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    Hot Biotech Stock – Aastrom Biosciences Soars on Buy Recommendation

    Shares of Aastrom Biosciences Inc. (Nasdaq: ASTM) soared 18.5% yesterday after a research company initiated coverage on the stock with a Buy rating. The stock hit $2.68 during the intraday trading and closed the session at $2.62. Approximately 4.6 million shares changed hands, a 215% increase over the 90-day average volume. Shares of ASTM this morning lost steam, losing nearly 3% this morning.

    Despite the surge, ASTM shares are still 19% down from the 2011 high of $3.25, mainly due to concerns for another dilutive stock offering this year, as well as uncertainties regarding the clinical results in the upcoming phase III studies for critical limb ischemia. With a 52-week range of $1.32-$4.45, the March 28 trade is in the middle of that range.

    ASTM is developing adult stem cells therapies for use in the treatment of severe, chronic cardiovascular diseases such as critical limb ischemia (CLI) and dilated cardiomyopathy (DCM). The company developed a proprietary Tissue Repair Cell technology in which cells are derived from a small amount of bone marrow taken from a patient and expanded to generate a mixture containing high doses of stem and progenitor cells. The cell mixture is then directly injected into the affected tissue: limb or myocardium.

    The company has two clinical programs ongoing, one for vascular applications in CLI, the most severe (end-stage) of peripheral arterial disease, and another for cardiac applications in DCM, the leading cause of heart transplantation. The CLI program received Fast Track designation from the FDA.

    For CLI, ASTM presented encouraging proof-of-concept data, as well as statistically significant interim results from phase II trials, on FDA-validated endpoints for CLI major amputation and amputation-free survival. Going forward, the company plans to report the final results from phase II study during the second quarter, as well as to launch the first of two phase III studies. According to management, the special protocol assessment for phase III trials could be agreed with the FDA in Q2 2011 for the “no option” patients and in Q3 2011 for the “poor option” patients.

    For DCM, management has demonstrated promising trends from an interim analysis of phase II IMPACT-DCM program, which show meaningful improvements in the stage of heart failure for patients on therapy. Going forward, ASTM is expecting to report interim data from the IMPACT-DCM study and complete the ongoing phase II Catheter DCM trial in Q3 2011 and launch the next phase of clinical testing in DCM by the end of the year.

    Both programs are targeting large markets with limited therapeutic options. The standard of care for patients with CLI or DCM is often to treat secondary co-morbid conditions such as hypertension, diabetes or renal failure. Analysts covering ASTM predicted blockbuster potential for both therapies, with annual revenue to peak at $800 million for CLI program and $700 million for DCM program.

    Critical limb ischemia affects approximately 1 million people in the U.S. each year, representing 2% of the population over the age of 50. More than 25% of patients with peripheral artery disease will eventually development CLI. The disease leads to an average of 150,000 major limb amputations each year and has a high mortality rate: 20% after six months after initial diagnosis and 25% after 12 months.

    There are approximately 250,000 people in the U.S. living with dilated cardiomyopathy, with nearly 20,000 new cases diagnosed each year. The one-year survival rate for a DCM patient is roughly 75%. The five-year survival rate drops to only 30% because many patients with DCM go un-diagnosed until the disease has progressed to the most severe stages.

    The positives outcomes from the phase II trials of DCM as well as a successful conclusion of negotiations with the FDA to commence phase III trials in CLI patients could significantly add to the company’s valuation and attract potential partners to speed up the research. In addition, ASTM’s current capitalization of nearly $80 million leaves significant room for growth and appreciation, given the market potential of investigated therapies. However, the company would further require external financing, diluting investors’ interests, despite the fact that it raised $20.5 million in December and ended 2010 with a cash balance of $31 million.

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