Good day, ladies and gentlemen. Welcome to the Aastrom Biosciences, Inc. Fourth Quarter 2011 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Brian Gibson, Aastrom's Vice President of Finance. You may begin.

Thank you, Latoya, and good afternoon, everyone. Welcome to our Fourth Quarter 2011 Conference Call to discuss our most recent financial results and the progress of our development programs. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995, and all of our projections and forward-looking statements represent our judgment as of today. These statements may involve risks and uncertainties that are described more fully in our filings with the SEC which are also available on our website. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Joining me on the call today is Aastrom's President and Chief Executive Officer, Tim Mayleben. Following our prepared remarks, we will open the call to your questions. Let me start with a review our financial results. For the fourth quarter and year ended December 31, 2011, Aastrom had a net loss of $2.8 million or $0.07 per share, and $19.7 million or $0.51 per share, respectively. For the same period in 2010, our net loss was $13.2 million or $0.44 per share, and $25.5 million or $0.90 per share. The lower net loss in 2011 reflects the noncash change in the fair value of our outstanding warrants. Our operating loss for the fourth quarter of 2011, which excludes the impact of the warrant, was $7.8 million or $0.20 per share compared to $5.8 million or $0.19 per share a year ago. Our full year operating loss for 2011 was $29 million or $0.75 per share compared to $21 million or $0.74 per share in 2010. Research and development expenses for the quarter and year ended December 31, 2011,…

Thank you, Brian, and good afternoon, everyone. This has been an extraordinarily productive period for Aastrom. Since our last quarterly call in early November, we have reported the final 12-month results from the Phase II RESTORE-CLI clinical trial at the American Heart Association Scientific Sessions, we held our investigator meeting and launched the pivotal Phase III REVIVE-CLI study of ixmyelocel-T, and perhaps most significant of all, we completed the largest financing in our history. Each of these events was a major milestone for Aastrom. Together, I believe they represent a new level of performance and a new era of opportunity for our company. The Phase IIb RESTORE-CLI study results were the springboard for rapidly advancing our program in critical limb ischemia. That randomized, double-blind and placebo-controlled study generated compelling clinical evidence that ixmyelocel-T, our patient-specific, expanded multicellular therapy, could be a major advance in the treatment of patients with CLI who have no option for revascularization. As Dr. William Marston reported in November at the AHA conference, "These results provide substantial additional evidence that treatment with ixmyelocel-T significantly reduces the risk of disease progression for CLI patients with no-option for revascularization. Importantly, the efficacy results demonstrate concordance across all of the defined measures of treatment failure in the trial." Dr. Marston went on to say, "The results related to its amputation-free survival in the subgroup of patients with tissue loss similar to those who will be studied in the upcoming pivotal Phase III clinical trial show a strong and clinically relevant positive trend for such a small number of patients. These results are especially encouraging since the primary end point for the planned REVIVE-CLI pivotal Phase III clinical trial for ixmyelocel-T in no-option CLI patients will be amputation-free survival." And as another prominent vascular surgeon said to me at the…

[Operator Instructions] Our first question is from Jason Napodano of Zacks.

Talk a little bit about the statistical powering, if you will, with REVIVE. How did you come up with 600 patients as the number, and then second part of the question, with 600 patients, what kind of separation is needed between ixmyelocel and the control to achieve the statistical significance? And I apologize for not doing that calculation myself.

No worries. Thanks for your question, Jason. So the number that I quoted, 600 patients, is an approximation. We -- the actual number, if you will, is 594 patients. And let me just review the key assumptions driving the size of this trial. First of all, it's 1:1 randomization. So for every patient treated, there will be a control group patient [indiscernible]. Of course, important for a trial, a Phase III pivotal trial like this, we've made sure that it's 90% powered, which is, again, the industry standard for the powering assumption, and the significance level here is 0.5. The event rates which also contribute significantly, obviously, to the calculation of the size of the trial were as follows: For the treated group, we're assuming a 22.2% event rate. And for the control group, we're assuming a very conservative 34.5%. And the treatment effect, which is I think something you would asked about, the treatment effect is, it's simply the difference between those 2. Overall, on a percentage basis, it's a 36% decrease. On a nominal basis, it's about a 12% decrease. And I just want to come back to the control group event rate because I said there that it's 34.5% and that's very conservative. If you look at the literature, if you look at the literature keeping in mind that this is a U.S.-only study, historically for CLI patients with wounds at baseline, we've seen event rates in the 40% to 50% range. If you look globally, you see a lower event rate. In fact, the most recent example of that was the failed Sanofi trial in 2010, where they saw a global control group event rate of around 34.5%. But if you look at it geographically, and this is something I want to highlight, especially if you look geographically at just the U.S., their control group event rate in the U.S. was between 45% and 50%. So because our trial is U.S.-only based, you can see that our trial, powered with a control group event rate assumption of 34.5%, compares very favorably and very conservatively with the 45% to 50% control group of that rate that Sanofi saw in the most recent CLI trial that was conducted. Of course, there are other trials that have been done earlier in this past decade and even before 2000. But we think probably the most relevant is the most recent because, obviously, the practice of medicine changes over time and you'd like to go with, obviously, the most recent data that's available.

Or is the U.S. just more strict on what is considered no-option? Is that why the failure rates are higher?

Jason, that is a very good question and I don't think we have a good answer. I know from talking to some of the investigators and thought leaders in this space, folks have different hypotheses about why the control group event rates tend to be higher here in the U.S. It may have to do with the patients coming into the healthcare system later and being sicker before they actually see -- before they actually get treatment. It may have to do either just with some of the cultural issues that we have here in the U.S. that is, especially if this is a lot of these patients are smokers, they're diabetic. Unfortunately, they haven't taken great care of themselves throughout their lives, and they're not regular visitors, if you will, and regular participants in the healthcare system. So by the time they come in, if they've got advanced CLI, by the time they come into the healthcare system with open wounds and very advanced cases of CLI, there is not a whole lot that the doctors can do with them. So that's probably one of the things that's contributing most to this high event rate in this population.

And one last question then I'll jump out. What kind of interim look at the data will you guys be getting?

Again, a very good question, and then we've had that question a lot. And the answer is we will have an interim look, or I should say, we will have a blinded interim look at the data just checking event rates. So looking at a pooled event rate just to make sure that the trial is progressing at the rate that we think it should from a control -- I'm sorry, a blended, controlled and treatment group event rate. So it's not a real precise look. It will just give us a partial look. The other thing that I'll just mention, though, is that similar to most trials, this trial has both a steering committee, an independent steering committee, and a data safety monitoring board. And the DSMB, as they're called, obviously will be unblinded at times to look at the data. And there is a very small chance, but there is a chance that, obviously, if they see the trial data on an unblinded fashion and in their view, it would be unethical to continue to have a control group of patients not being treated, then there's, obviously, always the opportunity for them to let us know that and suggest that we stop the trial. But again, I just want to emphasize that's a small, small chance that, that could happen.

Do you have any flexibility to add patients after you get your blinded look?

Yes, we do. In fact, that's the reason for the blinded interim look is just to check event rates, just to make sure that we are seeing the high event rates that we expect.

Our next question is from Jason Butler of JMP Securities.

Could we -- can I just ask about the DCM Phase IIb? Could you give a little bit more detail on trial design and also on timelines and budget for that trial?

Yes, I sure can, Jason. So for the Phase IIb study, this is going to be a blinded, placebo-controlled, randomized study. So it will be in character and form very similar to the Phase IIb RESTORE-CLI trial. So again, a very industry standard study that is, as I say, very well controlled. We expect somewhere between 60 and 80 patients in this study. And I want to emphasize they will only be the ischemic DCM patients. If you remember in our Phase I, II, we had both non-ischemics and ischemics. In this trial, we're only going to be enrolling the ischemic DCM patients and these will be New York Heart Association Class III and IV, so the very sickest of the sick patients in the DCM classification. And because this is an orphan designation, we're -- there's not a whole lot of these patients out there. I think by our estimates, it's somewhere between 100,000 and 150,000 patients that are out there. With respect to administration of the therapy, it will be via a catheter, and we used the NOGA catheter in the prior studies and we will use the NOGA catheter in this trial. and then importantly, the primary end point for this study is going to be a MACE-like end point, major adverse cardiac event end point, which we believe, and based on our conversations with the FDA, we believe will be a Phase III or registration-type end point as well. And we'll look at the patients, Jason. We'll do an evaluation both at the 6-month and at the 12-month follow-up period. So again, we treat these patients just a single time. We take the bone marrow aspirate and we treat the patients within about 12 to 14 days, and then from thereon, we follow them. And as I said, we'll look at them both at the 6 months and the 12 months, both for safety but then also, importantly, for this, what we think is a Phase III or registration quality end point. And then cost-wise, we think this is going to cost us somewhere around $4 million. So again, right around that $50,000 per patient cost that we've seen in our prior studies. And then timeline, we're expecting to start this trial in the second quarter where we're getting geared up to do that. It will again be just a U.S.-based study, so approximately, 15 centers or 15 sites across the U.S. And then, we should take 9 to 12 months or so to enroll. And then of course, as I've said, we'll have data in the middle of 2013, and then obviously, in early 2014. [indiscernible] that means that we're operating again right now.

Okay, great. Great. And then just one housekeeping question. Could you talk about what you still have remaining under your current ATM facility? And how much, if any, you've raised through this so far in 2012?

Yes. Hey, Jason, this is Brian. I think we've said in the past that we didn't plan to use the ATM until a financing had -- a larger kind of equity financing had been done. And it wasn't going to be our main mechanism for raising capital. We wanted to use that opportunistically. With all that said, I can say as of today, we have not used the ATM. But going forward, we will be using that opportunistically when possible. I think on a go forward basis, we'll just report that quarterly either via, through our SEC filings or on the conference calls to update everybody on the usage of that.

Our next question is from Boris Peaker of Oppenheimer.

I had a little more, few more questions on the CLI study. Specifically, since there is an opportunity for you to increase the study size based on a blinded event rate, could you comment how much time and cost that could potentially add if you exercise that option?

Boris, this is Tim. I honestly don't think we'll be exercising that option. And they -- I think we certainly wanted to be -- I think as we talked about before, we are being very conservative in our assumptions, our powering assumptions about this study. Having said that, no way that we want to have to rerun another CLI study. So we built in, and again, this was in negotiation with the FDA, we built into this study the ability, if we needed to, if somehow we get surprised by a control group event rate assumption that is lower, that is more global-like than it is U.S.-like, at least based on the literature, then we wanted to make sure we could increase the size of the trial if we absolutely needed to. But again, honestly and candidly, and again, we're -- I think as you know, we've been very candid about this stuff in the past and we continue to be that. We honestly don't think we're going to have to turn that card over. But -- so that's one sort of qualitative comment. I think the other thing to maybe comment on in terms of, okay, so what if, what if a black tail event happens and, or a black swan event happens, a fat tail event happens and we see a control group event rate that is substantially lower than what we've seen historically? Then I think the way we sort of characterize the Phase III study is that it's going to cost us between $25 million and $30 million, somewhere between $45,000 and $50,000 per patient. So I think the right way to think about that is if, if, again, a black swan event would happen and we saw this very unusual control group event rate, then every patient, every additional patient would costs us, again, another $45,000 or $50,000. Does that help?

Yes, that's very helpful. Now in terms of the strategy for recruiting patients and I understand that you have to find patients with baseline wounds, can you comment on how you plan on finding them and in reaching [ph] for the right patients in your study?

Yes. So first of all, I'd comment that based on the data that we have seen, and I think we're probably by now the experts, I think we're held on this because we've been working on it for the last, almost 15 months now. But there are -- we're pretty confident that there are several hundred thousand of these no-option CLI patients with existing tissue loss. I think the issue, as I mentioned earlier, is that they're not frequent participants in the healthcare system. So there's a lot of referral work that needs to be done and awareness raising that we have done and are continuing to do. So I think we had mentioned before, we're using an outside -- independent of our CRO, we're using, who's responsible for the conduct of the trial itself, we're using a specialty patient recruitment vendor. They -- this is their entire -- the entire focus of their business is helping to find patients and helping sites to recruit patients faster rather than waiting until midway through the trial to realize that our enrollment may not be what -- our enrollment rates may not be as rapid as we had hoped or expected. Right from the start, we've enlisted the help of this specialty patient recruitment vendor and they are employing a number of different strategies. Again, it's community-dependent so we're looking at the different types of sites. There are rural, more rural-oriented sites, and there are more city center sites. And the same strategy or the strategies that work in the more urban areas are not the ones that are going to work in the more rural areas. And the networks, the patient referral networks and the physician referral networks are different just, again, drawing those 2 simple examples between those 2 different types of settings. So we're customizing, if you will, our patient recruitment efforts to make sure that they are sensitive to the site. And again, we've got 80 sites, 8-0 sites across the U.S. So we're not treating each site the same. We're customizing efforts for different types of sites, and that's the path that we're taking.

And my last question is, could you define what are the specific definitions of baseline wound? I mean one can see a spectrum from a very small infection to something that's probably on the verge of amputation. So how do you define it for the physicians' end, specifically?

That is actually a very interesting question, I think, because a lot of the work that we did and that we did with the outside experts that helped us design this trial was about wounds, because wounds are -- they're a tough area. For anybody who's tried to get a therapy approved for wounds, I think they know it especially well. We're not, obviously, but wound, as you indicated, the wounds in our case is simply an entry criteria as opposed to an end point for us, at least a primary end point. So with respect to the wounds, the first thing I'd mention is that we have a very specialized wound core lab that is an expert in evaluating wounds and classifying wounds. So they have been out to all of the sites and are continuing to, will continue to go out to all of the sites and train the sites on the identification of wounds and the recording of wounds. That information then is sent to our centralized Eligibility Review Committee. And the centralized Eligibility Review Committee is then responsible for evaluating which wounds qualify as Rutherford 5, category CLI and which don't. And I think you noted, on the too sick side, you have wounds that involve the bone, for example, where the infection has gone deep enough to include the bone. And those are Rutherford 6 patients and those are not going to be eligible. Again, the important thing from our standpoint is that all of the sites are being trained by this wound core lab, one. And then two, the actual evaluation is not left to the 80 different investigators but rather is left to our centralized Eligibility Review Committee, which is a group of 5 physicians that are experts in vascular medicine and in critical limb ischemia. And those are the guys that are evaluating those patients with wounds to make sure they meet the criteria, but they don't exceed the criteria.

Our next question is from George Zavoico of MLV & Co.

My quick follow-on question to Boris's regarding the steering committee. There are instances where the steering committee and investigators obviously don't agree with one another, which is why you have the steering committee in the first place. But you just mentioned there are 5 physicians on the steering committee. Are -- will all 5 of them review each case or will each one have sort of go, no-go kind of decision-making? How do you correct for perhaps variability within the steering committee?

Yes, that's an interesting question, and fortunately, one that the team has prodded [ph] its way through, again, with the -- and I would just highlight it. The Eligibility Review Committee -- the independent steering committee is separate from the Eligibility Review Committee. We've got the data safety monitoring board, we've got the wound core lab, we've got the Eligibility Review Committee and then over everything, we have the steering committee, which is headed by Dr. Hiatt. But the Eligibility Review Committee, which is led by Dr. Mark Naylor [ph], the protocol is that there have to be 2 physicians from the Eligibility Review Committee that will review each case, and then they have to agree. If they can't agree, then obviously, a third -- there is a protocol for resolution of their differences. And similarly, if there are differences between what the site or local PI thinks and what the Eligibility Review Committee thinks, then the Eligibility Review Committee rules. But having said that, it is not the goal of the Eligibility Review Committee to just be argumentative, if you will, with the investigators. This is an important function that they have to make sure that the patients -- that we have consistent and homogenous patient population coming into this study. So there is a very well-developed protocol for handling and managing differences of opinion.

I mean, that's what you showed in your Phase II trial, you really need to be very selective and narrow in your inclusion criteria. In that regard, so you do expect like a 90% concordance usually? Or better or worse for all of those committees?

No, no. I think we don't know for sure what to expect, George, to be honest with you. But I think from some of the qualitative conversations that we've had, yes, our Eligibility Review Committee does not expect that we're going to have huge differences of opinion. I think it -- in some of these things, as with a lot of human endeavors, it's getting everybody to think similarly, not the same, but think similarly about things. And as long as we have everybody thinking similarly, then we're going to have that concordance that you suggest.

Okay. Great. And one question about the DCM trial. You said Phase II is placebo-controlled, so I presume the patients who are not getting the ixmyelocel-T are also going to be getting the heart catheterization?

Yes, they will have both the aspiration and the catheterization as well, that's right.

But you'll be injecting what? Placebo into -- I mean, just saline solution into the placebo-controlled?

We've been calling it an electrolyte solution, but yes, a saline solution, right. Just one other thing. So we're obviously not the first ones to use placebo controls using catheter administration. So I don't want anybody to take away that this hasn't been done before. This is the way a lot of these trials are being done now. It's about the only way that you can get these trials done now with a placebo control, which obviously is the strongest way to conduct these Phase II and Phase III studies.

It's the only way to keep it blinded.

Exactly. And safe for the patients, too, because that's a very important consideration.

And how many injection sites will be in the ventricle?

So historically, we've been about 20. And I -- we expect we're going to be doing something similar in the Phase IIb here.

Our next question is from John Savin of Edison.

Can I just ask a small question about the B2-warrants -- or sorry, B2-shares? What exactly are they and how would that operate?

Okay. So the B2 are same as the B1 with the exception of those votes. So we initially issued B1 shares, plus we obtained -- we will seek shareholder approval to hit to about the NASDAQ 19.29% threshold. And once we presumably will have received that, then those B1 shares will transfer into B2, and they will be voting shares. They will vote alongside the common stock.

Okay. And the B2s are converted in exactly the same way as the B1? Is the common [ph] expression.

Yes. For all the -- they're the same as the B1 with the exception of the voting rights.

Okay, right. Okay, I understand that. Can I ask a secondary question? Following up from the last one, how do you actually manage to inject 20 sites in a ventricle with a catheter? I could understand the in-surgical procedure because you have the whole heart there available to you, but with a catheter, you presumably only get to the arteries, coronary arteries?

So, John, this is Tim. The injections themselves, again, just for those of you that aren't familiar with this, the catheter is inserted in the groin and spreaded out through the artery. This is a very, very common procedure that interventional cardiologists practice every single day. The difference in our case is inside that catheter, where the physician is inserting a needle, and that needle then is loaded with the cells. And then the system itself is the NOGA system, which has an imaging system included with it. So with the use of the imaging guidance of the physicians, the surgeon can, the interventional cardiologist, in most cases, can map the heart, can map the left ventricle of the heart and inject up to 20 different -- if you think of a grid, he is injecting in a grid pattern on the left ventricle of the heart or in the left ventricle. And this is a muscle, as you know, John, so the cells go into the muscle whether in the surgical procedure, they're injected from the outside of the muscle, in the catheter procedure, they're simply injected from the inside of the heart.

Okay. So you go through a valve inside into the ventricle?

Exactly, exactly.

[Operator Instructions] Our next question is from Steven Willey of Stifel, Nicolaus.

Just a quick question. I was just wondering if you guys have kind of formulated the plan as to how you intend to update investors in the Street with respect to enrollment because presumably, that's going to be the question that you get asked repeatedly between now and the accrual of all those patients?

Yes, absolutely. So I think leading up to this, Stephen, and I think I had started saying this last quarter but I am happy to reiterate again that we will be providing quarterly enrollment updates and -- so no one has to guess. No one has to be wondering or spreading rumors, we'll give the facts. So we'll be providing regular quarterly updates. And again, I think that's just sort of consistent with our philosophy here of trying to be transparent with folks. We understand that this is important, an important metric for investors. As you said, leading up to the actual data, the most or one of the most important things that the investment community will want to know is how we're progressing with our enrollment. So we will be providing quarterly updates from here on out.

And will those updates include just the number of patients in or will you be providing that in the context of more patients coming...

That is [indiscernible] it's a great question. And we actually have had a number of discussions internally about what will be the best and most informative for investors. And we haven't concluded on those yet, but next quarter, we'll provide what we think is the most relevant, and if folks are -- if we miss the mark, then obviously, we've got the opportunity to adjust how we present that information in the future. But we're open to pursuing different approaches here to make sure folks feel like they're getting the information that is helpful to them.

Okay. And then just one last question on DCM. What's the expected background base event rate in that patient population? And just considering that it is an orphan indication and there's probably not going to be a pivotal trial with a terribly large number of patients, is that something that you can appropriately capture in [indiscernible]?

[indiscernible] And that is actually a very good question and our folks have been pretty thoughtful about this. And again, not that we're experts in the -- not that we're experts yet in this patient population, but we're certainly talking to all of the experts in this area. And so far, it looks like where we're leaning, Steve, is to enrich the trial with patients that have recently been hospitalized. And because, again, it's sort of like one of the best ways to tell if a patient is going to have a heart attack is if they recently had a heart attack. And I think similarly with this patient population, one of the best ways to determine if a patient, a DCM patient, is going to have an event, a hospitalization of some kind or a surgical intervention or whatever is that they've recently had one. So we're looking at enriching this patient population with those that had recently had an event. And we'll -- as next quarter when we're talking about this, I'll get more specific with you in terms of exactly the kinds of patients and a bit more about the end point as well so that's well understood. But I think we're sort of 90% of the way there, but not all the way there yet. And so I think I don't want to get into too much detail yet until we finalize that.

There are no further questions in the queue. I'll turn the call back over to management for closing remarks.

Thank you, Latoya. And I just want to thank all of our callers for their questions and the continued interest in our company. We certainly look forward to presenting the preclinical and clinical data that I mentioned earlier about our product at upcoming scientific meetings, and let me just highlight those for all of you again. We expect next quarter to publish the final RESTORE-CLI Phase IIb results in the Journal of Molecular Therapy. We're also going to be presenting preclinical results, some very, very interesting preclinical results for ixmyelocel-T at what's called the ATVB 2012 meeting in April. And ATVB, this is a scientific meeting associated with the AHA. We're also going to be presenting the final Phase I, II IMPACT-DCM surgical and catheter results at an upcoming scientific meeting. And I'll -- as soon as we have that meeting, we of course will let you know. And then finally, we will be issuing our annual report shortly prior to our annual meeting in early May. And that meeting is going to be held in our Ann Arbor offices. So thank you again, and I look forward to updating all of you on our next call.

Ladies and gentlemen, this concludes today's program. You may now disconnect. Good day.