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Executives

Brian Gibson – VP, Finance

Tim Mayleben – President and CEO

Grayson Wheatley

Analysts

Chad Messer – Needham & Company

Keay Nakae – Ascendiant

Steve Brozak – WBB Securities

Jason Kolbert – Maxim

Aastrom Biosciences, Inc. (ASTM) Q2 2012 Earnings Call August 7, 2012 4:30 PM ET

Operator

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

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

Brian Gibson

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

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

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

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

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

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

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

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

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

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

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

That completes my review of our financial results. And I will now turn the call over to Tim.

Tim Mayleben

Thank you, Brian. Before I introduce Dr. Wheatley, I’d like to make a few brief comments about our recent progress. The warrant exchange which Brian described not only improved and simplified our capital structure by eliminating almost all of these December 2010 warrants and reducing the total number of fully diluted shares outstanding, but from experience we know that it also makes ownership of our stock more attractive to institutional investors, which invest in biotechnology companies like Aastrom.

I will highlight one near-term unfortunate aspect of the warrant exchange is that it has put some near-term downward pressure on our stock as many of these shares are sold by, again, these warrant holders, which I think we all know to be very short-term oriented and so we think they are finding their way into longer-term investor hands, but again, the transition, this movement of these shares from the warrant holders, which tend to be much more short-term focused and not fundamental focused and into longer term more stable hands is a process.

And we’re certainly seeing that now, I think, in the downward pressure that we are seeing in our stock price. But our goal in exchanging the December 2010 warrants for common stock was really longer term, it’s to eliminate any significant continuing overhang from these warrants and to make ownership of Aastrom shares easier for institutional investors and I believe we’ve accomplished those objectives.

So let me turn to our operating results. Now first, I’m very pleased to highlight the recent publication of some promising clinical trial results in patients who required jawbone reconstruction and this was done with our product ixmyelocel-T. This is not something we’ve talked a lot about because this was an investigator initiated clinical trial conducted by researchers from the University of Michigan, but these were recently published. The results of this clinical trial were recently published in a peer-reviewed journal.

And again, you’ve heard us say that many times that our emphasis for our collaborators and for us here at Aastrom is to have our work and the work of our collaborators published in peer-reviewed journals and at peer-reviewed meetings. But this most recent publication, again, the University of Michigan researchers were able to have this published in the peer-reviewed journal Cell Transplantation and of course they showed some very promising results that the patients receiving ixmyelocel-T grew better bone more quickly.

And again, this is not our therapeutic focus. You’ve heard us say that we’re really focused as a company on cardiovascular disease indications, but we think these results are encouraging nonetheless because they once again show that our therapy is very well tolerated and has very promising regenerative capabilities, very consistent with what we’ve seen in our CLI trial, in the Phase 2b CLI trial as well as the early work that we’ve been doing in dilated cardiomyopathy.

So let me turn our attention now to our core programs. And on our last call, I had indicated that we were preparing to launch the Phase 2b RENEW-DCM clinical trial with ixmyelocel-T to treat patients with ischemic dilated cardiomyopathy via catheter and I’m pleased to report that this study will begin later this month.

We plan to enroll 108 patients with ischemic DCM at 15 to 20 U.S. clinical sites. Patients will be randomized to receive a single administration of ixmyelocel-T or placebo via a NOGA catheter with the primary efficacy measure being major adverse cardiac events at 12 months. Secondary endpoints will include imaging measurements of each patient’s heart structure and function and we expect to begin patient screening and enrolment shortly, complete enrolment in less than 12 months and report top line results in the mid-part of 2014.

Our most advanced clinical trial, the pivotal Phase 3 REVIVE-CLI study is now underway with approximately 10 patients enrolled to-date. The majority of clinical sites especially many of the most active or what we know to be high enrolling sites are just beginning to screen patients. So the enrolment numbers that we’ve seen so far, we don’t think are indicative of what we’re going to see and certainly not yet a concern to us or our investigators.

We expect enrolment to accelerate now that we have these new high enrolling sites coming on. We expect the enrolment to accelerate substantially over the next three to six months here and we currently estimate that we’ll be completing enrolment by early 2014.

What you’ve heard us say in the past, again, consistently we’ve indicated that we expect enrolment in the pivotal trial to take 18 to 24 months and we had certainly hoped and expected to be able to complete enrolment in the lower end of that range. I think given the time that we’ve seen to bring up many of these especially the high enrolling sites we’re now more comfortable estimating completion of enrolment at the higher end of that range perhaps closer to the 24 months.

I want to make a few other points about enrolment before I turn the call over to Dr. Wheatley. First, bringing up 80 sites as many of you know that have been involved or have followed companies that are developing new first-in-world therapies like we are, this is a resource intensive process and while our team is very experienced at it, our sites we know are also treating these critically ill patients and patients come first. In other words, there are delays in launching these – or getting these sites up and running due to the severe nature of the disease and certainly the severe condition of the patients that our investigators are treating.

Second, I’m happy to report that we’re not seeing competition for sites or investigators, which is very encouraging. There is no other large Phase 3 trial competing for patients or investigators or sites at this time and that’s great news, because I think you’ve heard us talk about the time advantage that we have.

And finally, on that point, I just want to emphasize we have a substantial development lead over every other regenerative medicine company that is either talking about or planning a true Phase 3 study in CLI and we intend to maximize that advantage and that opportunity over the next few years. This is why we had 80 U.S. medical centers participating in the study and of course why we have an independent steering committee in place to support and guide our enrolment for this very severe disease.

As a reminder, the goal of the pivotal Phase 3 REVIVE study is to confirm the benefits we saw in Phase 2 with ixmyelocel-T and the treatment of patients with severe peripheral arterial disease or critical limb ischemia who have already experienced tissue loss and have had or have no other treatment options. The primary objective of the study is to assess the effect of treatment with ixmyelocel-T, our product on amputation free survival, which is delaying or avoiding death or amputation at 12 months after injection.

Again a reminder, we’re only enrolling Rutherford 5 patients with severe peripheral arterial disease or CLI that is only those patients who have a diagnosis of CLI with existing tissue loss. So in layman’s terms, these patients are sick, very sick, but not too sick to benefit from the patient – I’m sorry, to benefit from the treatment with ixmyelocel-T. And of course, we’re going to continue to provide you updates on enrolment during our future quarterly calls as well.

So in summary, our clinical programs with ixmyelocel-T are proceeding according to our plan. Our Phase 2b program in ischemic DCM is now ready to launch and our pivotal Phase 3 REVIVE study is actively recruiting patients and enrolling those patients. And thanks to our successful fundraising this year, we have the resources to advance these programs expeditiously.

Now we recognize that many of you would like to know more about the process of recruiting patients into the REVIVE study. So we have asked Grayson Wheatley, a cardiovascular surgeon at the Arizona Heart Institute to give his perspective on the enrolment process, both in terms of how to find and enroll qualified patients and in terms of what makes ixmyelocel-T a compelling therapy for this disease.

Now, Dr. Wheatley is a leader in the care and treatment of peripheral arterial disease at one of the world’s premier cardiovascular centers and he was an investigator for the Phase 2b RESTORE-CLI trial. So he’s had some experience and he is gaining more experience and expertise because he is also currently an investigator for the Phase 3 REVIVE-CLI study.

Dr. Wheatley has treated literally thousands of patients with CLI and other forms of peripheral arterial disease. He is very familiar with our product and its potential to treat this severe vascular disease. And Dr. Wheatley is joining us from his office in Phoenix. I want to highlight that his comments and his views are entirely his own. We are delighted to have him on today’s call and obviously not only to hear his comments, but also to give you an opportunity to ask him some questions that may come up.

So I’ll now turn the call over to Dr. Wheatley for his remarks and then after we hear his initial remarks, we’ll open the call to your questions. Dr. Wheatley?

Grayson Wheatley

Hi, Tim, thank you very much. Good afternoon, everybody. As Tim said, I am a cardiovascular surgeon at the Arizona Heart Institute in Phoenix and over the next couple of minutes, I just wanted to share with you my personal experience with enrolling patients in the REVIVE study and I wanted to just give you a snapshot into what’s involved with that and the process involved with that.

And as many of you know, the patients that are involved in this type of study are quite ill. They have quite advanced cardiovascular diseases and have many other coexisting medical problems. And so, we’re talking about a unique population that has many challenges.

So the first patient that we screened for our study and we were actually one of the early sites to enroll or to become eligible to enroll patients and this is a patient that I had actually been following and waiting for this study to go live, but once this study went live, this is an obese gentleman with multiple medical problems who had an ongoing ulcer on his foot that I had been treating for quite some time and that ulcer was secondary to arterial insufficiency. And he – on face value, I thought would be an instant qualifier, but when we did the testing, particularly the circulation testing, even though we had documented severe advanced poor circulation to the leg on the foot that has ulcers, he actually did not qualify based off of the ABI or ankle-brachial indices, in terms of the study protocol. So despite having many of the qualifying medical conditions including a sizeable ulcer, he did not – was not able to be enrolled because of the discrepancy or – his circulation was actually too good. It was poor enough that he had an ulcer, but not bad enough to be in the study.

Unrelatedly, after we screened him, probably within a month and a half, he developed severe respiratory insufficiency and actually expired from other medical problems not related to the ulcer or circulation in his legs. So I think that’s a snapshot of, or example of, how sick and critically ill these patients can be.

The second patient that we screened was a patient that had a failed bypass, had an ulcer on her foot and was near to the point where she was about to get an amputation. And the only reason she did not qualify was she is actually Spanish-speaking. And with our IRB, we did not have the adequate consent forms and documentation to enroll a non-English speaking person.

So I think medically she would have qualified and benefited from receiving the therapy, but as I said, did not qualify incidentally because we were not able to enroll her in the study, we had to schedule her for an amputation and she shortly thereafter underwent a successful below-the-knee amputation.

The third patient that we have screened was – like the other patients had multiple medical problems had multiple failed interventions for limb salvage and had an ulcer on her big toe. And when we actually mapped out the size of the ulceration on her big toe, the actual size of the ulcer was not big enough according to the study protocol to qualify for enrolment in the study.

So she did not qualify because of the ulcer was not big enough. She had an ulcer, it was arterial, she had chronic limb ischemia, but it just wasn’t big enough and so our plan has been to follow her, continue maximal medical therapy and continue to reassess the lesion or wound on an ongoing basis and if it does deteriorate or expand, then we will reconsider her for study and enrolment.

And so that’s been this site’s screening process and we’ve got a number of vascular surgeons. I also work in the Wound Clinic and that’s been the primary point of entry. We certainly take care of a lot of patients in a lot of different areas, the hospital, the outpatient clinic, but the Wound Clinic has really been a great focusing point for us because that’s where patients with severe chronic wounds are seen and then we triage them based off of the ideology of their wounds and so we’ve been able to successfully identify patients through our Wound Center.

Tim Mayleben

Thanks, Dr. Wheatley. I think you made some very good points both in terms of the types of patients that you are seeing and screening as well as I think what we’ve certainly seen experienced at other sites, at least our team here has seen which is that patients who don’t initially qualify because if it’s a progressive disease they do tend to end up being re-screened, successfully re-screened and entered into the trial and it’s – my guess is that the patient that – the last patient that you described will probably end up in that category. We’ve seen a number of patients be initially screened and failed because their wounds are not large enough but then as the disease progresses, they become eligible. So I think you made some very good points.

Grayson Wheatley

And I will make one more point Tim, if I could. Sorry, I left one thing off my bullet points here is that I just want to comment about the potential of this and obviously we need to look at the data and look at the outcomes. But I will say just sitting in the room with multiple family members and the patient in discussing the potential of having to lose a limb or lose an extremity is a very, very anxiety provoking situation.

It’s heavy, emotional burden there and everyone is very, very frustrated and the moment that I discussed the potential of another therapy that’s new, that’s revolutionary, that something that is different, everyone in the room is immediately relieved, immediately excited about this potential. They know that, obviously at this point it’s research and they have to be evaluated, but just the fact that there is another option available to these patients before they lose their limb or their extremity is such an incredible opportunity and relief for these patients that they are truly appreciative to be able to even be considered in these research studies.

Tim Mayleben

That is well said. And I will – I’ll just highlight before we take questions forward not just for Dr. Wheatley but for others as well. You may be aware, we had – this is going back to the DCM study. We have treated patients with ischemic dilated cardiomyopathy.

Two of our patients, the first patient that was enrolled in our DCM clinical study almost four years ago now, the surgical DCM study and then the first patient that was ever treated with our therapy and a catheter DCM our catheter administration but also had ischemic dilated cardiomyopathy visited Aastrom yesterday and earlier today and had an opportunity to talk to our teams here about their experiences.

And similar to the CLI patients, they were no option, their physicians had either given them – or had told them to go get last rights or had simply said I can’t do anything more for you and one gentleman, again, almost four years since his treatment has had no further progression of his disease. He’s got an ejection fraction that’s well north of 30% now. And another gentleman that was treated more than two years ago now has also not had to have another treatment and has not had further progression of his heart failure.

So I think in CLI and in DCM, this therapy has the potential to give patients and families and physicians like Dr. Wheatley hope to treat patients in cases where there aren’t good options now. And again so far anecdotally, we can say that patients who have been treated seem to be doing well for extended periods of time and again it’s only anecdotal. We are doing the large Phase 2b and Phase 3 studies to confirm that, but certainly, the anecdotal results are very, very encouraging and I think as you highlighted it’s – we’re giving a lot of people the potential for hope here.

So with that, I will open the call, Michelle, to questions. If you can help facilitate that, that would be terrific.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Chad Messer with Needham & Company. Your line is now open.

Chad Messer – Needham & Company

Great. Thank you. And thanks for all the added sort of detail and granularity on enrolment, which of course, I’m sure you are aware, is what I and probably most investors are focusing on right now.

If I may, just two questions, one for Dr. Wheatley and maybe a follow-up for Tim. If I heard you speak about your experience with screening patients, it seems like there were several in there that sounded in your opinion like they were good candidates for therapy, but unfortunately, due to the way enrolment criteria run in a clinical trial were not eligible. I was wondering if you could give us a sense, how big you think that discrepancy is, how much larger you think the audience for the drug is over what had to be written into the enrolment criteria?

Grayson Wheatley

Well, it’s a great question because I do think that there is a disconnect and a natural and appropriate disconnect because of the nature of research and investigation, but if this product were available currently and there are no other restrictions put on it and I could use it for chronic limb ischemia with patients with end-stage wounds, I think the potential that I could use this on is much greater than what I am able to offer patients in the trial. And I can’t give you any percentages, but I could just say off the top of my head, I would say at least twice if not three times the population of patients that could be potentially assisted with this type of therapy.

Chad Messer – Needham & Company

Okay, great. And then it sounds like you just – I’m just trying to rethink with your update on the two trials sort of timeline. So closer to two years for enrolment for the CLI trial put us in early 2014, it’s 12 months, so it’s sort of more maybe a 1H, first half of 2015 to expect data now and...

Tim Mayleben

Yeah, I think, that’s right, Chad. I think as we’ve been modeling the timelines internally, I think that’s the range that we’re considering as well. We’re looking at sort of early 2015 to perhaps sometime in the second quarter of 2015. And again, we will – as we’ve indicated, we’ll be providing quarterly updates.

I’m sure you have been – I’ve certainly been watching the Olympics and as I, especially over the last couple of days watching the track and field events and you see the guys running, the sprints and when they come out of the blocks, they are not running as fast as they are at the end of 100 meters or 200 meters.

And I think, similar with clinical trials, as you know from having followed lots of companies, I think, we’re coming out of the starting blocks and in the first 10 or 15 meters of the race here and we’re gathering speed and momentum, but we’re certainly not running as fast as we will be middle and end of the race here. And so I think that’s – as I was thinking about the call today, that’s how I was thinking about that, this is a race for sure and – but we’re definitely gathering momentum because we’re – we started from a standing start that we started from the blocks and it takes a little bit to build that momentum.

Chad Messer – Needham & Company

Okay and then Tim, it would also be appropriate to think of the interim as then maybe being towards the back half of 2014?

Tim Mayleben

I think that’s right. I think that’s right. Let me – before I answer that definitively though, let me – that’s not a number that I’m carrying around in my, on the top of my head. So let either Brian or I circle back with you afterwards and just confirm that.

Chad Messer – Needham & Company

All right. Perfect. Well, thanks so much for the added information.

Tim Mayleben

You bet. Thanks for the questions, Chad.

Operator

Our next question comes from Keay Nakae from Ascendiant. Your line is now open.

Keay Nakae – Ascendiant

Yes, thank you. Tim, how many centers are now screening patients?

Tim Mayleben

Yeah, good question, Keay. We have about three quarters of the sites that are, what we call fully activated and ready to screen. I mentioned that a number of those just came on in July here. So we saw a pretty good bump here over the last 30 days and our projections are that we’ll have most of those here over August. So by the time we are in Labor Day, we’ll be down to the last handful of sites to bring fully active, but yeah, we’re at about three quarters now.

Keay Nakae – Ascendiant

Okay, great. And then with respect to the DCM study, can you give us a sense of – for your primary endpoint, what your hypothesized difference that you’re expecting to see might be?

Tim Mayleben

Keay, I’m sorry. That is a number that I don’t have off the top of my head either. So I’ll have to circle back with you on that. We’ve got a, I think, as we have talked about on the last call, we’ve run the statistics on this. We had expected to be somewhere around 100 sites – or 100 patients rather and we’re going to end up at about 108 one-to-one randomization so we’ve got good strong statistics on it, 80% power, which is again, very common for a Phase 2b, in fact the most common powering for a Phase 2b study.

So I’ll have to get back to you in terms of what the event rates that we’re expecting for both the control and – or the placebo and the treated group and let you know that. So that – yeah, it’s just not something I’m carrying on the top of my head, sorry for that.

Keay Nakae – Ascendiant

Okay. And just one more question for Dr. Wheatley, if I may. Doctor, from your experience, is there any single inclusion or exclusion criteria that is making it hard to find qualified patients to enroll?

Grayson Wheatley

No, I really think that each patient is unique and there are so many confounding medical problems that these patients have that – I, in my experience so far have not seen or identified any single criteria that seems to be particularly onerous.

Keay Nakae – Ascendiant

Very good, thanks.

Tim Mayleben

Thank you, Keay.

Operator

Our next question comes from Steve Brozak with WBB Securities. Your line is now open.

Steve Brozak – WBB Securities

Good afternoon gentlemen. Thanks for taking the question. Obviously, you’ve demonstrated the rigors of your clinical trials are fairly significant. The question I’ve got for you is how would you say you differentiate yourself in this late stage clinical trial pathway?

And if you can elaborate as much as possible, for instance the patients, number of sites and specificity on that side because obviously, you’re clearly doing something that is the premier within the industry and if you can shine any light on the regulatory approach that you’ve taken. Then I’ll one follow-up question after that please.

Tim Mayleben

Sure. It’s a very good question Stephen and I think our approach philosophically has been one, we are obviously very transparent with all of you and – and I say all of you including investors about what it is that we are doing and why we are doing it and just sort of rewinding the clock a couple of years, we had done the Phase 2b RESTORE-CLI study.

When we did our first interim on that we saw some very positive results from that. Our regulatory advisor suggested that we take that data to FDA which we did in the middle part of 2010 and we came out of that meeting with CBER, the group at FDA, suggesting that we file a Special Protocol Assessment with them for our Phase 3 program.

So they accepted the data, encouraged us to go to Phase 3 and also encouraged us to take a track through this Special Protocol Assessment process which we did. They also encourage us to pursue fast-track designation, which we did.

So in October of 2010, we achieved fast-track designation, we have had almost quarterly meetings and conference calls with FDA since the middle part of 2010. So, we’ve developed what we think is a very good report, a high-level of respect between our team and the team at FDA. We don’t feel like they’re treating us special, but we are certainly have the feeling that they are treating us fairly and that we have open communication with them.

That resulted in a Special Protocol Assessment being issued in July almost a little more than a year ago now, July of 2011. We finalize the Special Protocol Assessment. And what that was is – an agreement, a contract between FDA and Aastrom offset as the sponsor for the specifics of our Phase 3 program. So our Phase 3 program just to highlight that, we have a very rigorous protocol that you heard Dr. Wheatley talk a little bit about.

We have 79 other sites identified in addition to Dr. Wheatley at Arizona Heart. We have of course 80 investigators. We have a number of VA sites. We have a number of sites like Dr. Wheatley’s that have Wound Care clinics and are part of this comprehensive treatment of patients with these severe cardiovascular diseases in particular, severe peripheral arterial disease in CLI.

We expect to enroll 600 patients. So this will be the largest CLI study – the largest study in CLI patients ever done. And again it is one-to-one randomization, 90% power and a very rigorous design and a very rigorous statistical powering of it as well. I highlighted earlier that we have an independent steering committee highlighted or headed by Dr. Bill Hiatt who was on the call about 15 months ago with all of you.

Dr. Hiatt of course is a luminary in the field. He is a vascular medicine guy and just has been head of the FDA Advisory committee – committees and was also one of the leaders of the prior large CLI study that has been done. So our approach has been to be very rigorous.

We’ve taken a very drug development approach to this and again every step along the way we’ve done everything we tend to be transparent, the only time that we have hesitated in any way to be less than transparent is if we feel like it would compromise us competitively, but otherwise we’ve been very transparent with folks and again taking a very rigorous drug development approach that will leave no doubt when the data is – the trial is done and the data is revealed that we have conducted ourselves appropriately and the data will be very well controlled.

We can’t say at this point whether it will be positive or not. We certainly have high hopes because of the – high expectations because of the very strong Phase 2b results and our ability to replicate those results in our Phase 3 study as I indicated earlier but the data will certainly be very high quality and that’s what the FDA, that’s what reimbursement folks are looking for, payers are looking for and obviously our peers as well when we go to summit those results to peer-review journals and make presentations about it.

Steve Brozak – WBB Securities

I very much appreciate the candor in that answer. Looking in a similar like, can you give us any kind of clarity on what the expansion of Orphan Drug Designation might mean for you going forward? Just in general terms and I’ll hop back into the queue after that. Thank you.

Tim Mayleben

Yes, thank you, Steve. It’s a very good question and I think the honest answer is we don’t know for sure, but as we follow the discussions at FDA and the FDA’s constituencies, we certainly are seeing what I would characterize as a change in the winds, that there seems to be an increased emphasis to expand, excuse me, the orphan designation beyond what it has been historically and especially for patient populations like the critical limb ischemia, patient population which I think as Dr. Wheatley was highlighting, in many cases have no treatment options today. And that’s a condition that I don’t think any of us in America today and as human beings would want to see continue.

And so I think some of that is certainly impacting how the FDA is starting to think about things. So we’re certainly encouraged by some of the discussions that are happening at FDA and in Congress about expanding the orphan like designations to other hard-to-treat patient populations like this and it could certainly be very timely for not only our DCM program where we have orphan designation, but in particular for this CLI, no option CLI patient population which again confers some very nice benefits for sponsors like Aastrom.

I just want to highlight we’ve just have another four or five minutes of Dr. Wheatley’s time. So we’ll take a couple more questions there and then we’ll have to say goodbye to Dr. Wheatley, but operator if you could take our next couple of calls, but I just wanted to highlight that for the callers.

Operator

(Operation instruction) Our next question comes from Jason Kolbert with Maxim. Your line is now open.

Jason Kolbert – Maxim

Thank you. Thanks for having Grayson Wheatley on the call. Dr. Wheatley since I know you have to leave, let me ask you a couple of questions. Have you enrolled any patients on the trial, I thought I heard you say that there are three patients you screened and that they were not enrolled. How many patients have you screened that were enrolled?

Grayson Wheatley

Zero.

Jason Kolbert – Maxim

Okay. And one question for you that maybe – maybe Tim will want to answer this is, in the screening process, what does it cost you when you don’t enroll a patient?

Brian Gibson

This is Brian Gibson. I don’t think it’s very, very costly. That’s part of the overall package on paying for screen failures, but it’s not a very significant amount to Aastrom.

Jason Kolbert – Maxim

Okay and Dr. Wheatley, can you talk a little bit, these patients are in desperate need. How do you deal with the fact that some of them and just remind me of the trial design will be getting placebo. How does that work?

Grayson Wheatley

Well, certainly, that’s clarified with the patient well in advance to them even being screened, I mean, we did declare it up front. And we know that a certain population or certain percentage of these patients will need intervention or amputation as a result of being enrolled in the study, but just the fact that they have a potential option or even a potential that they might get the therapy is certainly warranted and it doesn’t delay or add any issues with their medical care. So I don’t see it as a confounding variable, I think the study is robust enough statistically to obviously account for that and patients just need to be informed that they may not be getting the cells.

Jason Kolbert – Maxim

Okay and thank you. I’m sure that’s true. I’d like to understand and I know you’ve got some experience in treating these patients. Once you initially treat them whether they are placebo or active patients and they come back in, is it just that you’re kind of monitoring the vascularization through all of the metrics whether it’s (inaudible) brachial index pressure and other metrics, probably the appearance of the skin, but I guess where I’m really going is, does it become obvious to you which patients are on an active arm versus not. Is it something that’s very visible when you’re seeing a patient?

Grayson Wheatley

Now that’s a good question. I would have to say that it’s really variable. I think the response that these patients have is variable and some of them have a dramatic improvement and others less so. But it’s at the bedside; it’s like watching an iceberg move. We are not able to track this in an aggregate form and all we see is, see these patients on a regular basis and see either some incremental minor improvement or no improvement. So it’s – we’re so close to the subject matter that the bigger picture is usually lost in the details.

Jason Kolbert – Maxim

Once you do enroll a patient, how often are you seeing them?

Grayson Wheatley

Well, that’s really variable and it really depends on the acuity of their wound and their other medical conditions. But in general, the routine care is usually once a week for the physician to see them, they are usually getting some degree at home health nurses that also evaluate the wound at home to make sure there is no deterioration, but it is usually a weekly or biweekly visit.

Jason Kolbert – Maxim

Even at a Rutherford 5 with tissue loss?

Grayson Wheatley

Yes.

Jason Kolbert – Maxim

Okay. Good. Thank you. I really appreciate it. Tim, let me – and thank you for participating in the call. It is really great for us to have the insight of somebody who is actually hands-on working with the therapy and the patients and certainly pioneering work. I’m a big believer in this space. Tim, when did the first site open and I understand that there is a ramp up, but what have you learned since the first site opened and what have you learned in terms of how to ramp up the screening and get a higher hit rate in terms of the patients that you do screen enrolled?

Tim Mayleben

Those are all great questions, Jason, and as you can imagine ones that we are kicking around here almost daily. This is a – so let me answer your questions first. So we opened our first site screening at the very end of February. And you may recall that we reported on the last call that it took three months, so until May to successfully screen and enroll – actually screen and enroll our first patient.

And so, those first three months were bringing up about a third a quarter, I guess a quarter to a third of the sites and then those sites are actively screening. And then as I indicated earlier, now we’re up to about three quarters of those sites, now just – again, many of them just over the last month or so up and screening.

In terms of the things that we’re doing to accelerate enrolment and improve screen failure rates and things of that nature, I think – some of it is just – I think what Dr. Wheatley is describing which is that, it takes a couple of patients to really develop a keen eye for exactly which patients under this protocol are going to qualify for the study. And some of them, I think as Dr. Wheatley, we’ve seen – as Dr. Wheatley indicated, we’ve seen a number of patients that when they were first identified in March, let’s say, they didn’t meet the screening criteria, the most common reason for that was their wounds were just a little bit too small, but then within a month, there – because this is a severe progressive disease, the patients did qualify.

And so some of the “early screen failures” are actually turning into successfully screened patients because their wounds are growing. So that’s – I think that’s some of the early lessons. I think the other thing, again, that Dr. Wheatley highlighted nicely is that we’re seeing that many of these patients are coming through Wound Clinics and of course we have an abundance of sites that also have Wound Care Clinics. So I think some nice early learnings there.

And the other thing I’ll just highlight is that there are a number of sites that we have come to know both from our – in particular because of our RESTORE-CLI experience that – and just being embedded in the vascular surgery and cardiovascular community that we have gotten to know who are the high enrolling sites and who have the high enrolling patient populations. And so we’re putting that knowledge to work and that’s why I can say fairly confidently that we brought up a number of sites that are – had just a demonstrated ability to enroll these patients and so we’re – again, we’re working hard on this, but also know that it’s hard work and – we also view that as a long-term competitive advantage because a lot of this is about relationships and as Dr. Wheatley, we’ve developed really good relationships over the years and certainly our clinical trial results from the Phase 2b study certainly helped.

Jason Kolbert – Maxim

Thanks, Tim. I mean, I apologize for asking questions and being myopically focused on enrolment. That’s kind of the archers of being a public company, I guess. Can we switch gears and talk a little bit about DCM? You mentioned that the primary endpoint is going to be MACE and the secondary endpoints will be imaging and I assume that that’s going to be a composite of many things, but is MACE going to be – would MACE be a primary endpoint if you were to go pivotal?

Tim Mayleben

Absolutely, it is I think probably the most preferred endpoint for and I don’t want to speak for the FDA, but looking historically at these kinds of trials, MACE, Major Adverse Cardiac Events is a – and again there is several different definitions, as you know for MACE. I won’t be able to tell you specifically how our definition is different from the others that are out there, but for MI, it’s slightly different than it is for heart failure and – but MACE is just a very well accepted endpoint because it is so objective. And so, yeah, we like the endpoint and we like it because it is as you indicated a Phase 3 quality endpoint.

Jason Kolbert – Maxim

Thanks, Tim. And I just like to close with one last question and I want to make sure I heard it right. You were talking a little bit about the potential utility and other indications in bone and (inaudible) and I sent you a little email, a personal story I have on that, but there has been so much news in the cell therapy space and we are seeing kind of a plethora of other indications. So if you step outside the box, what other indications do you think you’d like to open up now that you’ve got an established safety track record here?

Tim Mayleben

It’s a great question, Jason, and I think we’re a little bit preliminary in terms of wanting to talk publicly about it. We have a couple of areas that we’ve looked at pre-clinically and we’re continuing that exploration, but I think, again for competitive reasons, until we – until we’ve got our stake sort of firmly planted in those indications in that ground, we’re going to at least for the short term anyway keep that a little bit closer to the vest, but I would expect later this year or early next year we’ll be able to talk with a bit more granularity about the other indications that we’re pursuing.

I think a lot of it for us to as we’ve said focus, focus, focus, in the short term because we want to make sure that our entire organization is focused on execution, execution of the Phase 2b DCM trial and execution of the Phase 3 CLI study. And while we have a small group of folks and some outside collaborators that are working on the next big thing, we’re really trying to keep the organization focused on execution of these two late-stage trials, or these two late-stage programs.

Jason Kolbert – Maxim

Tim, thanks a lot, I really appreciate it. Thank you, Dr. Wheatley. I hope that we’ll have a chance to hear from you again on the next quarter and hear your observations on some treated patients and Brian, great job on cleaning up that warrant structure.

Brian Gibson

Thanks.

Tim Mayleben

Michelle, we’re going to have to let Dr. Wheatley go. So if we can wrap things up here.

Operator

Okay.

Tim Mayleben

So I just want to thank everybody for being on the call today in particular, Dr. Whitley, I want to thank you for graciously making the time and providing your very experienced and candid experience with our program and with CLI patients. So, thanks again to everybody that listened in on the call. I appreciate your continued interest in Aastrom and we certainly look forward to updating you on our progress on our next call. Thanks, operator – thanks, Michelle.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you all may disconnect. Everyone have a great day.

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