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Shares of Aastrom Biosciences (NASDAQ:ASTM) have declined nearly 30% over the past two months, despite what we view as very positive results from the company’s phase 2b RESTORE-CLI trial. Data from RESTORE-CLI was released in late November 2011 at the American Heart Association (AHA) meeting. The data show an impressive 62% reduction in Time to First Occurrence of Treatment Failure (NYSE:TTF), the trials primary endpoint, for patients taking ixmyelocel-T versus the control (n=72 / p=0.0032). The results get even more impressive when management looks at only those patients in the trial with confirmed tissue loss, a true “no option” population seemingly headed toward amputation or death in the next few years. Those sub-set results show a 77% risk reduction for the ixmyelocel-T group versus the control on the TTF primary endpoint (n=45 / p<0.001)

We note that in Aastrom’s planned phase 3 trial, REVIVE, management will seek to enroll only these true “no option” patients with confirmed tissue loss and baseline (standardized) wounds. When management looked at Amputation-Free Survival at twelve months (AFS-12), the planned primary endpoint in the REVIVE phase 3 trial, patients on ixmyelocel-T saw a 61% risk reduction versus the control.

Critical Limb Ischemia (NYSE:CLI) is a potentially enormous market opportunity for Aastrom. In the U.S., there are an estimated 250,000 CLI patients potentially heading toward a major amputation or even death as a result of their severe disease and the lack of treatment options. One-year mortality in this population is high, estimated at 25%. The number jumps to 70% at year five.

A 61% risk reduction in major amputation or death after twelve months could make Aastrom’s ixmyelocel-T a potential blockbuster drug worldwide. When we look at the potential market opportunity in the U.S. alone, we see ixmyelocel-T as having $650 million peak sales potential.

But, Aastrom still needs to initiate, and then complete, the phase 3 REVIVE program. Previous guidance was to initiate the trial by the end of 2011. However, management has chosen to delay initiating the trial until at least 25 treatment centers are online. REVIVE is planned to have roughly 80 centers around the U.S. The protocol calls for a centralized review of patients for inclusion / exclusion from enrollment, and a specific guidance-based measures for wound outcomes. Management believes that waiting until 25+ treatment centers are ready to begin enrollment is the prudent thing to do to assure continuity on these centralized procedures. It also helps assure a steady flow of product manufacturing once REVIVE kicks off. We think this will occur in the next few weeks.

In the meantime, Aastrom needs money. We estimate that REVIVE will cost $30 million to complete. Developing blockbuster drugs does not come cheap. Aastrom’s current market capitalization is only $75 million. This level of cash need is no doubt what has driven the stock price down over the past two months despite the impressive phase 2b data noted above from RESTORE-CLI.

Aastrom dose have an At-The-Market (ATM) financing currently active, although we do not see this as the most efficient way to raise cash. To date, management has used little of the ATM. More likely we will see a secondary offering in the near-term to raise the majority of the necessary funds for REVIVE. Again, developing blockbuster drugs isn’t cheap. If you want to invest in Aastrom, you need to understand two things: 1) ixmyelocel-T is a potential blockbuster, and so far the data looks very good, and 2) it’s going to cost money to get there.

One final point worth noting, Aastrom has retained Healthios, Inc., a life-science strategic advisory firm to help secure a development partnership on ixmyelocel-T. Management is currently in discussion with potential partners, and felt that Healthios’ expertise in this area would help in negotiating a deal. We remind investors that Aastrom is also studying ixmyelocel-T in a phase 2 trial for dilated cardiomyopathy (NYSE:DCM) – another potential blockbuster indication. That’s not to say a deal is imminent in CLI or DCM, but we are pleased to see that talks have progressed to the point where management has sought out strategic advice on terms.

Source: Investors Waiting For Aastrom To Raise Cash