Good day ladies and gentlemen. And welcome to the Aastrom Biosciences Third Quarter 2014 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Chief Financial Officer, Gerard Michel. Sir, you may begin.

Thank you, operator, and good morning everyone. Welcome to Aastrom's third quarter 2014 conference call to discuss our third quarter financial results and the progress of our commercial business and 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. With us on our today's call are, Nick Colangelo, Aastrom's President and Chief Executive Officer; Dan Orlando, Aastrom's Chief Operating Officer and Dr. Dave Recker, our Chief Medical Officer; and Dr. Ross Tubo, Aastrom's Chief Scientific Officer. I will now turn the call over to Nick.

Thank you, Gerard, and good morning everyone. Pleased to report that we had a very productive third quarter that reflected the ongoing implementation of our strategic plan for the business we acquired earlier this year and the execution of our overall corporate strategic initiatives. With respect to the acquired business during the third quarter, we continued to implement a wide range of previously announced initiatives to reduce expenses and improve operating efficiencies in order to maximize the profitability in growth potential of the acquired business and position the acquired products for sustainable long term growth. With these initiatives underway, net revenues for the third quarter were $9.7 million. We are specially encouraged by the fact that during this period of transition for the business, the combined product sales of Carticel and Epicel were inline with the same period a year ago, even with year sales represented its promoting Carticel as we restructure and rebuild our sales organization and focus on profitable growth. In addition, profit margins for the business have improved substantially compared to prior periods. Together this resulted in a positive contribution from the acquired business during the third quarter and we continue to take steps to enhance results as we head into the fourth quarter which is a traditionally strong quarter for these products. Dan and Gerard will describe some of the factors contributing to our successful quarter when they review our commercial and financial performance in a moment. We capitalized on this momentum and the potential for the acquired business in September as we raised over $40 million in gross proceeds to an underwritten public offering of common stock. This transformative financing strengthened our balance sheet, increased our cash position, and brought a number of long term fundamental institutional healthcare investors into our shareholder base. As a…

Thanks Nick. We had a very encouraging third quarter sales requirements for our two marketed cell therapy products Carticel and Epicel. Net sales for these products in the third quarter were inline with the same period a year ago with net sales of approximately $7.5 million for Carticel and $1.8 million for Epicel. As Nick mentioned, these results were achieved with fewer sales representatives promoting Carticel, compared to the same period a year ago as we restructure and rebuild our sales organization and focus on profitable growth. It's important to note that both products exhibit significant seasonality in revenue with the third quarter traditionally being the lowest for the year. We are grateful for our employees, commitment and the continued physician interest in utilizing our products through this period of transition which has allowed us to maintain strong revenue base. We believe the positive results for the third quarter provide a foundation from which we can continue to expand physician and patient adoption, grow revenues and improve the profitability of the business. In addition, the revenue growth opportunities, the overall commercial potential for the business is demonstrated by the improved gross margins achieved in the third quarter. Our gross margin which is primarily driven by the sales of the acquired products was 43% in the third quarter of this year compared to negative growth margins on a pro forma basis in 2013. We expect further gross margin improvements over the coming quarters as a result of the implementation of several commercial and manufacturing initiatives. For example, we have fully implemented a new patient assessment and intend to treat program that will reduce the costly biopsy to implant ratio for Carticel. In addition, we have modified manufacturing processes to reduce the labor associated with producing Carticel implants. Through such chances, Ross…

Thanks Dan. I'm very encouraged by the performance of our commercial and operations groups and congratulate you and your entire team for the progress that you've made during this transition period. We have accomplished a lot in the short period of time and these actions have significantly improved the opportunities and prospects for our business moving forward. I'll now turn the call over to Gerard, to review our third quarter financial results.

Thanks Nick. Aastrom reported a net loss for third quarter of $6.9 million or $0.82 per share compared to a net loss of $2.3 million or $1.20 per share for the same period a year ago. The results include a one time $3.2 million charge to earnings in connection with the settlement agreement that eliminates all future milestone payments related to the development and commercialization of MACI in the United States. Excluding the $3.2 million charge, the net loss for the third quarter was $3.8 million or $0.52 per share. The acquired business generated $1 million of positive contributions of third quarter including $400,000 in restructuring charges and losses from operations in Denmark which is expected to be shut down by the end of the year. Adjusting for those items, the acquired business contributed $1.4 million in the third quarter. Net revenues for the third quarter were $9.7 million and were comprised of approximately $7.5 million of net sales of Carticel implants and surgical kits, approximately $1.8 million of net sales of Epicel, $200,000 of sales of MACI from the Denmark subsidiary, and approximately $250,000 of revenue from commercial sales of bone marrow generated by Marrow Donations. Gross profit for the third quarter was $4.1 million. Gross profit was reduced by $200,000 of charges included in cost of goods sold related to the restructuring of the acquired business. Research and development expenses for the third quarter was $7.8 million versus $2.6 million for the same period a year ago. The increase in research and development expenses is due to the one time $3.2 million charge related to the settlement agreement that eliminates all future milestone payments related to the development and commercialization of MACI in the United States, $800,000 of additional expenses from the newly acquired business, and a $1.3…

Thanks Gerard. I'm very pleased with our financial results for the third quarter which reflects the positive changes we are making with our business during this transition period. Our recent successful stock offering is producing a much stronger financial position to execute our clinical and commercial programs and enables new opportunities for product development and growth. Our clinical program with ixmyelocel-T remains on track and our plans for the registration of MACI in the U.S. and the pediatric indication for Epicel are progressing rapidly. We look forward to the roll-out of our new corporate name Vericel Corporation which captures the energy and spirit of our dynamic new organization, so it's an existing time for us and we appreciate your support as we move forward. Now I'd like to ask the operator to open the call to your questions.

[Operator Instructions] And our first question comes from Kevin DeGeeter from Ladenburg Thalmann. Your line is open.

Hi, this is actually [Jamie Colby] [ph] on the phone for Kevin, this morning. Thank you for taking my questions. First, I was wondering if you could speak little bit granularity to the impact to seasonality between the third and fourth quarters, specifically to what extent is the third quarter a reasonable data point to extrapolate fourth quarter revenue?

So, the fourth quarter, there is two things that drive it. First, obviously insurance changes for many patients on the Carticel side. These patients have likely already met their deductibles and now are interested in turning their biopsy into an implant. Also because of the use – inappropriate or unfortunate accidental use of heating elements, there tends to be an increase use of Epicel in the fourth quarter and through the winter months. As far as an increase in sales, last year fourth quarter was one of the strongest for Carticel in its history. We are on-track in the first two months of the fourth quarter consistent with last year. December, last year for Carticel was an all time high, and we think that that was mostly driven by the change in insurance from the implementation of the Affordable Care Act. The increase in Carticel is typically inline with about 100 implants increase. And we think that the fourth quarter for Carticel will be consistent with historic performance, maybe not consistent with last December, which again was an all time high. In Epicel, its bit difficult to predict, but at this point it's looking like it’s consistent with fourth quarter last year as well. I don't know if there is any other catch around that.

That's very helpful. Thank you. And I am sorry if I missed this early in the call, but have you scheduled a meeting with FDA to discuss the registration pathway for MACI?

Yeah. We did mention that earlier in the call, as we acquired these products, the first thing we wanted to do is make sure did an extremely thorough evaluation of all existing data, as that has obviously a significant impact on our regulatory strategy. So, we're in the process of completing that evaluation, finalizing our strategy and we expect to have a meeting with the FDA in the coming months.

Okay. Great, thank you.

Thank you. Our next question comes from Jason Napodano from Zacks. Your line is open.

Hey, guys. Good morning.

Good morning, Jason.

Can you give us a sense of the sales force right now versus the sales force that you had when you acquired the business?

Sure. The Carticel sales force was approximately 25 territories. It was filled with about 23 representatives. We took thorough valuation of each geography and ensured that as we redesign those - redrafted those, that each territory had the potential to be, or would be profitable, and we ended up with 20 territories for Carticel. I’ll admit that we also at the same time created a growth potential footprint that we believe is 25 territories. So, as we demonstrate growth and expand in specific markets that we think we're underperforming in, then we hope to bring back representatives in a profitable fashion, up to what we think is an ideal of 25. For Epicel, there is one representative actively promoting Epicel in the South East. And there were a couple MSOs that would go out and support implants if they were called, just, from any burn center. But there is no active promotion really elsewhere in the country. So, now we have again a footprint for the country. We have three Epicel representatives which is inline with previous promotion basically about three years ago, they had three to four representatives supporting Epicel. So we think that we can recapture a lot of the lost business from burn centers that had previously ordered just few years ago.

Okay. And when you say positive contribution of $1 million, are you talking about gross income or is that, in EBITDA line from those businesses?

Okay. So looks like a positive contribution, we’re looking at the historical business we acquired, essentially drawing a line around that, carving out the historical Aastrom, and seeing how much GAAP income did this, well - excluding restructuring, how much income did this throw off. We'll probably won't continue to report that metric, maybe we’ll do it at the 10-K, in March as well. We think that's increasingly artificial as the businesses integrate, but we thought it was important, because many investors and analysts were wondering how much cash was this business losing that you guys just picked up. So we wanted to articulate that metric, but the $1 million is kind of Cambridge, and excluding Denmark, how much cash is that – how much income is that throwing off.

Okay. That's great. I has assumed when I read it in the press release that you were just talking about growth, but if that's a cash number, that’s fantastic. Can you give us the sense of ultimately where you think the gross margins are going to go? They’re obviously up from the second quarter, but just – but any ball park kind of area on where you think they can go in the fourth quarter and then 2015?

I’ll hesitate to put timeline on when we’ll achieve the certain number. But we certainly have room to improve the margin. One of the benefits we have is Dr. Ross Tubo, who is sitting across the table from me, actually helped to develop these products, and it is quite ironic, we're fortunate that he is onboard. He has quite a few ideas on how to improve the production process, and our vendors already implementing. Where they'll go to, it will be certainly be well, well north of 50%, whether or not we can get it well into the 60s, time will tell. But we think a lot the bottom-line growth, the business is going to be coming from improvements in growth margins. But I don't want to put out specific guidance as to, at what point we’ll reach specific percentages.

Okay. And just far as the increasing of the price for Epicel, can you give us a sense of the fully burning cost or the price that you're allowed to charge under HUD, can you go over those numbers with us if you will?

Probably wouldn’t be prudent to go through the exact cost structure. We have to submit regulatory documents to the FDA supporting the price we charge. Suffice to say that, what we’re charging now covers a fair – all the marginal costs and at least a portion of the fixed cost that we’re allowed to assign to it, we’re doing a cost accounting analysis now, because we relied upon Sanofi's numbers, when we did the last price increase which we are doing our own cost accounting analysis now to see how much more room we could have to legitimately increase the price. But again, I’d rather not go into the specific component of the cost.

What about a percent increase versus – say fourth quarter versus when you acquire the business?

I think any - we have to do our homework as to what's feasible to do there. I think the bigger picture thing to keep in mind is - well two things, one we just did a very significant increase. And we're trying to get greater uptick of the product, so we’ll have to do our homework and see whether it’s prudent to take another increase. And secondly - the longer term goal is to get the pediatric indication so that we can price this product according to what the market would bear, and that's the longer term goal and we're confident we can get there in the near future.

As far as that pediatric indication, is there - is that just a data collection analysis kind of thing? Or are you actually going to be running a trial or so to say?

Yeah. So that was what I was alluding to Jason, when I said we’re evaluating the data, the first pass would be obviously that we would go back with the existing pediatric data that was available at the time of filing originally. And then subsequent to that as well, and we think there's a very strong case to be made for the indication from that data. To the extent that they might require additional data, it's not really an indication where you would run a clinical study. You would follow potentially additional patients if they would like us to do that or set up a registry et cetera, which is essentially what we're doing currently anyway.

Okay. That makes sense. Last question - I appreciate you answering all these. So you've fully enrolled the ixCELL-DCM trail by the end of the year, and then I assume 12-month end point, so we had a couple of months for data analysis, we’re looking at topline results in early 2016?

Yeah. We’ve consistently said that we would have data in Q1 2016, and Dave and his team have done a wonderful job. It's where in this space that people perform on timelines in terms of these clinical studies and they’ve just knocked it out of the park. So we remain on track as we've been saying all year for data in Q1 2016.

All right, guys. Congrats on the progress. Thanks for taking the questions.

Thanks, Jason.

Thank you. Our next question comes from Jason Kolbert from Maxim Group. Your line is open.

Good morning. Thanks for all of the guidance and the updates you just gave. The only thing remaining is - I was wondering if you could give any guidance for revenues coming for the next year or any kind of profitability expectations?

Jason, that is an expected question, we were wondering when it would come. We've decided that it's probably best for us to get two full quarters under our belts before we issue guidance, any key metrics. So you can expect in March, when we have our full year call with the 10-K that will issue that guidance. I know this is obviously a strong appetite for those numbers but we're in the midst right now of putting together our long term plan, trying to understand where it makes sense, where it’s prudent to make significant investments in terms of sales and marketing, trying to get a better handle on where we can get more efficiencies in operations and such. So I think in March, we’ll be in a much better shape to give you meaningful guidance versus what might be still little shooting from the head at this time.

Okay. Thank you.

Thank you. Our next question comes from George Zavoico with MLV & Company. Your line is open. George Zavoico - MLV & Company: Hi, thanks for taking the questions and for the update. I am just wondering how much sleep you guys got over the last quarter, you accomplished quite a lot here and congratulations on that. I had a question about the ixmyelocel, that manufacturing was in Ann Arbor, is that going to stay in Ann Arbor or are you going to combine the manufacturing?

Well I'll start and Dan can add - and good morning, George. Good to talk to you again. So yeah, at this time we do have distinct activities going on at each location, right. And we’re really not in a position at this point to either move Ann Arbor manufacturing here or move Cambridge manufacturing to Ann Arbor. We certainly don't want to do anything to disrupt the momentum we have in the clinical study. So for the time being, it’s actually quite efficient for us to maintain our operations as they're currently set up. Over the long term, as Ross, kind of digs in and things about different opportunities for us for process changes and so on that may change, but for now we’re maintaining the facilities. And obviously we've got leases that you can’t just walk away from and so on, so for now we’re going to maintain our status goal. George Zavoico - MLV & Company: Ballpark on that, they're very different processes as well, aren't they?

They are. George Zavoico - MLV & Company: In that regard, the automation that comes with the ixmyelocel-T production, those cartridges and everything, is very, very efficient and also applicable, and unthinkable to other products. In that regard as I am sure well aware, at least in the cancer space and Carticel's for example, there is a tremendous amount of autologous cell manufacturing cell production, so modification going on in that space. Is there anyway you could leverage what you already implemented to companies that are - and even perhaps like a running institutions that are doing Carticel that you could use and get into that space?

That's a great comment, and that is exactly what we're doing is looking into this space and exploring opportunities within the Carticel space as well as other potential applications in oncology with surrounding T cells. George Zavoico – MLV & Company: Okay. Look forward to hearing - obviously you can’t say very much about the analysis just beginning, but I think - if you could leverage that I think that might be very good opportunity. My last question, you seem to be - which is probably a good move given where you’re trying to consolidate things. You seem to be focusing on the U.S. The sales and revenue that you've given for the quarter, how much of that is at U.S., and ultimately you've already said you’re going to expand back out of the U.S. and perhaps other parts of the world. Could you talk a little bit about the geographic distribution, your plans for territories outside the U.S.?

Yeah. Thanks, so I’ll start with the sales numbers coming from outside the U.S. in our third quarter results, and that was about $200,000 as is indicated in the press release. So, as we were moving to close the Denmark facility, we were very closely with Sanofi and EMA to make sure obviously there were patient biopsy's there and we wanted to give patients an opportunity to have the MACI product. And so there were some sales that resulted in the third quarter out of those efforts. Those efforts are done now. We've actually - we have manufactured MACI here in Cambridge for other patients in Europe. And we will plan to go back to Europe probably some time in the second half of next year. We do have to do some analysis and think about kind of where we stand with the FDA in terms of our development path here, and so that will be one input as well as to one we would go back into Europe. And when we say go back, it’s commercially the cell, not on manufacturing? George Zavoico - MLV & Company: :

Yeah. Thanks George.

[Operator Instructions] And our next question comes from Chad Messer from Needham & Company. Your line is open. Chad Messer - Needham & Co. LLC: Great. Thanks for taking my question, and a well deserved congratulations on your focus on improving margins and having a profitable business because that’s obviously, the most important first job. I know you said you aren't giving any numeric guidance until you report the year in March. But I was wondering now that you had a quarter plus out there in the market, where are you seeing opportunities to expand the business? I know you're kind of on the run rate even with last year with fewer people which is a feat in itself, but I am sure you're thinking about, and was hoping you could share with us where – in particular for Carticel you think you can actually improve the volume sales? Is it the centers that you’re already holding on using more or how do you attract new people to use the product? What have you learned since taking over the product?

Chad, thanks. The first thing we've learned is that, Sanofi had basically pulled back promotion of both Carticel and Epicel. Specifically for Carticel, you could imagine it's a surgical technique, it’s identifying the appropriate patient with the right sized T-sect, at the right age, weight, et cetera. And it's the influence there - the greatest influence on new prescribers comes from peer-to-peer selling. And there wasn't any, zero, there have been no promotional efforts to continue that. We've already - Zac Taylor is the Head of our Commercial Group, and I have already identified our - the company we're going to be working with, who's going to lead our efforts, and peer-to-peer programs, we've got plans already established to have a very strong 2015, in peer-to-peer efforts. So we recognize that as a critical need. We've addressed it with the company that we’ve already worked with successfully in the past and we're comfortable with. And we are gearing up for a very good year for peer-to-peer efforts. That’s probably the biggest lack of promotion. There are also basic like blocking and tackling type things that we’re missing as well. We just produced the very first print ad that's been tested in select markets for Carticel. Some of it is fairly basic promotion and promotional efforts. And we are also instituting other blocking and tackling efforts around targeting, messaging, and coaching. So again these are the things that Zac and I have done previously. Zac's done a lot of this work and has confidence in the vendors he's worked with previously to bring this all together. I will say that our representatives, one of the - and probably one of the most encouraging things is the strength of our representatives technical skills and their relationships with a lot of the [K-wells]…

Thank you. And I am showing no further questions from our phone lines. I'd now like to turn the call back over to Nick Colangelo, for any closing remarks.

Okay. Well thank you very much. And thanks to everyone for your questions and continued interest in our company. Obviously we're very excited about the opportunities that lie ahead. We're very pleased to have kind of navigated through this transition period with no disruption and strong performance and look forward to reporting on our progress in our next call. So have a great day and thanks again.