Vericel Corp (VCEL) 2006 Q4 法說會逐字稿

Greetings ladies and gentlemen.

Welcome to the Aastrom Biosciences Incorporated fourth quarter fiscal year 2006 investor conference call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your moderator, Mr. Kris Maly, Director of Investor Relations at Aastrom Biosciences Incorporated. Thank you Ms. Maly, you may begin.

Thank you, Tina. Good morning and welcome to today's conference call. Before we continue, it's important that we review our Safe Harbor statement.

This conference call and webcast contain forward-looking statements, including without limitation, statements concerning product development objectives and anticipated timing, clinical trial initiation, completion, results, and anticipated timing, revenue results, potential market opportunities, market development plans, projected cash burn rates, anticipated key milestones, and potential advantages and applications of tissue repair cells, which involve certain risks and uncertainties.

These and other significant factors are discussed in greater detail in Aastrom's Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission. Actual results may differ significantly from the expectations contained in these forward-looking statements.

In July, the Board of Directors appointed George Dunbar as our President and CEO and Director of Aastrom. George brings over 25 years of experience in the healthcare field to Aastrom, including 15 years in the role of CEO at both established and early-stage healthcare companies in the biotech, pharmaceutical, diagnostic, and device sectors.

This management team transition supports our continuing goals of establishing strategic alliances, moving product candidates through the clinical and regulatory processes, and ultimately bringing our autologous cell products to the marketplace.

Now it's my pleasure to introduce our new CEO, Mr. George Dunbar.

Thanks Kris, good morning everyone. Thank you very much for participating in the call today. To preview what we're going to do today, we're going to talk about the progress that the Company has made this past financial year. We're going to focus on two primary areas, operational and governance areas. Also in this call and in the future, you'll have the opportunity to hear from other members of the management team. Today you'll hear from Jerry Brennan, our CFO, and our newly appointed Vice President of Medical Affairs, Elmar Burchardt. Then we'll open the call for questions and answers from the people participating on the call.

During May of the year, we received our first local human pharmaceuticals manufacturing license, for the production of our TRC tissue repair cell-based products. This license enables us to produce our cell products for clinical use in compliance with German law and EU clinical trial directives. In collaboration with the Fraunhofer Institute, we have established a licensed manufacturing facility in Stuttgart, Germany, which will be used to expand our current clinical trials, that use TRC-based products for tissue regeneration. With the addition of Fraunhofer, that brings us up to four approved sites, both for clinical trial and manufacturing purposes, two in Germany, one in Spain, and one in the United States.

As we continue to expand our skill sets that are needed taking Aastrom forward, it became clear that the Company needed to add additional medical expertise. In July, I was pleased to announce the appointment of Elmar Burchardt, M.D., Ph.D, to the management team. Today I would like to announce that we have appointed Dr. Burchardt as Vice President of Medical Affairs. He is responsible for initiating and directing all of our clinical programs. He will also lead the development of new clinical programs, for example, for cardiac tissue regeneration. Dr. Burchardt has over 13 years experience in areas of hematopoietic stem cells transplantation, hematology, and cardiology. He joins us from Miltenyi Biotec in Germany, where he served as Medical Director, responsible for the worldwide development and market introduction of 10 new clinical cell therapy products, and one of the most extensive cell therapy development programs in the cardiac area.

To more closely align our business with our Board of Directors, we appointed over the last year, four senior pharmaceutical and biotech executives to the Board. Mr. Stephen Sudovar, who was the former President and CEO of EluSys Therapeutics, also previously with Roche Laboratories. Alan L. Rubino, is currently the President and Chief Operating Officer of Pharmos Corporation, and former executive of PDI and Cardinal Health. Nelson Sims is the former President and CEO of Novavax Inc. and former President of Eli Lilly Canada. And Dr. Robert Zerbe, who currently is the CEO of QUATRx Pharmaceuticals, and a former executive at Eli Lilly and Pfizer. We're pleased to add these seasoned executives to our other independent Directors, forming the team of outside Directors, Susan Wyant and Tim Mayleben to our Board of Directors.

This combination of financial, business development, marketing, strategic alliance, and clinical development experience, both in large public and private biotech and pharmaceutical companies, really adds and rounds up and makes an excellent representation for our shareholders and key advisors to the management team.

During the year we also initialed a collaboration with a company called Orthovita, a collaboration that we will use for some of our trials in Europe for the development of products for the orthopedic market, using Orthovita's synthetic ceramic matrices and ceramic-collagen matrices, along with Aastrom's proprietary TRC technology.

I want to now move the discussion to our financial results for the financial year. Jerry Brennan

Thank you, George. We ended our fiscal year on June 30th, 2006, with approximately $43 million in cash, cash equivalents, and short term investments, compared to 32 million as of June 30, 2005. In April, we successfully executed the sale of approximately 15.9 million shares of common stock, in a registered direct placement to a select group of institutional investors, at a price of $1.60 per share for gross proceeds of approximately $25.5 million.

At June 30th, 2006, we continue to have no debt. Our cash utilization during the fourth quarter was approximately $1.1 million per month. We expect the average cash spend to increase to approximately $1.8 million per month during fiscal year 2007, as planned. It is expected that this increase will result primarily from expansion in our clinical trial programs, future regulatory submissions, the development of manufacturing facilities, and related staffing additions.

We no longer market our cell manufacturing platform was a stand-alone product. Instead it is predominantly used to manufacture our proprietary TRC-based cell products for regenerative medicine. We do not anticipate significant product sale revenue, until we receive product registration from a regulatory authority.

Product sales did increase slightly for the quarter ended June 30th, 2006, to $17,000, from $10,000 for the same period in fiscal year 2005, and decreased for the 12 months ended June 30th, 2006 to $159,000, from $387,000 for the same period in fiscal year 2005. Grant revenues increased for the quarter and 12 months ended June 30th, 2006, to $311,000 and $704,000 respectively, from $86,000 and $522,000 for the same periods in fiscal year 2005.

As we continue to pursue grant funding, grant revenues may vary in any period, based on timing of grant awards, grant funded activities, level of grant funding, and number of grant awards received. During the fiscal year we received two 2-year Phase II NIH grants, one for $740,000 extending our proprietary adult stem cell progress to other tissues, and another for $798,000 to support further development of our proprietary stem cell manufacturing systems.

As expected, with the continued expansion of our research and development activities, including additional staffing requirements to support future regulatory submissions, ongoing and planned tissue regeneration clinical trials in the U.S. and EU, and the development of our centralized manufacturing facilities for product manufacturing and distribution processes, research and development expenses for the quarter and 12 months ended June 30th, 2006, increased to $2,739,000 and $9,484,000 respectively, from $1,948,000 and $7,206,000 for the same periods in fiscal year 2005.

We also reported that our selling, general and administrative expenses increased for the quarter and 12 months ended June 30th, 2006, to $2,390,000 and $9,101,000 respectively, from $1,745,000 and $5,972,000 for the same periods in fiscal year 2005. This increase reflects additional staffing requirements, performance bonuses paid or accrued, expenses associated with the CEO succession process, recruitment expenses for Board members and European marketing personnel, additional consulting and marketing activities, and increased legal costs associated with intellectual property.

The increase in research and development expenses and selling general and administrative expenses, also include noncash charges related to a new accounting standard, which requires us to measure the fair value of all employee share-based payments, and recognize that value as an operating expense.

At this time, it gives me great pleasure to introduce Dr. Elmar Burchardt, who will review our clinical progress over the past fiscal year. Elmar?

Thank you, Jerry. As you know, Aastrom is focused on developing autologous products for use in regenerative medicine. It is important to distinguish autologous cells from allogeneic or embryonic stem cells in particular. As you know, autologous cells have the advantage that they are not recognized by the body as foreign. Therefore they are not rejected, typically graft without problems, and the patients do not require immuno-suppressive medications. Our TRC cell-based products have so far been used in over 225 patients, and are currently being evaluated in clinical trials for bone and vascular regeneration.

Please let me begin my update of past fiscal year, by reviewing the achievements in the bone regeneration area. In June, we have completed the accrual and treatment phases for all 36 patients enrolled in the U.S. Phase I/II multi-center a long-bone fracture and clinical trial. Earlier this year we reported clinical results from one of the trials which demonstrated callus formation or bone bridging in the first 7 patients. All patients treated in this trial will be followed for a total of 12 months post surgery, with interim data collected at the 6-month end point.

Let me point out that all of the patients accrued in this trial have failed prior standard of care treatment. In the European Union, a Phase I/II multi-center bone fracture trial was conducted at several centers in Barcelona Spain, after having received approval by the Spanish drug agency, AMPS. We also reported positive bone regeneration results in 5 patients evaluated for jaw bone reconstruction, in a feasibility clinical trial conducted at the Teknon Hospital Maxillofacial Clinic in Barcelona, Spain.

In summary, the long-bone fracture and jaw bone reconstruction clinical trials have shown that there were no TRC-related adverse events. In addition, bone healing was observed in patients where previous attempts to induce healing with conventional methods have been unsuccessful. We have recently further broadened our clinical trial portfolio in the bone regeneration area.

First, a U.S. Phase I/II spine fusion clinical trial is being conducted at William Beaumont Hospital in Royal Oak, Michigan, after the IND was approved by the FDA. In March, our TRCs received an Orphan Drug Designation from the FDA for use in the treatment of osteonecrosis of the femoral head. We are now in the process of preparing a clinical trial protocol in the United States, we are also preparing a similar clinical trial protocol for the European Union.

Let me now switch over to the vascular regeneration results. We continue to enroll diabetic patients into a controlled Phase I/II clinical trial to treat critical limb ischemia at the Bad Oeynhausen Heart and Diabetes Center in Germany. The aim of this human study is to evaluate the safety and efficacy of Aastrom's TRCs to regenerate functioning blood vessels in the legs of diabetic patients with criminal limb ischemia. It is intended that these patients may experience relief from clinical problems that are related to impaired blood circulation.

Critical limb ischemia is often associated with extreme pain and the risk of developing infected ulcers. Eventually amputation of the leg may become necessary. Successful vascular regeneration may either delay or altogether prevent amputation. Standard of care treatments are usually restricted to wound management, and antibiotic treatment of the infected ulcers. In combination with procedures, such as stent implantation, vascular bypass surgery, or skin grafting. However, in general, these procedures offer only limited relief to the patient. We're also in the process of preparing to submit a criminal trial protocol in the U.S. to treat patients suffering from this condition, with the goal of reducing the incidence of major amputations.

In July, we announced our initial plans to evaluate the use of our TRCs in cardiac regeneration. Our plans to work with cardiac surgeons and cardiologists, to treat patients suffering from chronic heart conditions. We plan to do this in pilot clinical trials in the European Union, and to develop a company-sponsored Phase I/II clinical trial for cardiac tissue regeneration in the United States as well.

This is a very exciting time clinically for Aastrom, as we anticipate the initiation of three new trials, and to continued results from our active trials. I look forward to the next opportunity to provide an update on our clinical trial progress.

George?

Thanks Elmar. The purpose of today's call is to reflect and summarize on our 2006 fiscal year performance. As the new CEO coming in, having been here only about eight weeks now, I'd like to take advantage of this opportunity to give you sort of a preview of coming attractions, and what our shareholders might reasonably expect from Aastrom going forward. While we're not here to talk about the past, other than the discussion that we've just had, I am certain that the Aastrom you see in the future will be very different.

First and foremost, everything we do will be in the context of getting our technology to and through the FDA, and to the market as soon as possible. How do we do this, and how do we build a business, and how do we increase shareholder value at the same time? Let me suggest a few examples that you will see us work on in the future. Recognize, #1, and leverage the fact that we have a platform technology, that utilizes the patient's own cells. Therefore we need to demonstrate the inherent safety and technology value of these TRCs across multiple therapeutic areas.

Having said that, we will only target areas to invest in of high unmet medical need, that offer attractive market potential. We may generate data in other areas that we could usefully partner, but the programs that we will fund and take forward ourselves are those that have the high unmet medical need. Further, we're going to advance each clinical program to a key decision point, to determine the maximum value creation in terms of it's next step.

In parallel to this, we will develop and commercialize each therapeutic area directly ourselves with Aastrom's commercial organization, or collaborative partnerships with some of the industry leaders that are out there. We are developing a road map of all of our clinical activities going forward. Doctor Burchardt because of his experience, will help us accelerate the activities into the cardiac area, for example, and you'll hear more about that later.

And finally, I want to see that we build our core competency here at Aastrom in three important areas, clinical and medical affairs, product development, and manufacturing. These are things that we will do here, do it well, we will be best of class. And these are activities that we will not partner to third parties.

In fact, since I've been here, in the short time that I've been here, I've had at least two telephone calls from some of my industry colleagues, who want help in manufacturing, because as they get to the point of doing clinical trials, they realize that manufacturing is not an easy hurdle to overcome. And it provides Aastrom an opportunity, if we so choose to do so, to help them out.

To do all this properly, it will require a number of things, primarily that's just to pick up the pace here. Internally, we will be reviewing all of our assumptions and activities, including the clinical program which I just remarked on, our development priorities, and the skill set within the organization. And then couple all this with compensation and a reward system to align our performance more directly with meaningful results that will drive value.

You will hear more about this in the future as we communicate our progress. We're very pleased to be here today. I'm personally very happy to be joining the Aastrom team, and have the opportunity to take this Company to its next level.

Thank you very much for your support. Tina, we'd like to open the call for questions now.

Thank you. [OPERATOR INSTRUCTIONS] Our first question is from Ren Benjamin with Rodman & Renshaw. Please proceed with your question.

Good morning, and thank you for taking the questions. I welcome aboard George and Elmar, and look forward to hearing more about your vision for the firm. First question, when can we expect data from the ongoing clinical trials? So, for example, Elmar, you mentioned that the bone trial would have a 6-month analysis and a 12-month final analysis, correct me if I'm wrong, by my math that would mean that by the end of the year sometime in December we would [inaudible-audio break] results by the bone trial, and then I'd also like to get some clarity as to when we would see results from the spinal fusion trial, maybe some final results from the jaw reconstruction trial, and then some preliminary results from the peripheral limb ischemia trial.

Okay. Thank you.

First of all, with regard to the long-bone fracture trial, we have completed accrual for this trial this past June, so to complete product time is 12 months. So the final results from this trial will be available by June of next year. That typically takes another two months to analyze the complete data, for when we're going to have the complete data set. There are going to be interim results, which are going to be released June based on the 6-month end point, and on the 12 month end point.

With regard to the spine fusion trial, we have just accrued our first patients there in the U.S. trial. This will probably take us until about the end of the third quarter in 2007 to complete accrual, a quite slowly accruing trial actually. And we expect this trial to be complete with follow-up by the third quarter of 2009.

With regard to our vascular regeneration trial, we are still in the process of accruing patients in Germany at this trial. We already have interim results from these patients. They have been shown at one Congress by the site who is doing this. But this is going to take until the end of 2007 to complete the trial.

This is the peripheral limb ischemia trial?

Yes. In Germany.

Got it.

The trial is conducted at Bad Oeynhausen.

Okay. As Elmar mentioned, we are preparing for a filing for a multi-center trial in the U.S.

And so can you give us the timing, to the best of your ability, as to when those trials will be initiated in the U.S.? I think you mentioned there will be three new trials in the U.S. Can you give us an idea as to when that's going to happen?

We haven't given guidance on that yesterday, Ren.

As the new CEO, you've gotten about eight weeks like you said, grand tour of Aastrom, gotten to know the pros, the cons of the Company. Can you give us a little bit more as to your vision for the Company? Where do you think Aastrom is going to fit in, say, the lay of the land in biotech? And sort of a related question to that, you have a competitor of Osiris Therapeutics, who has, I guess, you would consider it your first product on the market, osteo cell. What do you think of that product? How would that compete with your products?

Couple of things to try to reflect on your question. First off, I was pleased to be asked to come to Aastrom, because I believe that Aastrom has the basic building blocks to be a very successful technology company in this space, given the work that it's done with it's TRCs, given the work that it's done in manufacturing, and given the pace of the progress thus far, and what we expect to continue on in the clinical area.

Recognizing that these cells are platform technology is a pretty important thing to reflect on for just a minute. That is that we will have multiple opportunities to place our cells in various parts of the body, to see what they do, and how they perform. The work that's been done traditionally has, as you know, been in the orthopedic area. We're talking about the ischemia area. You'll hear more about the cardiac area.

Going forward, we will be giving you guidance and talk about other areas where we expect to take the technology into. Every one of these trials and studies are not necessarily going to be taken all the way through, soup to nuts to registration. I think on a going forward basis, what you're going to see us begin to do, is report on the activities that are meaningful, in so far as the product that we expect to invest in and take through to registration. For example in the bone area, after achieving the Orphan Drug status on osteo necrosis, I think you will see us moving that program along, and to the extent that we will continue with the other studies. This will be driven by the combination of both economics and practicality, based upon how we will support what we're trying to do at osteo necrosis.

I think because these cells, we built up a huge body of evidence clinically and very rigorously that support the safety profile of these cells, so all of these studies, even those that we're talking about in the vascular area, or in the cardiac area, will be used to support the clinical work that we're doing in that sense. So I think exploiting the platform technology is both a huge opportunity and a challenge.

I think you heard Elmar remind the group that because these are autologous cells, the patients own cells, there's an inherent factor of safety. We still have to go through and demonstrate this to the regulatory agencies, but I think they are working very closely with us to move that technology along.

So I think stepping back and looking forward, I think you'll see Aastrom in the future move to the head of the pack, if it's not there already, in my opinion, to be the leader in this field, where we're taking this TRC technology, and exploiting it in a number of clinical areas throughout the body. We can't do this on our own nickel, of course.

So part of the commercialization strategy is to look at the clinical program, look at the market opportunity, look at the degree of competition and reimbursement in these various areas, and then that will help us decide to what extent we can carry this by ourselves, or whether we need to bring in a corporate partner.

When I say a corporate partner, I don't necessarily mean one for necessarily just distribution purposes, but one in fact that will help us share the cost of clinical trials, sponsor some clinical studies of their own. And in return for doing that, offer them some degree of exclusivity, in terms of sales, marketing, and distribution, so it's not necessarily just a pure distribution play. I think regarding other companies, competitors, you mentioned Osiris. I would really only say at this stage, that we hope very much that they are hugely successful. This whole field needs to be successful both from a financial, a regulatory, and a clinical point of view.

Any setback that occurs effects all of us, so we're very much supporters of what they do as well. I don't think, based upon the understanding of the clinical programs, that they are moving forward in, that there will in fact be any overlap to create any direct competition. I think the future will sort out what the medical experts feel is appropriate to use, and to give them multiple choices, in terms of technology. But I don't see any overlap with a company like Osiris at this stage.

Okay, fair enough. One last, or two last questions. One was for Elmar. You mentioned several of the programs. The one that you didn't mention was the jar reconstruction trial. I had in my notes that we had already seen the interim results, but I also had in my notes, that there was the potential of final results from the dental implant study. Is this still true? And if it is, when might we see that?

That is true. This trial is supposed to finish follow-up by mid-2007.

Mid-2007, okay. One last question for some of the old guard, Jerry, what's the burn rate going to be going forward for 2007? And also, one of the things that I'm sure you guys have discussed or batted around, is the potential for a reverse split, in order to bring the share counts and price maybe a little bit higher, especially during this very transforming one to two years? Do you have any thoughts on that?

Sure, on the first question as I mentioned earlier, we expect our burn rate to move towards 1.8 million during the year. And that's primarily going to be as a result of increases in clinical trial expenses, to the extent it incurs.

We do consider reverse stock splits, but with w would only do something like a reverse stock split in the context of creating additional shareholder value. We don't feel the need to do one right now, because our experience in looking at information provided by various people, is it's not a good idea to do one with your stock price in the range ours is right now.

This is George. If we can conduct a split with some other major financeable event, I think that would be the most appropriate way to do it. I think the advice that we've received from a number of people, because I asked the question myself when I came in, was that there's a lot of data that suggests that when companies have done this outside the context of some major event, that the stock price ends up trickling down, not so much back to where it was, but there's a lot of value that is lost as a result of the process.

Right.

So we're a little reluctant to attempt to do that. But your point is well taken. You know, the company is out there with 100 million shares, we probably need to figure out to find a way to get it fixed, to 25 to 30 or so, at some stage going forward.

Right. And when you look at our milestones over the next year, we anticipate that we may have a number of financeable events that would create shareholder value, based on progress we've made clinically.

Just a point of clarification. You said 1.8 million for the year. That's 1.8 million a month?

Yes. And that's the direction as I said, we're trending towards. I don't think we would anticipate that we'd be at that right now, for instance.

Thank you very much for answering the questions, and welcome aboard.

Thank you.

Thank you.

Thank you. Thank you. Our next question is from Jose Haresco with Merriman.

Good morning, guys. Congratulations on a very fruitful fiscal 2006. And welcome aboard, everyone. Just a couple of questions here. I guess the first one is directed at Elmar. I think George mentioned that one of your primary activities will be moving the company forward in the cardiac space, can you give us a little bit more detail as to what you are thinking about doing, both internally to prep the Company for going into clinical trials, and then perhaps a little more detail also on the kind of indications in the cardiac space that you are going after, because there are other companies working in cellular therapy for cardiac.

This is George. Elmar is going to speak in just a minute, but I wanted to preface his remarks by saying that we have a very detailed clinical plan and road map that we've developed, in part because of Elmar's experience and his background. And he'll talk a little bit about that.

We don't want to disclose too much of that. You'll hear about it as it unfolds. I don't want to do it in advance for a number of obvious reasons. I think once it's all out there over time, it will be very clear what we're doing, and why we chose the path that we're following.

Okay.

Okay, so basically let me start on at the experience in Europe is completely different, or the landscape in Europe is completely different from the landscape here in the United States. In Europe, over 500 patients have received bone marrow derived stem cells at this point. So there is a lot of clinical experience. And we're planning to leverage this kind of experience to initiate the program in Europe, in the most likely successful areas, in order to take this program then into the United States, to basically bank on the experience we have gained in Europe.

Is 500 patients across multiple indications?

These are multiple indications at this point, basically you have to distinguish in these areas between acute syndromes, like acute myocardial infarction, or chronic ischemic heart diseases. We have already announced that we're going to focus on the chronic ischemic heart diseases.

Right. Okay. Do you give us a sense for, or given that experience in Europe, how bone marrow therapy, stem cell therapy, has or may play out against some of the myoblast therapies that people are trying?

Yes, thanks for this question. I think this will be a major advantage of bone marrow cells, because myoblasts have shown a very characteristic side adverse effect spectrum. Most deterrent to us are arrhythmias. And this has been a problem that is very hard to overcome. The side effect profile for bone marrow cells with the data that has been coming out of Europe is completely different.

There have been no reported incidences of arrhythmia. The tissue seems to integrate a lot better into the myocardium. Basically when you inject myoblast cells that are differentiated into skeletal myoblasts, you don't have a complete electric or mechanical integration to the heart. So the heart, so to speak doesn't beat in [conflict], okay? This does not occur with bone marrow cells.

Okay. Is it too hard at this point to look out to 2009 and 2010, and think about whether the products could be in front of the FDA by then? Or are we taking too many blank shots right now?

We have our own internal road map, and you'll be hearing more about that later. But I'm not comfortable disclosing it at this stage.

Sure. Last question. Given the kind of expanse you've seen in Europe in the use of bone marrow in treatment, are any of these procedures already reimbursed over there, are they well integrated in the insurance systems?

Yes. At this point there there are special DRGs in Germany. You're talking about Europe, you have to recognize you're not talking about a homogenous systems for reimbursement. At this point, Germany is probably the one country where stem cell therapy is the best established at this point. And there are DRGs for stem cell transplantation for cardiac indications.

And these are mostly chronic, it sounds like, indications?

At this point, the DRG is in the context of surgical procedures.

Okay. Given it's clinical use, can you give us some sense as to where in Europe it lies in the landscape of chronic heart failure treatments, or just cardiac treatments in general? Is it like the last thing that you do, or are people thinking about it in terms of if you had a heart attack a year ago, all doctors will think about it at some level?

I would like to answer a little bit indirectly. This is what is known in general. It is known that these bone marrow cells work for the differential between pretreatment and post-treatment therapy. The greater, the worst the patients are in their initial stage so far. There is a trend that if a generally depressed ventricular function, patients recover more than patients who have a pretty good ventricular function at the very beginning. Does that answer your question?

Yes. It does. All right. Thank you very much.

Before we take the next question, is that one of the things that may not be obvious, but I think ought to be stated, is that we view Europe as a very strategic opportunity to help us accelerate a lot of the activities. Bringing someone in like Elmar, who you have had a chance to listen to, brings a tremendous amount of on the ground clinical and commercial experience in Europe, which allows us to now take advantage of that. We talked earlier about having a number of manufacturing sites. Those of those sites are in Europe for generating clinical data.

Because of the regulatory structure in the EU and in eastern Europe, we're able to generate human data, with a lot lower regulatory costs and hurdles than in the United States. That data, done rigorously enough, which we intend to do, can then be used to support and demonstrate safety to the FDA, when we initiate the clinical trials that we want to invest in, and take all the way through.

Okay. Just to reconfirm, do you see this happening in the first half of the fiscal '07 year of starting those trials, or more of a second half event?

We're not sure how we want to communicate that. We'll roll out a little bit more of this at your conference next week.

Okay, sounds good.

Next question, please.

Thank you. Our next question is from Anthony Gallo, a private investor.

Good morning, gentlemen, and thank you so much for the outstanding report today, outlining so many of the major initiatives that we've made. My question essentially is, given the potential benefits to shareholders, and the possibility of actually helping mankind in general, why is it that we haven't gotten any real grants from the Federal government? We have so many billions of dollars that are wasted on nonsensical items, it seems that somebody should be making a very strong case with the Feds in this area.

Anthony, this is Jerry. As I mentioned in my prepared remarks, we received almost 1.6 million in grants this last year. Government grants have both a positive and a negative. We continue to explore grants. We are working with NIH in a number of different areas right now exploring potential grants.

But the potential negative with government grants, is we really want to focus in the future on grants that will specifically support the clinical trial direction we want to go in as a company, rather than let's say, just get a general grant that explores some area that's more academic than practical. So we are going to continue to work for grants, but we're going to be sort of selective on which ones we take, so that we can maintain our focus.

Thank you.

Anthony, I look forward to meet you at some stage, I hope before too long. I think the other comment to reflect on, is I can't comment on past practices. But Aastrom going forward, as you heard me say earlier, is going to focus on commercial results, and achieving clinical results at the FDA. And so the whole, sort of the R&D focus, if you will, is it's time to move on beyond that now to the next stage of the Company's development. So I think we're well positioned to do that.

So the level of grant work that we might need to do, if this were a company that were three or four years old, I think the profile is very different. The technology works. We've got a nice patent portfolio. We know how to make the products themselves. Now our efforts are to put them through and to invest in the clinical activities and the commercial activities, so you guys can make some money.

Thank you very much. Thank you.

Next question please.

Thank you. [OPERATOR INSTRUCTIONS] Our next question is from Stephen Dunn with Dawson James.

Welcome George and Elmar.

Thank you.

Thank you.

Let's start off a little bit, a little color on the Orthovita and the use of TRCs with VITOSS. I was wondering what your thinking is in doing that? Are you looking at just long bone, or are you looking at spinal fusion as well?

I'm probably not the best one to talk about that, because those collaborations were set up prior to me getting here. It's my understanding, and I'll ask Jerry to weigh in here, is that in sort of looking at the field of people who had ceramic matrices, for example, they clearly stood out as a group that we wanted to work with. And we're using their material in some of the European studies.

Right. I'd say that we clearly use them in non-union long-bone fracture. We are also evaluating Orthovita materials in spinal fusion trials and other orthopedic indications that we're working on.

I just want a little bit more color on the cardiac indication, a follow-up by Jose there. As Elmar was saying, there's already been bone marrow stem cells used in cardiac indications in Europe. I guess my question is, is what Aastrom's, one of the proprietary advantages is they sell volume expansions, that are [repli cell]. Do I really need to rely on a higher volume of bone marrow stem cells rather than just a straight explant?

Let me answer this. I think the volume is, you know, you have to distinguish between volume and the number. So first of all, in some of these applications, it's important to have a high concentration of very potent stem cells, because you're dealing with a fundamentally changed heart.

Remember, we're about regenerative medicine, so we want to change the architecture of the heart. You need at the same time, the concentration which implies a rather small volume.

On the other hand, you need high numbers of certain progenitor cells that are capable of regenerating the heart tissues. And this is a problem that cannot be tackled with conventional bone marrow. You're talking about typical bone marrow aspirate volumes of up to one liter. That is completely unacceptable for some indications.

And this is a problem that can be overcome, and in fact the equivalent doses of some of the progenitor cells that are contained in the TRC. There's a lot higher even than if you had these extreme high bone marrow aspirate volumes. So the answer, in my view, is very clearly, there is a very clear need for high numbers of potent progenitor cells.

Basically what you're saying is, you believe that Aastrom could theoretically be superior to these indications that that data we have seen on both sides of the Atlantic, because you feel it has a high concentration level of the progenitor cells?

I feel it could really be a quantum leap forward, very frankly. What is really lacking in these studies are certain stem cell populations, which are potentially very highly-enriched in the TRC cell population.

Okay, very good. Thank guys, and again welcome.

Thank you very much.

Our next question is from Richard [Dunley, Longcore] Partners.

Good morning. I'm not too familiar with your company. Could you go into the background of why you abandoned the strategy of using the cell manufacturing platform as an outside sale, and to use it inside?

Sure. This is Jerry Brennan. When Aastrom was looking at doing cell manufacturing outside, it was unclear how cell production and, if you will, use of cells that were more than minimally manipulated would be regulated by the FDA. It's since become clear that these products are going to be regulated as a biologic.

So the old strategy would have worked if you wouldn't have needed to have the,if you will, CGMP-quality manufacturing process in place at a hospital. But now that you need to have that kind of infrastructure in place, because of regulations, you really work with this system much better on a more centralized basis, than you would have in the past. It's really, at least in part, due to a changed regulatory environment.

Frankly, another important part is I think you can probably charge more for the pharmaceutical product, when you're considering some of the kinds of indications we're working on, than you could charge for the equipment.

Right. Okay, thank you.

Our next question is from Mr. [Jeff Weingarten], a private investor.

Thanks for taking the call. I've read on the message boards and so forth that millions of shares have been sold by the officers and institution, and I'm greatly concerned. Would someone please talk about that?

I will talk about it. We are not aware of any large sales by institutions. By the officers, there have been virtually no sales, no form 4's filed showing sales by officers. I suspect somebody's trying to create a stir to push the stock price down. But in fact, we're all trying to get options at the current price, because we think this will be a historic low.

That's certainly a better answer than what's been put out there. Perhaps, maybe some information about what's going on on a daily basis would be a good idea, you know, some idea, some comment from the Company that things are happening, and tell the public about it. Just an idea. I've been following you guys for years, owned it for years. I just am very disappointed in what I've seen so far, and obviously anyone who's tracked it knows that.

I think about the advent of electronic communications, and anonymity if you will. It effects everybody, in terms of the way we communicate credibly with one another. We are a public company. It is what it is. We also have a lot of shares in the hands of investors like yourselves, retail investors. One of my challenges here, will be to try to increase our institutional shareholders' ownership from a value perspective, institutions who are prepared, and I'm not suggesting individuals aren't, but are really prepared for a long-term hold, to see and be patient enough for this technology to get commercialized and through the FDA.

It's a long-term gain. I'm not here to tell you that the Company should or shouldn't have been further along since you made your initial investment. I've just joined the company eight weeks ago, and my commitment to you and others is that the pace here will be picked up, and the focus on everything we do will be to get a product to and through the FDA.

That's certainly wonderful.

If I can add just two comments. First of all, as a company, we try to be very transparent on what we do. I think it would be more prudent, or if you do see something that suggests that we sold a lot of shares, to look at our SEC filings. We always file those Form 3's and 4's on time. You can see whether officers are buying or selling that way.

The other comment I would make, a couple of times when we've been evasive, even on this call, as to clinical trial plans, it's always our intent that when we have major announcements like that to 8-K those. We will always try to provide good, transparent guidance to not just the people that are on these calls, but to all of the public.

Well. Thank you. Then let me ask a slightly different way then. The people who bought 15.5 million shares at $1.60, do they still own their shares?

To the best of our knowledge, and we've had discussions with some of them, to the best of our knowledge, they do and they are in fact accumulating.

Jerry took me around, and we've met some of the institutions that participated in that transaction before I got here. And the ones that I have had face-to-face meetings with are actually accumulating from the position at which they came in at, and taking advantage of the current situation being what it is.

Alright, then let me ask a specific question. Mr. Armstrong, it said on a message board just recently, used to own like 5 million shares, 3 million shares, now you own 0.5 million, give or take, is that true?

Well, Doug Armstrong is no longer a part of the Company management. He stepped down on July 17th when I took over.

Oh, he's not there right now?

No, but Doug still is on the Board of Directors, he is Chairman of the Board. And if he had sold shares as may have been suggested in the chat room, we would have had to file a Form 4 on that, and we have not filed any Form 4's on Doug's sale of shares, I believe, to the best of my recollection, the last time we filed a transaction for Doug was he purchased just a small amount of shares in February.

True. 10,000, yes. Or 733, I forget, something like that. Well, thank you very much. I was just trying to get some understanding of what has been going on. It has been a harsh reality for a long time.

Yes. We're very sympathetic to that, we're in the same boat you are in that regard. I think as Jerry indicated, certainly on my watch, I will do everything I can to influence no selling by officers and Directors unless it is done in a programmed way, but I think in this case, on a going forward basis, you will not see that, so to the best of our knowledge, there has been no insider that has done any selling.

Well then there is some really bad information out there. Thank you very much.

You're welcome.

Thank you. Mr. Dunbar, there are no further questions at this time. Do you have any closing comments?

Thank you very much for your attention, this has been a good productive call. I hope it sets the tone for the way we expect to communicate with our shareholders in the future. I am pleased very much to be here. I am speaking for Elmar and others that will be joining the Company over the course of '07 as well.

As a reminder, I would like to say that Aastrom will be presenting at the upcoming ASBMR Conference, that is the American Society for Bone and Mineral Research, this coming weekend in Philadelphia, we're pleased to be recognized, and have a poster, and be showing some of the data that has been a result of some of our ongoing studies. You will hear about that later.

And then also next week, we will be in San Francisco participating in the Merriman Conference, and then later, at the Noble Financial Investor Conference, also later this month. So thank you very much, and we look forward to providing you with regular updates going forward.

Thank you sir. This concludes today's conference call. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day!