ANN ARBOR ? Higher expenses due to ongoing clinical trials in the U.S. and Europe, plus added costs for building a new manufacturing facility and paying a severance package to the former CEO, added to the quarterly losses at Aastrom Biosciences.

The pharma company, which is developing cells to regenerate growth, lost $4 million for the quarter ended Sept. 30, up from a $3.5 million loss in the same quarter a year ago.

“We are determined to provide our TRC-based cell products to physicians

and their patients who are in need of new medical approaches for tissue

regeneration. We are currently in clinical trials utilizing our platform

technology to address regenerative medicine needs in the vascular and bone

areas, and are also preparing to move into additional therapeutic areas,

including cardiac and neural regeneration,” said George Dunbar, newly appointed President, Chief Executive Officer and Director. He replaced former CEO, R. Douglas Armstrong, who resigned in July.

During the quarter, Aastrom also hired Elmar Burchardt, M.D., Ph.D., as Vice President Medical Affairs. Following the end of the first fiscal quarter, the company also hired Ronnda Bartel, Ph.D., as Vice President

of Research and Development.

“At this time, Aastrom’s value lies in achieving clinical milestones,? Dunbar said. ?Under the direction of our strengthened management team, we look forward to reporting on the clinical progress we have slated for accomplishment by the end of 2007.”

Total revenues for the quarter, consisting of product sales and grant funding, were $104,000, compared to total revenues of $180,000 for the same period in fiscal year 2006.

Product sales for the quarter, consisting of the sale of therapy kits for clinical trials and research by others, decreased slightly to $12,000 from $15,000 for the same period in fiscal year 2006.

Grant revenues decreased to $92,000 for the quarter ended September 30,

2006, from $165,000 for the same period a year ago. The company said the decrease is the result of slightly lower grant program activities, and the

completion of its activity on the collaborative grant with the Defense

Advanced Research Projects Agency (DARPA) in June 2006.

Grant revenues accounted for 88 percent of total revenues for the quarter ended September 30, 2006, and 92 percent of total revenues for the same period in fiscal year 2006.

Research and development expenses increased to $2,304,000 for the company?s

quarter from $1,953,000. This increase reflects continued expansion of the research activities to support future regulatory submissions, on-going and planned tissue regeneration clinical trials in the U.S. and EU and the development of facilities for product manufacturing. Research and development expenses for the quarters ended September 30, 2006, and 2005, also include a non-cash charge of $108,000 and $78,000, respectively, relating to share-based compensation expense.

Selling, general and administrative costs increased to $2,384,000 for

the quarter from $2,016,000 for the same period the year before.

This increase is due to additional employee costs that include: an accrual relating to the former Chief Executive Officer’s revised employment agreement, and an accrual and severance payments relating to the former President and Chief Operating Officer’s employment agreement. Selling, general and administrative expenses for the quarters also include a non-cash charge of $463,000 and $118,000, respectively, relating to share-based compensation expense.

Interest income was $527,000 for the quarter compared to $306,000 for the same period in fiscal year 2006. As of September 30, the company had $39 million in cash, cash equivalents and short-term investments as compared to $43 million at June 30.