000
----------- ------------ ------------ ----------- ----------- ------------
NET LOSS................ $(6,140,000) $(5,717,000) $ (9,917,000) $(27,025,000) $(1,299,000) $(3,273,000) $(30,298,000)
===========$(14,288,000) $(41,313,000)
=========== ============ ============ =========== =========== ============
PRO FORMA
NET LOSS PER SHARE.................. $ (.82)SHARE...... $ (.66) $ (.98) $ (.13) $ (.32)
===========(1.26)
=========== ============ =========== ===========
Pro forma weighted============
Weighted average numbernum-
ber of common and
common equivalent
shares outstanding............ 7,461,000outstanding... 8,644,000 10,103,000 10,094,000 10,107,000
===========11,315,000
=========== ============ =========== =======================
The accompanying notes are an integral part of these financial statements.
F-4
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS'SHAREHOLDERS' EQUITY
DEFICIT
ACCUMULATED UNREALIZED
PREFERRED STOCK COMMON STOCK DURING THE STOCKHOLDERSHAREHOLDER STOCK UNREALIZED
---------------------- -------------------GAIN
----------------------- ----------------------- DEVELOPMENT NOTES PURCHASE GAINS (LOSSES)(LOSSESS) ON
SHARES AMOUNT SHARES AMOUNT STAGE RECEIVABLE RIGHTS ON INVESTMENTS
------------------- ----------- --------- ------------------ ----------- ------------ ----------- ---------- --------------------------
Balance, MarchBALANCE, MARCH
24, 1989
(Inception)......... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Non-cash
issuance of
Common Stock... 454,545 --
Issuance of
Series A
Preferred Stock
at $1.00 per
share in August
1989........... 1,500,000 1,500,000
Net loss........ (500,000)
--------- ----------- --------- -------- ------------ --------- ---------- ---------
Balance, June
30, 1990....... 1,500,000 1,500,000 454,545 -- (500,000) -- -- --
Issuance of
Series A
Preferred Stock
in March 1991
at $1.00 per
share, net of
issuance costs
of $5,000...... 1,000,000 995,000
Net loss........ (636,000)
--------- ----------- --------- -------- ------------ --------- ---------- ---------
Balance, June
30, 1991....... 2,500,000 2,495,000 454,545 -- (1,136,000) -- -- --
Issuance of
Series B
Preferred Stock
in April 1992
at $2.00 per
share, net of
issuance costs
of $46,000..... 3,030,000 6,014,000
Net loss........ (1,268,000)
--------- ----------- --------- -------- ------------ --------- ---------- ---------
Balance, June
30, 1992....... 5,530,000 8,509,000 454,545 -- (2,404,000) -- -- --
Issuance of
Common Stock
for services... 33,333 10,000
Exercise of
stock option... 6,873 1,000
Net loss........ (2,847,000)
--------- ----------- --------- -------- ------------ --------- ---------- ---------
Balance, June
30, 1993....... 5,530,000 8,509,000 494,751 11,000 (5,251,000) -- -- --
Issuance of
Series C
Preferred Stock
in October 1993
at $1,000 per
share, net of
issuance costs
of $175,000.... 10,000 9,825,000
Exercise of
stock options.. 1,222,609 229,0001,229,482 230,000 (198,000)
Net loss........ (6,140,000)
---------(11,391,000)
---------- ----------- --------- ------------------ ----------- ------------ --------- ---------- ---------
Balance, June--------
BALANCE, JUNE 30,
1994.......1994............ 5,540,000 18,334,000 1,717,360 240,000 (11,391,000) (198,000) -- --
Issuance of
Series D
Preferred Stock
in April and
May 1995 at
$4.00 per
share, net of
issuance costs
of $81,000..... 2,500,001 9,919,000
Exercise of
stock options.. 39,103 8,000
Retirement of
Common Shares
outstanding.... (25,000) (7,000)
Unrealized loss
on investments. (2,000)
Net loss........ (5,717,000)
------------------- ----------- --------- ------------------ ----------- ------------ --------- ---------- ---------
Balance, June--------
BALANCE, JUNE 30,
1995.......1995............ 8,040,001 28,253,000 1,731,463 241,000 (17,108,000) (198,000) -- (2,000)
Issuance of
Series E
Preferred Stock
in January 1996
at $4.25 per
share, net of
issuance costs
of $35,000..... 1,411,765 5,965,000
Exercise of
stock options.. 130,016 53,000
Issuance of
Common Stock at
$1.20 per
share.......... 25,000 30,000
Issuance of
Stock Purchase
Rights for cash
in September
1995 and March
1996........... 3,500,000
Repurchase of
Series D
Preferred Stock
at $4.00 per
share.......... (62,500) (250,000)
Sale of Series D
Preferred Stock
at $4.00 per
share.......... 62,500 250,000
Principal
payment
received under
stockholdershareholder
note
receivable..... 31,000
Unrealized gain
on investments. 2,000
Net loss........ (9,917,000)
------------------- ----------- --------- ------------------ ----------- ------------ --------- ---------- ---------
Balance, June--------
BALANCE, JUNE 30,
1996.......1996............ 9,451,766 34,218,000 1,886,479 324,000 (27,025,000) (167,000) 3,500,000 --
Unaudited:
Exercise of
stock options.. 833 1,00040,307 26,000
Issuance of
Series E
Preferred Stock
to RPR
at $17.00 per
share.......... 205,882 3,500,000 (3,500,000)
Issuance of
Common Stock at
$7.00 per
share, net of
issuance costs
of $2,865,000.. 3,250,000 19,885,000
Conversion of
Preferred
Stock.......... (9,657,648) (37,718,000) 8,098,422 37,718,000
Compensation
expense related
to stock
options
granted........ 40,000120,000
Unrealized
losses on
investments.... (10,000)
Net loss........ (3,273,000)
---------(14,288,000)
---------- ----------- --------- ------------------ ----------- ------------ --------- ---------- ---------
Balance,
September--------
BALANCE, JUNE 30,
1996
(Unaudited).... 9,657,648 $37,718,000 1,887,312 $365,000 $(30,298,000)1997............ -- $ -- 13,275,208 $58,073,000 $(41,313,000) $(167,000) $ -- $ --
=========$(10,000)
========== =========== ========= ================== =========== ============ ========= ========== =================
TOTAL
STOCKHOLDERS'SHAREHOLDERS'
EQUITY
-------------
Balance, MarchBALANCE, MARCH
24, 1989
(Inception)......... $ --
Non-cash
issuance of
Common Stock... --
Issuance of
Series A
Preferred Stock
at $1.00 per
share in August
1989........... 1,500,000
Net loss........ (500,000)
-------------
Balance, June
30, 1990....... 1,000,000
Issuance of
Series A
Preferred Stock
in March 1991
at $1.00 per
share, net of
issuance costs
of $5,000...... 995,000
Net loss........ (636,000)
-------------
Balance, June
30, 1991....... 1,359,000
Issuance of
Series B
Preferred Stock
in April 1992
at $2.00 per
share, net of
issuance costs
of $46,000..... 6,014,000
Net loss........ (1,268,000)
-------------
Balance, June
30, 1992....... 6,105,000
Issuance of
Common Stock
for services... 10,000
Exercise of
stock option... 1,000
Net loss........ (2,847,000)
-------------
Balance, June
30, 1993....... 3,269,000
Issuance of
Series C
Preferred Stock
in October 1993
at $1,000 per
share, net of
issuance costs
of $175,000.... 9,825,000
Exercise of
stock options.. 31,00032,000
Net loss........ (6,140,000)(11,391,000)
-------------
Balance, JuneBALANCE, JUNE 30,
1994.......1994............ 6,985,000
Issuance of
Series D
Preferred Stock
in April and
May 1995 at
$4.00 per
share, net of
issuance costs
of $81,000..... 9,919,000
Exercise of
stock options.. 8,000
Retirement of
Common Shares
outstanding.... (7,000)
Unrealized loss
on investments. (2,000)
Net loss........ (5,717,000)
-------------
Balance, JuneBALANCE, JUNE 30,
1995.......1995............ 11,186,000
Issuance of
Series E
Preferred Stock
in January 1996
at $4.25 per
share, net of
issuance costs
of $35,000..... 5,965,000
Exercise of
stock options.. 53,000
Issuance of
Common Stock at
$1.20 per
share.......... 30,000
Issuance of
Stock Purchase
Rights for cash
in September
1995 and March
1996........... 3,500,000
Repurchase of
Series D
Preferred Stock
at $4.00 per
share.......... (250,000)
Sale of Series D
Preferred Stock
at $4.00 per
share.......... 250,000
Principal
payment
received under
stockholdershareholder
note
receivable..... 31,000
Unrealized gain
on investments. 2,000
Net loss........ (9,917,000)
-------------
Balance, JuneBALANCE, JUNE 30,
1996.......1996............ 10,850,000
Unaudited:
Exercise of
stock options.. 1,00026,000
Issuance of
Series E
Preferred Stock
to RPR at $17.00 per
share.......... --
Issuance of
Common Stock at
$7.00 per
share, net of
issuance costs
of $2,865,000.. 19,885,000
Conversion of
Preferred
Stock.......... --
Compensation
expense related
to stock
options
granted........ 40,000120,000
Unrealized
losses on
investments.... (10,000)
Net loss........ (3,273,000)(14,288,000)
-------------
Balance,
SeptemberBALANCE, JUNE 30,
1996
(Unaudited).... $7,618,0001997............ $16,583,000
=============
The accompanying notes are an integral part of these financial statements.
F-5
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
MARCH 24, MARCH 24, 1989
1989 THREE MONTHS ENDED (INCEPTION)
YEAR ENDED JUNE 30, (INCEPTION) SEPTEMBER 30, TO
------------------------------------- TO--------------------------------------- JUNE 30,
------------------------ SEPTEMBER 30,
1994 1995 1996 1996 1995 1996 1996
----------- -----------1997 1997
------------ ----------- ------------ ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)--------------
OPERATING ACTIVITIES:
Net loss............... $(6,140,000) $(5,717,000)$ (5,717,000) $(9,917,000) $(27,025,000) $(1,299,000) $(3,273,000) $(30,298,000)$(14,288,000) $(41,313,000)
Adjustments to
reconcile net loss to
net cash
used for operating
activities:
Depreciation and
amortization........ 248,000 329,000 536,000 1,267,000 91,000 136,000 1,403,000564,000 1,831,000
Loss on property held
for resale.......... -- -- -- 110,000
-- -- 110,000
Amortization of
discounts and
premiums on
investments......... -- (9,000) (110,000) (119,000) (48,000) -- (119,000)
Expense related to
stock and stock
options granted.....(84,000) (203,000)
Stock compensation
expense............. -- -- -- 10,000 -- 40,000 50,000120,000 130,000
Changes in assets and
liabilities:
Receivables........ 11,000 132,000 18,000 (81,000) 4,000 (139,000) (220,000)(148,000) (229,000)
Prepaid expenses... (17,000) (59,000) (332,000) (437,000) 27,000 59,000 (378,000)311,000 (126,000)
Accounts payable
and accrued
expenses.......... (45,000) (40,000) 864,000 1,192,000 (35,000) (351,000) 841,000316,000 1,508,000
Accrued employee
expenses.......... 53,000 28,000 (33,000) 97,000 (58,000) (17,000) 80,00033,000 130,000
Deferred revenue... 146,000 79,000 (103,000) 122,000 (172,000) (69,000) 53,000
----------- ----------- -----------(122,000) --
------------ ----------- ----------------------- ------------
Net cash used for
operating activities.. (5,744,000) (5,257,000) (9,077,000) (24,864,000) (1,490,000) (3,614,000) (28,478,000)(13,298,000) (38,162,000)
------------ ----------- ------------ ------------
INVESTING ACTIVITIES:
Organizational costs... -- -- -- (73,000)
-- -- (73,000)
Purchase of short-term
investments........... (967,000) (10,981,000) -- (11,948,000) -- (1,200,000) (13,148,000)(19,190,000) (31,138,000)
Maturities of short-
term investments...... -- 3,567,000 8,500,000 12,067,000 2,500,000 -- 12,067,0004,200,000 16,267,000
Capital purchases...... (320,000) (118,000) (445,000) (1,718,000) (15,000) (173,000) (1,891,000)(424,000) (2,142,000)
Proceeds from sale of
property held for
resale................ -- -- -- 400,000
-- -- 400,000
----------- ----------- ----------- ------------ ----------- ----------------------- ------------
Net cash provided by
(used for) investing
activities............ (1,287,000) (7,532,000) 8,055,000 (1,272,000) 2,485,000 (1,373,000) (2,645,000)(15,414,000) (16,686,000)
------------ ----------- ------------ ------------
FINANCING ACTIVITIES:
Issuance of Preferred
Stock................. 9,825,000 9,919,000 5,965,000 34,218,000 -- -- 34,218,000
Issuance of Common
Stock................. 31,000 1,000 83,000 116,000 3,000 1,000 117,00019,911,000 20,027,000
Payments received for
stock purchase
rights.rights................ -- -- 3,500,000 3,500,000 1,500,000 -- 3,500,000
Payments received
under stockholder notes.....shareholder
notes................. -- -- 31,000 31,000 -- -- 31,000
Principal payments
under capital lease
obligations........... (147,000) (214,000) (270,000) (762,000) (65,000) (73,000) (835,000)
----------- ----------- -----------(223,000) (985,000)
------------ ----------- ----------------------- ------------
Net cash provided by
(used for) financing activities............ 9,709,000activities.. 9,706,000 9,309,000 37,103,000 1,438,000 (72,000) 37,031,000
----------- ----------- -----------19,688,000 56,791,000
------------ ----------- ----------------------- ------------
NET INCREASE (DECREASE)
IN CASH AND
CASH EQUIVALENTS............ 2,678,000EQUIVALENTS....... (3,083,000) 8,287,000 10,967,000 2,433,000 (5,059,000) 5,908,000(9,024,000) 1,943,000
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD.... 3,085,000 5,763,000 2,680,000 -- 2,680,000 10,967,000 --
----------- ----------------------- ----------- ------------ ----------- ----------- ------------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................. $ 5,763,000 $ 2,680,000 $10,967,000 $ 10,967,0001,943,000 $ 5,113,000 $ 5,908,000 $ 5,908,000
=========== ===========1,943,000
============ =========== ============ =========== =========== ============
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Interest paid.......... $ 65,000paid......... $ 66,000 $ 62,000 $ 219,00032,000 $ 18,000 $ 11,000 $ 230,000
=========== =========== =========== ============ =========== =========== ============
SUPPLEMENTAL DISCLOSURES
OF NON-CASH INVESTING
AND FINANCING
ACTIVITIES:251,000
Additions to capital
lease obligations..... $ 348,000 $obligations.... 270,000 $ -- $-- 1,174,000 $ -- $ -- $ 1,174,000
=========== =========== =========== ============ =========== =========== ============
The accompanying notes are an integral part of these financial statements.
F-6
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 19961. ORGANIZATION AND FOR THE THREE-MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview--AastromAastrom Biosciences, Inc. (the "Company")Company) was incorporated in March 1989
("Inception")(Inception) under the name Ann Arbor Stromal, Inc. The Company changed its
name in 1991 concurrent with the commencement of employee-based operations.
The Company is in the development stage with its principal business activities
being research and product development, conducted both on its own behalf and
in connection with various collaborative research and development agreements
with other companies, involving the development of processes and
instrumentation for the ex-vivoex vivo production of human stem cells and their
progeny, and hematopoetic and other tissues.
Successful future operations are subject to several technical and business
risks, including satisfactory product development, and obtaining regulatory
approval and market acceptance for its products.
Significant Revenue Relationships--Twoproducts and the Company's continued
ability to maintain adequate levels of funding.
SIGNIFICANT REVENUE RELATIONSHIPS--Two companies accounted for 77%49% and 28%
of total revenues for the year ended June 30, 1995 and one company accounted
for 83% and 52% of total revenues for the year ended June 30, 1996. These two companies have1996 and 1997,
respectively. One company accounted for 47%43% of total revenues for the period
from Inception to June 30, 1996. One company accounted for 82% and 87% of total revenues for the three
months ended September 30, 1995 and 1996, respectively, and two companies
accounted for 49% of total revenues for the period from Inception to September
30, 1996.1997. Grant revenues consist of grants sponsored by
the U.S. government.
Cash and Cash Equivalents--CashCASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash and short-
term investments with original maturities of three months or less.
Short-Term Investments--Short-termSHORT-TERM INVESTMENTS--Short-term investments consist of U.S. government
securities and commercial paper with original maturities of over three months
but less than one year. Short-term investments are classified as available-
for-sale, and are carriedpresented at market value, in accordance with Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which was adopted July 1, 1994.
Application of this pronouncement results in the inclusion of unrealized gains and losses
on investments in stockholders'reflected as a component of shareholders' equity.
Application of this
accounting treatment in prior periods would not have materially changed the
amounts as presented.
Diversity of Credit Risk--TheDIVERSITY OF CREDIT RISK--The Company invests its excess cash in U.S.
government securities and commercial paper, maintained in U.S. financial
institutions, and has established guidelines relative to diversification and
maturities in an effort to maintain safety and liquidity. The Company plans to
continue to invest its excess funds in short-term, investment grade, interest-
bearing instruments. These guidelines are
periodically reviewed and modified to take advantage of trends in yields and
interest rates. The Company has not experienced any significant realized
losses on its cash equivalents or short-term investments.
Property--PropertyPROPERTY--Property is recorded at cost and depreciated or amortized using
the straight-line method over the estimated useful life of the asset
(primarily five years), or the remaining lease term, if shorter, with respect
to leasehold improvements and certain capital lease assets.
Revenue Recognition--RevenueREVENUE RECOGNITION--Revenue from grants and research agreements is
recognized on a cost reimbursement basis consistent with the performance
requirements of the related agreement. Funding received in advance of costs
incurred is presented as deferred revenue in the accompanying financial
statements.
Research and Development Costs--ResearchRESEARCH AND DEVELOPMENT COSTS--Research and development costs are expensed
as incurred. Such costs and expenses related to programs under collaborative
agreements with other companies totaled $49,000, $146,000, $1,294,000 and $1,294,000$154,000 for
the years ended June 30, 1994, 1995, 1996 and 1996,1997, respectively, and $1,489,000$1,642,000 for
the period from Inception to June 30, 19961997.
STOCK COMPENSATION--The Company adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123) as of July 1, 1996. As permitted by SFAS 123,
the Company continues to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB 25) and $158,000, $117,000related
interpretations in accounting for its plans and $1,606,000does not recognize
compensation expense for the three months ended September 30, 1995 and 1996 and for the
period from Inception to September 30, 1996, respectively.its employee stock-based compensation plans as
prescribed in SFAS 123.
F-7
AASTROM BIOSCIENCES, INC.INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
RestatementINCOME TAXES--The Company recognizes deferred tax assets and liabilities for
the differences between the carrying amounts and the tax basis of Common Stock Information--The Company's Board of Directors
authorizedassets and
liabilities, as well as net operating loss and tax credit carryforwards.
Additionally, the Company establishes a two-for-three reverse stock split of the Company's Common Stock
("Reverse Stock Split") to be effected prior to the closing of the proposed
IPO. Accordingly, all references in the accompanying financial statements to
common share or per common share information have been restatedvaluation allowance to reflect the
Reverse Stock Split.
Pro Forma Information (Unaudited)--Pro forma netlikelihood of realization of deferred tax assets.
NET LOSS PER SHARE--Net loss per share is computed using the weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares are not included in the per-shareper share calculation
where the effect of their inclusion would be anti-
dilutive, except thatanti-dilutive. However, common
and common equivalent shares issued during the 12twelve month period preceding
the filing of the registration statement for the proposedCompany's initial public
offering ("IPO"), contemplatedwhich was completed in the Prospectus in
which these financial statements are included,February 1997, (the IPO) at a price below $8.00 per
share (the lowestthe
expected sellingoffering price in the proposed IPO) are considered to be cheap stock and have beenare included in
the calculation for periods prior to the IPO, as if they were outstanding for
all periods using the treasury stock method, ifas applicable, even though their
inclusion is anti-dilutive. UponDue to the completionautomatic conversion of the
Company's proposed IPO, all 9,657,648 shares of the Company's outstanding
Preferred Stock will automatically convert into 8,098,422 shares of Common
Stock. As a result, all outstanding
shares of Preferred Stock areinto Common Stock upon the completion of the IPO,
Preferred Stock is assumed to have been converted tointo Common Stock at the
time of issuance, except for those shares considered to be cheap stock which
are treated as outstanding for all periods presented.
The pro formaDuring March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128)
which amends the standards for computing earnings per share previously set
forth in Accounting Principles Board Opinion No. 15 "Earnings per Share" (APB
15). SFAS 128, which will be adopted by the Company for the periods ending
December 31, 1997, will not have a material effect of these conversions has been
reflected inon the accompanying balance sheet assuming the conversion had
occurred on September 30, 1996.
Historicalcomputation of net
loss per share information is not considered meaningful due
tofor the significant changesperiods presented in the Company's capital structure which will occur
upon the closing of the proposed IPO; accordingly, such per-share data
information is not presented.
Use of Estimates--Theaccompanying financial
statements.
USE OF ESTIMATES--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
that affect the amounts reported in the financial statements and disclosures
made in the accompanying notes to financial statements. Actual results could
differ from those estimates.
Financial Instruments--ManagementFINANCIAL INSTRUMENTS--The Company evaluates the fair value of those assets
and liabilities identified as financial instruments under Statement of
Financial Accounting Standards No. 107 and estimates that the
fair value of such financial instruments generally approximates the carrying
value in the accompanying financial statements. Fair values have been
determined through information obtained from market sources and management
estimates.
Recent Pronouncements--During October 1995, theLONG-LIVED ASSETS--The Company adopted Statement of Financial Accounting
Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value based method121 (SFAS 121) as of accounting for
stock-based compensation and incentive plans and requires additional
disclosures for those companies that elect not to adopt the new method of
accounting. Adoption of this pronouncement is required for the Company's
fiscal year beginning July 1, 1996 and evaluates the Company intends to provide the
additional disclosures required by the pronouncement in its financial
statements for the year ended June 30, 1997.
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which requires the Company to review
for impairment
of long-lived assets certain identifiable intangibles, and goodwill relatedlong-lived assets to those assetsbe disposed of whenever events
or changes in circumstances indicate that the carrying amount of an asset
F-8
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
mightthose assets
may not be recoverable. In certain situations, anAdoption of this pronouncement has not significantly
impacted the accompanying financial statements as no impairment loss would be
recognized. SFAS 121 will become effective forlosses have
been identified by the Company's fiscal year
beginning July 1, 1996. Management has studied the effect of implementing SFAS
121 and, based upon its initial evaluation, does not expect it to have a
significant impact on the Company's financial condition or results of
operations.
Unaudited Financial Information--The financial information as of September
30, 1996, and for the three-month periods ended September 30, 1995 and 1996,
and for the period from Inception to September 30, 1996, is unaudited. In the
opinion of management, such information contains all adjustments, consisting
only of normal recurring accruals, necessary for a fair statement of the
results of operations for the interim periods. The results of operations for
the three months ended September 30, 1996, are not necessarily indicative of
the results to be expected for the full year.Company.
2. SHORT-TERM INVESTMENTS
All short-term investments are available-for-sale and have maturities of one
year or less and are summarized as follows:
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- ---------- ---------------------
June 30, 1995:1997:
U.S. Government Securities.... $4,890,000 $ -- $ (2,000) $4,888,000Securities...... $13,574,000 $1,000 $(11,000) $13,564,000
Commercial Paper.............. 3,500,000Paper................ 1,500,000 -- -- 3,500,000
----------1,500,000
----------- ------ -------- -------- ----------
$8,390,000 $ -- $ (2,000) $8,388,000
==========-----------
$15,074,000 $1,000 $(11,000) $15,064,000
=========== ====== ======== ======== ==========
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
September 30, 1996 (Unaudited):
U.S. Government Securities.... $1,200,000 $ -- $ -- $1,200,000
========== ======== ======== =====================
F-8
AASTROM BIOSCIENCES, INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY
Property consists of the following:
JUNE 30,
---------------------- SEPTEMBER 30,
1995------------------------
1996 1996
---------- ---------- -------------
(UNAUDITED)1997
----------- -----------
Machinery and equipment............... $1,140,000 $1,337,000 $1,341,000equipment........................ $ 1,337,000 $ 1,425,000
Office equipment...................... 405,000equipment............................... 482,000 604,000733,000
Leasehold improvements................ 380,000improvements......................... 520,000 567,000
---------- ---------- ----------
1,925,000605,000
----------- -----------
2,339,000 2,512,0002,763,000
Less accumulated depreciation and amortization......................... (646,000)amortiza-
tion.......................................... (1,151,000) (1,287,000)
---------- ---------- ----------
$1,279,000 $1,188,000 $1,225,000
========== ========== ==========(1,715,000)
----------- -----------
$ 1,188,000 $ 1,048,000
=========== ===========
Equipment under capital leases totaled $1,162,000, $1,131,000 and $1,131,000 at June 30, 1995 and 1996 and September 30, 1996, respectively,1997,
with related accumulated amortization of $407,000, $622,000 and $679,000,$844,000, respectively
(Note 7).
F-9
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY:
Preferred Stock--TheSHAREHOLDERS' EQUITY
INITIAL PUBLIC OFFERING--In February 1997, the Company hascompleted an
underwritten initial public offering of 3,000,000 shares of its Common Stock
at an offering price of $7.00 per share. In March 1997, the underwriters
elected to purchase an additional 250,000 shares of Common Stock pursuant to
the underwriters' over-allotment option at a price of $7.00 per share.
Proceeds from the offering, net of underwriter's commissions and expenses,
were $19,885,000.
PREFERRED STOCK--The Company had the following classes of preferred stock
outstanding Convertible
Preferred Stock:as of June 30, 1996. As a result of the IPO, all 9,657,648 shares
of previously outstanding preferred stock were automatically converted into
8,098,422 shares of Common Stock.
SHARES ISSUED
SHARES ISSUED AND LIQUIDATION
AUTHORIZED OUTSTANDING LIQUIDATION PREFERENCE
AT
AUTHORIZED --------------------------------- -------------------------
SEPTEMBER 30, JUNE 30, JUNE 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
1996 1995 1996 1996 1996 1996
------------- --------- ------------------- ------------- ----------- -------------
(Unaudited) (Unaudited) (Unaudited)
Series A................ 2,500,000 2,500,000A........................... 2,500,000 2,500,000 $ 2,500,000
$ 2,500,000
Series B................ 3,030,000 3,030,000B........................... 3,030,000 3,030,000 6,060,000
6,000,000
Series C................ 10,000 10,000C........................... 10,000 10,000 10,000,000
Series D........................... 3,000,000 2,500,001 10,000,000
Series D................ 3,000,000 2,500,001 2,500,001 2,500,001 10,000,000 10,000,000
Series E................ 1,617,647 --E........................... 1,411,765 1,617,6471,411,765 6,000,000 6,875,000
---------- ---------
--------- --------- -----------
-----------
10,157,647 8,040,001Balance, June 30, 1996............. 9,951,765 9,451,766 9,657,648 $34,560,000 $35,375,000
==========
========= ========= ========= =========== ===========
All preferred sharesNo dividends have voting rights equal to the equivalent number of
common shares into which they are convertible. Conversion rights on all
outstanding classes of preferred stock are on a two-for-three basis to give
effect for the Reverse Stock Split, except for the Series C Preferred Stock,
each share of which is convertible into approximately 250 shares of Common
Stock. Conversion rights on certain classes of preferred stock are subject to
anti-dilution adjustments. Dividends accrue annually at 8% on all series of
Preferred Stock, but do not accumulate. No cash dividends haveever been declared or paid through September 30, 1996. Dividends and liquidation preferences on
the Series B, Series C and Series D Preferred Stock are senior to those of the
Series A Preferred Stock. Dividends and liquidation preferences on the Series
E Preferred Stock are senior to those of all other outstanding series of
preferred stock. Conversion of preferred stock is automatic in the event of
the closing of an underwritten public stock offering meeting certain minimum
requirements such as the offering contemplated by the Prospectus in which
these financial statements are included.
Cobe Laboratories, Inc. Stock Purchase Rights--Inpaid.
COBE LABORATORIES, INC. STOCK PURCHASE RIGHTS--In connection with the
purchase of the Series C Convertible Preferred Stock by Cobe Laboratories,
Inc. ("Cobe")(Cobe) in October 1993, Cobe received a preemptive right to purchase a
pro-rata portion of any newly issued shares of stock by the Company in order
to maintain its then current percentage ownership interest. Any such purchase
of newly issued shares shall be at the net price to the Company after
deducting underwriters'underwriter's discounts and commissions, if any. The agreements
establishing the Company's relationship with Cobe has waived its right to
such discount on its intended purchase of shares inprovide the proposed IPO. The
Company haswith an
option ("(the Put Option")Option) to require Cobe to
F-9
AASTROM BIOSCIENCES, INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
purchase the lesser of 20%, or $5,000,000, in an initial public offering of equity securitiesor a
private offering meeting certain minimum requirements. In the event that the
Company exercises the Put Option, Cobe then has the option to purchase up to
40% of that offering. DuringWhile the three-year period followingPut Option was not exercised by the completionCompany in
connection with the IPO, Cobe elected to purchase an additional $5,000,000 in
Common Stock as part of an initial publicthe IPO. The Company and Cobe are evaluating whether
or not the Put Option remains in effect as it relates to the Company's ability
to exercise the option in a subsequent private offering of Common Stock by the Company,its equity
securities.
Cobe has an option to purchase additional shares from the Company equal to
30% of the total number of shares outstanding assuming exercise of the option.
Such option, if exercised,which is exercisable until February 2000, must be exercised in
full with the purchase price of the shares being established
atequal to 120% of the public market
trading price as determined by the 30-day average market price preceding the
date of exercise of the option.
The Company has granted Cobe a right of first negotiation in the event the
Company receives any proposal concerning, or otherwise decides to pursue, a
merger, consolidation or other transaction in which all or a majority F-10
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
of the
Company's equity securities or all or substantially all of the Company's assets, or
any material portion of the assets of the Company used by the Company in
performing its obligationsobligation under the Distribution Agreement (Note 6), would be
acquired by a third party outside of the ordinary course of business.
Stock Option Plans--TheSTOCK OPTION PLANS--The Company has various stock option plans which provide
for the issuance of nonqualified and incentive stock options to acquire up to
2,836,5942,986,594 shares of Common Stock. Such options may be granted by the Company's
Board of Directors to certain of the Company's founders, employees, directors
and consultants. The exercise price of incentive stock options shall not be
less than the fair market value of the shares on the date of grant. In the
case of individuals who are also holders of 10% or more of the outstanding
shares of Common Stock, the exercise price of incentive stock options shall
not be less than 110% of the fair market value of the shares on the date of
grant. The exercise price of non-qualified stock options shall not be less
than 85% of the fair market value on the date of grant. Options granted under
these plans expire no later than ten years from the date of grant and
generally become exercisable ratably over a four-year period following the
date of grant.
For certain options granted, the Company recognizes compensation expense for
the difference between the deemed value for accounting purposes and the option
exercise price on the date of grant. During the three-month periodyear ended SeptemberJune 30, 1996,1997,
compensation expense totaling approximately $40,000$120,000 has been charged with
respect to these options. Additional future compensation expense with respect
to the issuance of such options totals approximately $130,000$135,000 and will be
recognized through October 2000.
F-11December 2001.
As permitted by SFAS 123, the Company continues to apply APB 25 and related
interpretations in accounting for its stock option plans and does not
recognize compensation expense for its employee stock-based compensation plans
as prescribed in SFAS 123. If the Company had elected to recognize
compensation expense based upon the fair value at the grant dates for stock
option awards granted in 1996 and 1997, in accordance with SFAS No. 123, the
pro forma net loss and net loss per share would be as follows.
JUNE 30,
-----------------------
1996 1997
---------- -----------
Net Loss:
As reported................................... $9,917,000 $14,288,000
Pro forma..................................... 9,942,000 14,793,000
Net Loss per common share:
As reported................................... $ (.98) $ (1.26)
Pro forma..................................... (.98) (1.31)
F-10
AASTROM BIOSCIENCES, INC.INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)The fair value of options was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions; no dividend
yields, 40% volatility, risk free interest rates ranging from 5.2% to 6.8% and
expected option lives of three to five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the use of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
subjective assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock based
compensation plans.
The following table summarizes option activity under the Company's stock
option plans:
OPTIONS OPTIONS WEIGHTED AVERAGE OPTIONS
OPTIONS AVAILABLE EXERCISE PRICE EXERCISABLE
OUTSTANDING FOR GRANT PER SHARE AT PERIOD END
----------- ---------- ----------------------------- ---------------- -------------
March 24, 1989(Inception)1989 (Incep-
tion)
Options authorized.................authorized.... -- 1,703,261
Options granted.................... 1,528,778 (1,528,778)granted....... 1,727,111 (1,727,111) $ .15 - $ .30.31
Options exercised.................. (6,873)exercised..... (1,229,482) -- $ .15 -.19
Options canceled...... (103,964) 103,964 $ .15
Options canceled................... (13,793) 13,793 $ .15 - $ .15.66
---------- ----------
Balance, June 30, 1993............... 1,508,112 188,2761994.. 393,665 80,114 $ .15 - $ .30.61 77,682
Options granted.................... 198,333 (198,333) $ .30 -authorized.... -- 333,333
Options granted....... 55,333 (55,333) $1.20
Options exercised.................. (1,222,609)exercised..... (39,103) -- $ .15 -.21
Options canceled...... (60,230) 60,230 $ .30
Options canceled................... (90,171) 90,171 $ .15 - $1.20.34
---------- ----------
Balance, June 30, 1994............... 393,665 80,1141995.. 349,665 418,344 $ .15 - $1.20.78 108,492
Options authorized.................authorized.... -- 333,333800,000
Options granted.................... 55,333 (55,333) $ 1.20 - $1.20granted....... 155,337 (155,337) $1.44
Options exercised.................. (39,103)exercised..... (130,016) -- $ .30 -.41
Options canceled...... (44,690) 44,690 $ .30
Options canceled................... (60,230) 60,230 $ .30 - $1.20.85
---------- ----------
Balance, June 30, 1995............... 349,665 418,344 $ .15 -1996.. 330,296 1,107,697 $1.20 101,021
Options authorized.................authorized.... -- 800,000150,000
Options granted.................... 155,337 (155,337) $ 1.20 - $3.20granted....... 785,200 (785,200) $6.78
Options exercised.................. (130,016)exercised..... (40,307) -- $ .15 - $1.20.65
Options canceled................... (44,690) 44,690 $ .30 - $1.20canceled...... (16,818) 16,818 $1.83
---------- ----------
Balance, June 30, 1996............... 330,296 1,107,6971997.. 1,058,371 489,315 $5.36 483,376
---------- ----------
---------- ----------
OUTSIDE DIRECTORS' STOCK OPTION PLAN--The Company has an outside directors'
stock option plan which provides for the issuance of options to purchase up to
150,000 shares of Common Stock to outside directors. Under this plan, non-
qualified options to purchase 5,000 shares of Common Stock are granted to each
outside director on the day of the Annual Shareholders' meeting. These options
generally vest over a one-year period and expire ten years after the date of
grant. As of June 30, 1997, options to purchase 30,000 shares of Common Stock
at $7.00 per share are outstanding under this plan, of which options to
purchase 10,002 shares of Common Stock are exercisable.
F-11
AASTROM BIOSCIENCES, INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock-based compensation
plans outstanding as of June 30, 1997:
WEIGHTED
AVERAGE
WEIGHTED EXERCISE
RANGE OF NUMBER OF REMAINING AVERAGE PRICE OF
EXERCISE OPTIONS CONTRACTUAL EXERCISE NUMBER EXERCISABLE
PRICES OUTSTANDING LIFE-YEARS PRICE EXERCISABLE OPTIONS
-------------- ----------- ----------- -------- ----------- -----------
$ .30 - $3.20
Unaudited:
Options granted.................... 13,334 (13,334)$ 1.20 260,170 7.7 $1.15 135,542 $1.11
$ 3.20 - $3.88 58,418 9.2 $3.24 4,501 $3.20
Options exercised.................. (833) --$7.00 - $ 1.20 - $1.20
Options canceled................... (6,543) 6,543 $ 1.20 - $1.20
---------- ----------
Balance, September 30, 1996
(Unaudited)......................... 336,254 1,100,906 $ .30 - $3.20
========== ==========
Options Exercisable, 101,021
June 30, 1996....................... ========== $ .30 - $1.20
September 30, 1996 (Unaudited)...... 122,612 $ .30 - $1.20
==========7.13 739,783 9.6 $7.00 343,333 $7.00
--------- -------
1,058,371 483,376
========= =======
The weighted average fair value of options granted during the year ended
June 30, 1997 was $6.78 per share.
EMPLOYEE STOCK PURCHASE PLAN--The Company has an employee stock purchase
plan under which eligible employees can purchase Common Shares Reserved--TheStock, at a discount
to the market price, through payroll deductions up to 10% of the employees
base compensation, subject to certain limitations, during sequential 24-month
offering periods. Each offering period is divided into four consecutive six-
month purchase periods ending on March 1 and September 1 of each year. Unless
otherwise provided by the Board of Directors prior to the commencement of an
offering period, the price at which stock is purchased under the plan for such
offering period is equal to 85% of the lesser of the fair market value of the
Common Stock on the first day of such offering period or the last day of the
purchase period of such offering period. The initial purchase date under this
plan is August 31, 1997, accordingly, no shares have been sold under this plan
as of June 30, 1997.
STOCK PURCHASE WARRANTS--The Company has issued warrants to purchase 69,444
shares of Common Stock which expire on October 15, 2000. These warrants may be
exercised, in whole or in part, at a price equal to the lesser of (a) $9.00
per share, which price increases by $3.00 per share on February 7, 1998, 1999
and 2000; or (b) 85% of the fair market value of the Company's Common Stock at
the time of exercise.
COMMON SHARES RESERVED--As of June 30, 1997, the Company has reserved shares
of Common Stock for future issuance as follows:
JUNE 30, SEPTEMBER 30,
1996 1996
--------- -------------
(Unaudited)
Issuance under stock option plans:
1992 Incentive and Non-Qualified Stock Option Plan................ 1,437,993 1,437,160
ConversionPlan........ 1,397,686
1995 Outside Director Stock Option Plan................... 150,000
---------
1,547,686
Issuance under 1996 Employee Stock Purchase Plan............ 250,000
Exercise of preferred stock........................ 7,961,168 8,098,422Stock Purchase Warrants......................... 69,444
---------
---------
9,399,161 9,535,582
=========1,867,130
=========
F-12
AASTROM BIOSCIENCES, INC.INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
5. FEDERAL INCOME TAXES
Deferred tax assets consist of the following:
JUNE 30,
------------------------
1995-------------------------
1996 1997
----------- -----------------------
Net operating loss carryforwards...................carryforwards............... $ 5,280,0009,210,000 $ 9,210,00014,150,000
Tax credits and other.............................. 360,000other.......................... 440,000 1,162,000
----------- -----------------------
Gross deferred tax assets.......................... 5,640,000assets...................... 9,650,000 15,312,000
Deferred tax assets valuation allowance............ (5,640,000)allowance........ (9,650,000) (15,312,000)
----------- -----------------------
$ -- $ --
=========== =======================
Due to the historical losses incurred by the Company, a full valuation
allowance for deferred tax assets has been provided. If the Company achieves
profitability, these deferred tax assets may be available to offset future
income taxes.
TheAt June 30, 1997, the Company's Federal tax net operating loss and tax
credit carryforwardscarryfowards were $40,420,000 and $971,000, respectively, which will
expire from 2004 through 2011,2012, if not utilized. The Company underwent an
ownership change in October 1993 which has resulted in a limitation under
which the Company can utilize a portion of its federal net operating loss
carryforward amounting to $1,153,000 per year. As of June 1997, the portion of
the Company's net operating loss that remains subject to this limitation is
$2,490,000 and therefore is not expected to ultimately effect the Company's
ability to utilize the benefit. If certain changes in ownership should occur
again in the future, the Company's ability to utilize its net operating loss
and tax credit carryforwards would be limited in the event of a future change in ownership
for tax purposes. Such a change in ownership may likely occur upon the
completion of an initial public offering of the Company's Common Stock.become subject to further annual limitation.
6. LICENSES, ROYALTIES AND COLLABORATIVE AGREEMENTS
University of Michigan--In MarchAGREEMENTS:
UNIVERSITY OF MICHIGAN--In August 1989, the Company entered into a research
agreement with the University of Michigan (the "University") for the
development of an adaptable, high-efficiency blood cell factory and to conduct
related research.University). Under the terms of
this research agreement, as amended, the Company agreed to reimburse the
University for certain research costs in this regard through the date of its expiration in
December 1994. Payments made to the University under the aforementioned
agreements totaled $316,000, $121,000 and $2,521,000 for the years ended June 30, 1994, 1995
and for the period from Inception to June 30, 1996.1997, respectively, which
amounts are included in research and development expense in the accompanying
Statements of Operations. As part of this relationship, the Company issued to
the University 454,545 shares of Common Stock in August 1989. No value has
been assigned to these shares in the accompanying financial statements. In
March 1992, and as provided for under the research agreement, the Company
entered into a license agreement for the technology developed under the
research agreement. The license agreement, as amended, provides for a royalty
to be paid to the University equal to 2% of net sales of products containing
the licensed technology sold by the Company.
CobeCOBE BCT, Inc.--InINC.--In connection with the issuance of the Series C Preferred
Stock to Cobe in October 1993, the Company and Cobe BCT, Inc. ("Cobe BCT")(Cobe BCT), an
affiliate of Cobe, entered into an agreement which grants to Cobe BCT
exclusive worldwide distribution and marketing rights to the Company's Cell
Production System ("CPS")(CPS) for stem cell therapy applications ("Distribution
Agreement")(Distribution
Agreement). The term of the Distribution Agreement is ten years, with an
option, exercisable by Cobe BCT, to extend the term for an additional ten
years. Cobe has the right to terminate its Distribution Agreement with the
Company with twelve months' notice upon a change of control of the Company,
other than to Cobe, or at any time after December 31, 1997, if Cobe determines
that commercialization of the Aastrom CPS for stem cell therapy on or prior to
December 31, 1998 is unlikely. Pursuant to the Distribution Agreement, Cobe
BCT will perform worldwide marketing and distribution activities of the CPS
for use in stem cell therapy and will receive a share of the resulting net
sales, as defined, ranging from 38% to 42%, subject to certain negotiated
discounts and volume-based adjustments.
F-13
AASTROM BIOSCIENCES, INC.INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
The agreements establishing this collaboration provided for payments
totaling $5,000,000 to be made by Cobe BCT upon the Company meeting certain
development milestones. In May 1995, the Company accepted, as part of the sale
of the Series D Preferred Stock, an equity investment of $5,000,000 from Cobe
in lieu of those future milestone payments.
M.D. Anderson Cancer Center--In December 1992, the Company entered into a
research agreement with the University of Texas, M.D. Anderson Cancer Center
("M.D. Anderson"). Under this agreement, the Company funded certain research
being conducted at M.D. Anderson and issued to M.D. Anderson 33,333 shares of
its Common Stock subject to vesting rights over the succeeding four year
period. In November 1994, the Company and M.D. Anderson terminated the
collaboration and 25,000 shares of Common Stock held by M.D. Anderson were
returned to the Company.
License and Royalty Agreements--InLICENSE AND ROYALTY AGREEMENTS--In July 1992, the Company licensed certain
cell culture technology under which it obtained an exclusive worldwide license
to the technology in exchange for a royalty payable of up to 3% of net sales
on products utilizingcontaining the licensed technology.
In March 1996, the Company executed a license agreement which provides for
the use of licensed products in the CPS. Pursuant to this license agreement,
the Company recorded a charge to research and development expense of
$1,500,000 representing the license fee payable upon execution of the
agreement. The license agreement provides for annual renewal fees of
$1,000,000 over the five year license term, if renewed by the Company, and can
be extended at the Company's option for an additional five years.
Rhone-Poulenc Rorer Inc.--InRHONE-POULENC RORER, INC.--In September 1995, the Company entered into a
research and development collaboration with Rhone-Poulenc Rorer, Inc. ("RPR")(RPR),
granting RPR a right to license the Company's CPS for Lymphoid cell
applications. Prior to the establishment of this collaboration, the Company
received a option fee of $250,000 and a development deposit of $225,000 to
initiate the preliminary research and development plan. Pursuant to the agreements establishing this collaboration, RPR
was obligated to fund certain research costs associated with the development
of the CPS for Lymphoid cell applications and was entitled to make equity
purchases of up to $12,500,000 subject to the Company's satisfaction of
certain milestones and RPR's decision to exercise certain options. As of June 30,In
September 1996, RPR notified the Company hasof its intent to not exercise its
additional options under the collaboration. This notification was made after
RPR had determined that for strategic reasons it would not pursue Lymphoid
cell therapy applications, including those being pursued under the
collaboration the Company. The Company received $3,500,000 in equity payments
and recognized $1,342,000$1,538,000 in research revenue through June 30, 1996under this collaboration. As a
result of this termination, no further equity payments or research funding is
due from RPR and $1,537,000 through September 30, 1996. The remaining
$9,000,000 equity payment wasRPR's license rights to be paid by RPR by October 1996 pending RPR's
evaluation of the research effortsCompany's CPS for Lymphoid cell
applications and its
decision to proceed with the collaboration (Note 9).have been terminated.
7. COMMITMENTS
The Company leases certain machinery and equipment and office equipment
under capital leases. Obligations under these leasing arrangements bear
interest at rates ranging from 9.7% to 12.1% and mature at dates ranging from
November 1996 tothrough May 1999.
Additionally, the Company leases its facilitiesfacility under an operating lease which
expires in May 1998, at which time the Company has the option to renew the
lease for an additional period of up to five years.
F-14
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Future minimum payments under capital leases and non-cancelable operating
leases are as follows:
CAPITAL OPERATING
LEASES LEASES
-------- ---------
Year EndedEnding June 30,
1997................................................ $255,000 $453,000
1998................................................ 138,000 435,000
1999................................................1998.................................................... $138,000 $435,000
1999.................................................... 69,000 --
-------- --------
Total minimum lease payments.......................... 462,000 $888,000payments.............................. 207,000 $435,000
========
Less amount representing interest..................... (50,000)interest......................... (18,000)
--------
Obligations under capital lease....................... $412,000lease........................... $189,000
========
Certain of the Company's capital lease agreements contain restrictive
provisions which require that the Company's total assets exceed its total
liabilities by at least $1,000,000. Should the Company fall out of compliance
with this provision, and a waiver cannot be obtained from the lessor,
remaining amounts due under the leaseslease agreements become immediately due and
payable.
F-14
AASTROM BIOSCIENCES, INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Rent expense for the years ended June 30, 1994, 1995, 1996 and 1996,1997, was $176,000,
$241,000,
$338,000 and $338,000,$456,000, respectively, and for the period from Inception to June
30, 19961997 was $822,000. Rent expense for the three months ended September 30,
1995 and 1996, was $83,000 and $107,000, respectively, and for the period from
Inception to September 30, 1996 was $929,000.$1,278,000.
8. EMPLOYEE SAVINGS PLAN
The Company has a 401(k) plan that became effective in January 1994. The
plan allows participating employees to contribute up to 15% of their salary,
subject to annual limits and minimum qualifications. The Board may, at its
sole discretion, approve Company contributions. Through June 30, 1996,1997, the
Company has made no contributions to the plan.
9. SUBSEQUENT EVENTS (UNAUDITED)
In September 1996, RPR notified the Company of its intent to terminate its
collaboration with the Company. This notification was made after RPR had
determined that for strategic reasons its support for the development of the
technologies being pursued under the collaboration would be discontinued. As a
result of this termination, no further equity payments or research funding is
due from RPR and RPR's license rights to the Company's CPS for Lymphoid cell
applications are terminated. Upon termination of the collaboration, RPR became
entitled to receive shares of the Company's Series E Preferred Stock at $17.00
per share for the $3,500,000 in equity payments made by RPR under the
collaboration. Accordingly, the accompanying financial statements as of
September 30, 1996 reflect the issuance of 205,882 shares of Series E
Preferred Stock issuable to RPR in this regard.
In October 1996, the Company executed a financing commitment for up to
$5,000,000 in additional equity funding from Cobe ("Equity Commitment") and
$5,000,000 in funding under a convertible loan agreement ("Convertible Loan
Commitment") with another current investor. Under the terms of the Equity
Commitment,
F-15
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
the Company may sell up to $5,000,000 of preferred stock at $6.00 per share
during a funding period that extends from January 1997 to December 1997. The
conversion rights of such preferred stock will be adjusted to provide for a
conversion at 80% of the per share price in the Company's next financing, as
adjusted for the Reverse Stock Split, and provided that such financing meets
certain minimum requirements ("Qualifying Financing"), such as the proposed
IPO in which these financial statements appear. If such a financing is not
completed by December 1997, then the conversion rights of this class of
preferred stock into Common Stock will be set at $6.98 per share of Common
Stock. To the extent shares are sold to Cobe under the Equity Commitment, its
preemptive right in the Company's next Qualifying Financing and the Company's
Put Option to Cobe is reduced to the extent of its purchase.
Upon the sale of $5,000,000 in preferred stock under the Equity Commitment,
the Company becomes entitled to borrow funds under the Convertible Loan
Commitment. Such funds may be borrowed by the Company during a funding period
that extends from January 1997 to September 1997. Upon the completion of a
Qualifying Financing by the Company, the Company has the option to repay
outstanding borrowings under the Convertible Loan Commitment, in cash, or to
convert such borrowings into preferred stock. The conversion rights of such
class of preferred stock will be adjusted to provide for a conversion at 90%
of the per share price in the Company's next Qualifying Financing, as adjusted
for the Reverse Stock Split. If such financing is not completed by December
1997, then the conversion rights of this class of preferred stock will be set
at $6.98 per share of Common Stock. Interest accrues at 10% on amounts
borrowed under the Convertible Loan Commitment, which is due at maturity, and
may be retired in a manner consistent with principal. The Company may repay
borrowed amounts at anytime prior to the maturity date which is established
for all amounts borrowed as one year from the date of the first borrowing.
In connection with the Convertible Loan Commitment, the Company has issued
warrants to purchase 69,444 shares of Common Stock for securing the
commitment. The Company will issue additional warrants to purchase 8,333
shares of Common Stock for each $1,000,000 borrowed under the Convertible Loan
Commitment, with such additional warrants to be prorated to the level of
borrowing. The warrants expire on October 15, 2000 if not exercised, and may
be exercised, in whole or in part, at a price equal to the lesser of (a) $9.00
per share, which price increases by $3.00 per share on each anniversary of the
closing of the offering being made in the Prospectus to which these financial
statements are included; or (b) 85% of the fair market value of the Company's
Common Stock at the time of exercise.
The Equity Commitment and the Convertible Loan Commitment expire upon the
closing of an initial public offering by the Company.
F-16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company, or any of the UnderwritersPlacement Agent or
any other person. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the shares of Common
Stock offered hereby, nor does it constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby to any person in any
jurisdiction or in which it is unlawful to make such offer or solicitation to such
person. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create an implication that the information
contained herein is correct as of any date subsequent to the date hereof.
----------------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 56
The Company............................................................... 1416
Use of Proceeds........................................................... 1416
Price Range of Common Stock............................................... 16
Dividend Policy........................................................... 1416
Dilution.................................................................. 17
Capitalization............................................................ 15
Dilution.................................................................. 1618
Selected Financial Data................................................... 1719
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 1820
Business.................................................................. 2223
Management................................................................ 4144
Certain Transactions...................................................... 4952
Principal Stockholders.................................................... 51Shareholders.................................................... 54
Description of Capital Stock.............................................. 5356
Shares Eligible for Future Sale........................................... 56
Underwriting.............................................................. 5759
Plan of Distribution...................................................... 60
Legal Matters............................................................. 5860
Experts................................................................... 5861
Additional Information.................................................... 5861
Index to Financial Statements............................................. F-1
-------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock offered, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,250,000 Shares1,500,000 SHARES
[LOGO]AASTROM
BIOSCIENCES INC
Common Stock
----------------------------------------
COMMON STOCK
---------------
PROSPECTUS
----------------------------------
COWEN & COMPANY
J.P. MORGAN & CO.
, 1996,1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Other expenses in connection with the registration of the securities
hereunder, which will be paid by the Company,Registrant, will be substantially as
follows:
ITEM AMOUNT
---- --------
Securities and Exchange Commission registration fee................fee............. $ 11,3263,239
NASD filing fee.................................................... 4,238fee................................................. 1,569
Nasdaq National Market fee......................................... 50,000fee...................................... 17,500
Blue sky qualification fees and expenses........................... 20,000expenses*....................... 5,000
Accounting fees and expenses....................................... 85,000expenses*................................... 25,000
Legal fees and expenses............................................ 350,000expenses*........................................ 100,000
Printing and engraving expenses.................................... 115,000expenses*................................ 100,000
Transfer agent and registrar fees.................................. 7,500
Officers' and Directors' Insurance................................. 200,000fees*.............................. 5,000
Escrow agent fees*.............................................. 10,000
Miscellaneous expenses............................................. 56,936expenses*......................................... 82,692
--------
Total............................................................ $900,000Total*........................................................ $350,000
========
- --------
* Estimated expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 1561 through 1565 of the Michigan Business Corporation Act (the
"MBCA") authorize a corporation to grant or a court to award indemnity to
directors, officers, employees and agents in terms sufficiently broad to
permit such indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities
Act of 1933.
The Bylaws of the CompanyRegistrant (see Exhibit 3.4)3.2), provide that the CompanyRegistrant
shall, to the fullest extent authorized or permitted by the MBCA, or other
applicable law, indemnify a director or officer who was or is a party or is
threatened to be made a party to any proceeding by or in the right of the
CompanyRegistrant to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the Company,Registrant,
against expenses, including actual and reasonable attorneys' fees, and amounts
paid in settlement incurred in connection with the action or suit, if the
indemnitee acted in good faith and in a manner the person reasonably believed
to be in, or not opposed to, the best interests of the CompanyRegistrant or its
shareholders. This section also authorizes the CompanyRegistrant to advance expenses
incurred by any agent of the CompanyRegistrant in defending any proceeding prior to
the final disposition of such proceeding upon receipt of an undertaking by or
on behalf of the agent to repay such amount unless it shall be determined
ultimately that the agent is entitled to be indemnified.
The Bylaws also authorize the CompanyRegistrant to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent
of the CompanyRegistrant against any liability asserted against or incurred by such
person in such capacity or arising out of such person's status as such,
regardless of whether the CompanyRegistrant would have the power to indemnify such
person against such liability under the provisions of the MBCA.
The CompanyRegistrant has entered into an indemnification agreement with certain of
its directors, officers and other key personnel, which contains provisions
that may in some respects be broader than the specific indemnification
provisions contained under applicable law. The indemnification agreement may
require the Company,Registrant, among other things, to indemnify such directors,
officers and key personnel against certain liabilities that may arise by
reason of their status or service as directors, officers or employees of the
Company,Registrant, to advance the expenses incurred by such parties as a result of
any threatened claims or proceedings brought against them as to which II-1
they
could be indemnified and, to the maximum extent that insurance coverage of
such directors, officers and key employees under the Company'sRegistrant's directors'
and officers' liability insurance policies is maintained.
II-1
Section 1209 of the MBCA permits a Michigan corporation to include in its
Articles of Incorporation a provision eliminating or limiting a director's
liability to a corporation or its shareholders for monetary damages for
breaches of fiduciary duty. The enabling statute provides, however, that
liability for breaches of the duty of loyalty, acts or omissions not in good
faith or involving intentional misconduct or knowing violation of the law, or
the receipt of improper personal benefits cannot be eliminated or limited in
this manner. The Company'sRegistrant's Restated Articles of Incorporation include a
provision which eliminates, to the fullest extent permitted by the MBCA,
director liability for monetary damages for breaches of fiduciary duty.
Section 67 of the UnderwritingPlacement Agent Agreement filed as Exhibit 1.1 hereto sets
forth certain provisions with respect to the indemnification of certain
controlling persons, directors and officers against certain losses and
liabilities, including certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a)(A) ISSUANCES OF COMMON STOCK
Since October 1, 1993,1994, the CompanyRegistrant has sold the following shares of
Common Stock:
In October 1995, the registrantRegistrant issued and sold 37,500 shares of Common
Stock to Albert B. Deisseroth at a price of $.80$0.80 per share.
(b)(B) ISSUANCES OF SHARES OF PREFERRED STOCK
Since October 1, 1993,1994, the CompanyRegistrant has sold the following shares of
Preferred Stock:
In October 1993, the registrant issued 10,000 shares of Series C Preferred
Stock to Cobe at a price of $1,000 per share.
In April and May 1995, the registrantRegistrant issued an aggregate of 2,500,001
shares of Series D Preferred Stock to 11 accredited investors at a price of
$4.00 per share.
In December 1995, the registrantRegistrant issued 62,500 shares of Series D Preferred
Stock to Northwest Ohio Venture Fund, L.P., at a purchase price of $4.00 per
share.
In January 1996, the registrantRegistrant issued an aggregate of 1,411,765 shares of
Series E Preferred Stock to SBIC Partners, L.P., and the State Treasurer of
the State of Michigan ("Michigan") at a purchase price of $4.25 per share.
Pursuant to a Governance Agreement between the Company and Rhone-Poulenc
Rorer, Inc. ("RPR"), dated September 15,1995,15, 1995, RPR terminated its contractual
relationship with the CompanyRegistrant on September 6, 1996. As a result of such
termination, the Company became obligated to issueRegistrant issued 205,882 shares of Series E Preferred Stock
to RPR at a purchase price of $17.00 per share.
The(C) ISSUANCES OF WARRANTS
Since October 1, 1994, the Registrant has issued the following warrants:
In October 1996, the Registrant issued warrants to Michigan to purchase
69,444 shares of Common Stock as consideration for entering into the
Convertible Loan Commitment.
In October 1997, the Registrant entered into an agreement with Burrill &
Company, believes that each such sale and issuance of securities was
exempt from registration pursuant to Section 4(2)which the Registrant issued warrants to purchase 200,000
shares of the Securities Act of
1933,Common Stock as amended.
(c)consideration for certain services to be rendered by
Burrill & Company under such agreement.
(D) OPTION ISSUANCES TO, AND EXERCISES BY, EMPLOYEES, DIRECTORS AND
DIRECTORSCONSULTANTS
From January 18, 1990 to April 11, 1997, the present, the registrant has grantedRegistrant issued options to
purchase a total of 2,945,1742,719,231 shares of Common Stock at exercise prices
ranging from $.10$0.15 to $2.13$7.125 per share to 9599 employees and oneconsultants and six
non-employee director. No consideration was paid to the Registrant by any recipient of any
of the foregoing options for the grant of any such options.directors. From October 30, 1992 to the present,April 11, 1997, the
Registrant issued a total of 2,829,7351,434,534 shares of Common Stock to 2631 employees
and consultants and one non-employee director upon exercise of stock options
at exercise prices ranging from $.10$0.15 to $2.13$1.20 per share.
II-2
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
II-2
The issuances described in Items 15(a), 15(b) and 15(c) were exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering.
The issuances described in Item 15(b)item 15(d) were exempt from registration under the
Securities Act in reliance on Rule 701 promulgated thereunder as transactions
pursuant to compensatory benefit plans and contracts relating to compensation.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates andor other instruments issued in
such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation.
3.2* Form of Restated Articles of Incorporation (to be filed with the
Secretary of State of the State of Michigan prior to the closing of
this offering).
3.3 Bylaws, as amended.
4.1* Specimen Common Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement dated April 7, 1992.
5.1* Opinion of Pepper, Hamilton & Scheetz, counsel to the Company, with
respect to the legality of the securities being registered, including
their consent to being named in the Registration Statement.
10.1 Form of Indemnification Agreement.
10.2 1989 Stock Option Plan and form of agreement thereunder.
10.3 Ancillary Stock Option Plan and form of agreement thereunder.
10.4 401(k) Plan.
10.5 Amended and Restated 1992 Incentive and Non-Qualified Stock Option
Plan and forms of agreements thereunder.
10.6 1996 Outside Directors Stock Option Plan and forms of agreements
thereunder.
10.7 1996 Employee Stock Purchase Plan and form of agreement thereunder.
10.8 Form of Employment Agreement.
10.9 Stock Purchase Agreement dated October 22, 1993 between Cobe
Laboratories, Inc. and the Company and amendment thereto dated
October 29, 1996.
10.10** Distribution Agreement dated October 22, 1993 between Cobe BCT,
Inc. and the Company and amendments thereto dated March 29, 1995,
September 11, 1995 and October 29, 1996.
10.11 License Agreement dated July 17, 1992 between J.G. Cremonese and the
Company and related addenda thereto dated July 14, 1992 and July 7,
1993.
10.12** Collaborative Product Development Agreement dated May 10, 1994
between SeaMED Corporation and the Company.
10.13** Collaborative Product Development Agreement dated November 8, 1994
between Ethox Corporation and the Company.
II-3
10.14** License and Supply Agreement dated April 1, 1996 between Immunex
Corporation and the Company.
10.15 Lease Agreement dated May 18, 1992 between Domino's Farms Holding,
L.P. and the Company and amendments thereto dated February 26, 1993,
October 3, 1994, November 16, 1994 and July 29, 1996.
10.16 Clinical Trial Agreement dated April 19, 1996 between the Company and
the University of Texas M.D. Anderson Cancer Center.
10.17 License Agreement dated March 13, 1992 between the Company and the
University of Michigan and amendments thereto dated March 13, 1992,
October 8, 1993 and June 21, 1995.
10.18 Employee Proprietary Information and Invention Agreement effective
June 1, 1991 between the Company and R. Douglas Armstrong.
10.19 Employment Agreement dated June 19, 1992 between the Company and
James Maluta.
10.20 Employment Agreement dated December 8, 1995 between the Company and
Todd E. Simpson, C.P.A.
10.21 Employment Agreement dated February 10, 1994 between the Company and
Walter C. Ogier.
10.22 Employment Agreement dated April 19, 1994 between the Company and
Thomas E. Muller, Ph.D.
10.23 Employment Agreement dated October 26, 1995 between the Company and
Alan K. Smith, Ph.D.
10.24 Promissory Note dated November 18, 1993 for $120,000 loan by the
Company to R. Douglas Armstrong and amendment thereto dated October
30, 1996.
10.25 Promissory Note dated October 20, 1993 for $47,303 loan by the
Company to Stephen G. Emerson, M.D., Ph.D and amendment thereto dated
October 30, 1996.
10.26 Consulting Agreement dated June 1, 1995 between the Company and
Stephen G. Emerson, M.D., Ph.D.
10.27 Clinical Trial Agreement dated August 28, 1996 between the Company
and Loyola University Medical Center Cancer Center.
10.28 Stock Purchase Commitment Agreement dated October 29, 1996 between
Cobe Laboratories, Inc. and the Company.
10.29 Convertible Loan Commitment Agreement dated October 15, 1996 between
the State Treasurer of the State of Michigan and the Company.
10.30* Forms of Subscription Agreement for the purchase of Series D
Preferred Stock.
10.31* Stock Purchase Agreement dated January 8, 1996 among the Company,
SBIC Partners, L.P. and the State Treasurer of the State of
Michigan.
11.1 Computation of earnings per share.
23.1 The consent of Coopers & Lybrand, L.L.P.
23.2* The consent of Pepper, Hamilton & Scheetz is contained in their
opinion filed asSee Exhibit 5.1 of the Registration Statement.
II-4
24.1 Power of Attorney is contained on the signature page of this
Registration Statement (see page II-6).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
27.4 Financial Data Schedule.
27.5 Financial Data Schedule.
27.6 Financial Data Schedule.
- --------
*To be filed by Amendment.
**The Company has applied for confidential treatment with respect to certain
portions of these documents.Index.
(b)Financial Statement Schedules
Schedules other than those referred to aboveAll such schedules have been omitted because they are not applicable or not
required under the instructions contained in Regulation S-X or because the
information is included elsewhere in the Financial Statements or the notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Actact of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A4340A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) orof
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.effective; and
(2) For the purpose of determining any liability under the Securities
Act, of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Ann Arbor, State of
Michigan, on the 1st8th day of November, 1996.October, 1997.
AASTROM BIOSCIENCES, INC.
By: /s/R. Douglas Armstrong
By: ___________________________________----------------------------------
R. Douglas Armstrong, Ph.D.
President and Chief Executive
Officer
(Principal Executive Officer)DOUGLAS ARMSTRONG, PH.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints R. Douglas Armstrong and Todd E.
Simpson, or either of them, as his attorney-in-fact, each with full power of
substitution for him in any and all capacities, to sign any and all amendments
to this Registration Statement,registration statement, including, but not limited to, post-effective
amendments and any and all new registration statements filed pursuant to Rule
462 under the Securities Act of 1933 in connection with or related to the
offering contemplated by this registration statement, as amended, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each said attorney-in-
factattorney-in-fact or his substitute or substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ R. Douglas Armstrong President, Chief Executive October 8,
- --------------------------------- Officer, and Director 1997
R. DOUGLAS ARMSTRONG, PH.D (Principal Executive
Officer)
/s/ Todd E. Simpson Vice President, Finance & October 8,
- --------------------------------- Administration, Secretary 1997
TODD E. SIMPSON and Treasurer, Chief
Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Robert J. Kunze Chairman of the Board and October 8,
- --------------------------------- Director 1997
ROBERT J. KUNZE
/s/ Stephen G. Emerson Director October 8,
- --------------------------------- 1997
STEPHEN G. EMERSON, M.D., PH.D
/s/ G. Bradford Jones Director October 8,
- --------------------------------- 1997
G. BRADFORD JONES
/s/ Horst R. Witzel Director October 8,
- --------------------------------- 1997
HORST R. WITZEL, DR. -ING
/s/ Edward C. Wood, Jr. Director October 8,
- --------------------------------- 1997
EDWARD C. WOOD, JR.
II-4
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 15, 1997,
relating to the financial statements of Aastrom Biosciences, Inc., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
Price Waterhouse LLP
Detroit, Michigan
October 7, 1997
II-5
EXHIBIT INDEX
SIGNATURE TITLE DATE
--------- ----- ----EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
/s/ R. Douglas Armstrong
____________________________________ President, Chief Executive Officer,1.1 Form of Placement Agent Agreement between Cowen & Company and the
Company.
3.1* Restated Articles of Incorporation of the Company.
3.2** Bylaws, as amended.
4.1** Specimen Common Stock Certificate.
4.2** Amended and Restated Investors' Rights Agreement, dated April 7, 1992.
5.1 Opinion of Pepper, Hamilton & Scheetz.
10.1** Form of Indemnification Agreement.
10.2** Amended and Restated 1992 Incentive and Non-Qualified Stock Option
Plan and forms of agreements thereunder.
10.3** 1996 Outside Directors Stock Option Plan and forms of agreements
thereunder.
10.4** 1996 Employee Stock Purchase Plan and form of agreement thereunder.
10.5** Stock Purchase Agreement, dated October 22, 1993, between Cobe
Laboratories, Inc. and the Company and amendment thereto dated October
29, 1996.
10.6**+ Distribution Agreement, dated October 22, 1993, between Cobe BCT, Inc.
and the Company and amendments thereto dated March 29, 1995, September
11, 1995 and October 29, 1996.
10.7** Lease Agreement, dated May 18, 1992, between Domino's Farms Holdings,
L.P. and the Company and amendments thereto dated February 26, 1993,
October 3, 1994, November 1, 199616, 1994 and July 29, 1996.
10.8** Promissory Note, dated November 18, 1993, for $120,000 loan by the
Company to R. Douglas Armstrong, Ph.D. and Director (Principal Executive Officer)
/s/ Todd E. Simpson
____________________________________ Vice President, Finance & Administration November 1, 1996
Todd E. Simpson and Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ Robert J. Kunze
____________________________________ Chairman ofamendment thereto dated
October 30, 1996.
10.9** Promissory Note, dated October 20, 1993, for $47,303 loan by the
Board and Director November 1, 1996
Robert J. Kunze
/s/ Albert B. Deisseroth
____________________________________ Director November 1, 1996
Albert B. Deisseroth, M.D., Ph.D.
/s/ Stephen G. Emerson
____________________________________ Director November 1, 1996Company to Stephen G. Emerson, M.D., Ph.D. /s/ G. Bradford Jones
____________________________________ Directorand amendment thereto dated
October 30, 1996.
10.10** Clinical Trial Agreement dated August 28, 1996 between the Company and
Loyola University Medical Center Cancer Center.
10.11** Stock Purchase Commitment Agreement, dated October 15, 1996, between
the State Treasurer of the State of Michigan and the Company.
10.12** Convertible Loan Commitment Agreement, dated October 15, 1996, between
the State Treasurer of the State of Michigan and the Company.
10.13** Letter Agreement, dated November 1,11, 1996, G. Bradford Jones
/s/ Horst R. Witzel
____________________________________ Directorbetween the Company and
Cobe Laboratories, Inc.
10.14** Termination Agreement, dated November 1,14, 1996, Horst R. Witzel, Dr.-Ing.
/s/ Edward C. Wood
____________________________________ Directorbetween the Company
and Rhone-Poulenc Rorer Inc.
10.15** Stock Purchase Agreement, dated November 1,14, 1996, Edward C. Wood, Jr.
II-6
EXHIBIT INDEX
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation.
3.2* Form of Restated Articles of Incorporation (to be filed with the
Secretary of State of the State of Michigan prior to the closing of
this offering).
3.3 Bylaws, as amended.
4.1* Specimen Common Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement dated April 7, 1992.
5.1* Opinion of Pepper, Hamilton & Scheetz, counsel to the Company, with
respect to the legality of the securities being registered, including
their consent to being named in the Registration Statement.
10.1 Form of Indemnification Agreement.
10.2 1989 Stock Option Plan and form of agreement thereunder.
10.3 Ancillary Stock Option Plan and form of agreement thereunder.
10.4 401(k) Plan.
10.5 Amended and Restated 1992 Incentive and Non-Qualified Stock Option
Plan and forms of agreements thereunder.
10.6 1996 Outside Directors Stock Option Plan and forms of agreements
thereunder.
10.7 1996 Employee Stock Purchase Plan and form of agreement thereunder.
10.8 Form of Employment Agreement.
10.9 Stock Purchase Agreement dated October 22, 1993 between Cobe
Laboratories, Inc. and the Company and amendment thereto dated
October 29, 1996.
10.10*between the Company
and Rhone-Poulenc Rorer Inc.
10.16** Collaborative Supply Agreement, dated December 16, 1996, between the
Company and Anchor Advanced Products, Inc. Mid-State Plastics
Division.
10.17** 1989 Stock Option Plan and form of agreement thereunder.
10.18** Ancillary Stock Option Plan and form of agreement thereunder.
10.19** 401(k) Plan.
10.20** Form of Employment Agreement.
10.21** Distribution Agreement dated October 22, 1993 between Cobe BCT,
Inc. and the Company and amendments thereto dated March 29, 1995,
September 11, 1995 and October 29, 1996.
10.11 License Agreement, dated July 17, 1992, between J.G. Cremonese and the
Company and related addenda thereto dated July 14, 1992 and July 7,
1993.
10.12** Collaborative Product Development Agreement dated May 10, 1994
between SeaMED Corporation and the Company.
10.13** Collaborative Product Development Agreement dated November 8, 1994
between Ethox Corporation and the Company.
10.14** License and Supply Agreement dated April 1, 1996 between Immunex
Corporation and the Company.
10.15 Lease Agreement dated May 18, 1992 between Domino's Farms Holding,
L.P. and the Company and amendments thereto dated February 26, 1993,
October 3, 1994, November 16, 1994 and July 29, 1996.
10.16 Clinical Trial Agreement dated April 19, 1996 between the Company and
the University of Texas M.D. Anderson Cancer Center.
II-6
10.17 License Agreement dated March 13, 1992 between the Company and the
University of Michigan and amendments thereto dated March 13, 1992,
October 8, 1993 and June 21, 1995.
10.18 Employee Proprietary Information and Invention Agreement effective
June 1, 1991 between the Company and R. Douglas Armstrong.
10.19 Employment Agreement dated June 19, 1992 between the Company and
James Maluta.
10.20 Employment Agreement dated December 8, 1995 between the Company and
Todd E. Simpson, C.P.A.
10.21 Employment Agreement dated February 10, 1994 between the Company and
Walter C. Ogier.
10.22 Employment Agreement dated April 19, 1994 between the Company and
Thomas E. Muller, Ph.D.
10.23 Employment Agreement dated October 26, 1995 between the Company and
Alan K. Smith, Ph.D.
10.24 Promissory Note dated November 18, 1993 for $120,000 loan by the
Company to R. Douglas Armstrong and amendment thereto dated October
30, 1996.
10.25 Promissory Note dated October 20, 1993 for $47,303 loan by the
Company to Stephen G. Emerson, M.D., Ph.D and amendment thereto dated
October 30, 1996.
10.26 Consulting Agreement dated June 1, 1995 between the Company and
Stephen G. Emerson, M.D., Ph.D.
10.27 Clinical Trial Agreement dated August 28, 1996 between the Company
and Loyola University Medical Center Cancer Center.
10.28 Stock Purchase Commitment Agreement dated October 29, 1996 between
Cobe Laboratories, Inc. and the Company.
10.29 Convertible Loan Commitment Agreement dated October 15, 1996 between
the State Treasurer of the State of Michigan and the Company.
10.30* Forms of Subscription Agreement for the purchase of Series D
Preferred Stock.
10.31* Stock Purchase Agreement dated January 8, 1996 among the Company,
SBIC Partners, L.P. and the State Treasurer of the State of
Michigan.
11.1 Computation of earnings per share.
23.1 The consent of Coopers & Lybrand, L.L.P.
23.2* The consent of Pepper, Hamilton & Scheetz is contained in their
opinion filed as Exhibit 5.1 of the Registration Statement.
24.1 Power of Attorney is contained on the signature page of this
Registration Statement (see page II-6).
27.1
10.22**+ Collaborative Product Development Agreement, dated May 10, 1994,
between SeaMED Corporation and the Company.
10.23**+ Collaborative Product Development Agreement, dated November 8, 1994,
between Ethox Corporation and the Company.
10.24**+ License and Supply Agreement, dated April 1, 1996, between Immunex
Corporation and the Company.
10.25** Clinical Trial Agreement, dated April 19, 1996, between the Company
and the University of Texas M.D. Anderson Cancer Center.
10.26** License Agreement, dated March 13, 1992, between the Company and the
University of Michigan and amendments thereto dated March 13, 1992,
October 8, 1993 and June 21, 1995.
10.27** Employee Proprietary Information and Invention Agreement, effective
June 1, 1991, between the Company and R. Douglas Armstrong, Ph.D.
10.28** Employment Agreement, dated June 19, 1992, between the Company and
James Maluta.
10.29** Employment Agreement, dated December 8, 1995, between the Company and
Todd E. Simpson.
10.30** Employment Agreement, dated February 10, 1994, between the Company
and Walter C. Ogier.
10.31** Employment Agreement, dated April 19, 1994, between the Company and
Thomas E. Muller, Ph.D.
10.32** Employment Agreement, dated October 26, 1995, between the Company and
Alan K. Smith, Ph.D.
10.33** Consulting Agreement, dated June 1, 1995, between the Company and
Stephen G. Emerson, M.D., Ph.D.
10.34** Form of Subscription Agreement for the purchase of Series D Preferred
Stock (Enterprise Development Fund L.P., Enterprise Development Fund
II, L.P. and Northwest Ohio Venture Fund Limited Partnership).
10.35** Stock Purchase Agreement, dated January 8, 1996, among the Company,
SBIC Partners, L.P. and the State Treasurer of the State of Michigan.
10.36** Form of Subscription Agreement for the purchase of Series D Preferred
Stock (Brentwood Associates V, L.P., Candice E. Appleton Family
Trust, Candis J. Stern, Helmut F. Stern, H&Q Life Science Technology
Fund, H&Q London Ventures, State Treasurer of the State of Michigan
and Windpoint Partners II, Limited Partnership).
10.37** Subscription Agreement, dated December 11, 1995, between the Company
and Northwest Ohio Venture Fund Limited Partnership.
10.38# Second Amendment to Promissory Note payable to the Company by Stephen
G. Emerson, M.D., Ph.D., dated June 30, 1997.
10.39# Second Amendment to Promissory Note payable to the Company by R.
Douglas Armstrong, Ph.D., dated June 30, 1997.
10.40# Amendment to License and Supply Agreement, dated August 25, 1997,
between Immunex Corporation and the Company.
10.41 Strategic Planning Consulting Services and Collaboration Agreement,
dated October 7, 1997, between Burrill & Company, LLC and the
Company.
11.1# Statement regarding computation of net loss per share.
16.1*** Letter from Coopers & Lybrand L.L.P., dated July 15, 1997.
23.1 Consent of Price Waterhouse LLP (see page II-5).
23.2 Consent of Pepper, Hamilton & Scheetz (included in Exhibit 5.1).
23.3 Consent of Oblon, Spivak, McClelland, Maier & Neustadt, P.C.
II-7
24.1 Power of Attorney (see page II-4).
27.1# Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
27.4 Financial Data Schedule.
27.5 Financial Data Schedule.
27.6 Financial Data Schedule.
- --------
*To be* Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996, as filed on March 7, 1997.
** Incorporated by Amendment.reference to the Company's Registration Statement on Form
S-1 (No. 333-15415), declared effective on February 3, 1997.
**The Company* Incorporated by reference to the Company's Current Report on Form 8-K, as
filed on July 16, 1997.
# Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1997, as filed on September 25, 1997.
+ Confidential treatment has applied for confidential treatment with respectbeen granted as to certain
portionsa portion of these documents.
Inside back cover page of Prospectus
------------------------------------
[COLOR DIAGRAM OF CELL LINEAGES OF HUMAN BONE MARROW STEM CELLS]this exhibit.
II-8