ANN ARBOR ? Human tissue repair start up Aastrom Biosciences lost more than $5 million in the third quarter ended March 31, on revenue of just $238,000.

For the first nine months of the fiscal year, Aastrom lost $13.5 million, while earning just $535,000, primarily from grant revenues, rather than product sales.

The company did raise another $24 million in equity financing in April, a positive event lauded by Aastrom CEO R. Douglas Armstrong.

?This transaction strengthened our financial position for the planned

expansion of our clinical trial activity,?? Armstrong said. ?In addition, a number of leading healthcare funds took new positions in Aastrom through this round of financing. We are proud of our accomplishments since January, and look forward to building upon these achievements in the coming quarters.”

Armstrong said Aastrom’s continued progress was illustrated by several significant clinical and operational events during the third quarter. Those include:

Tissue Repair Cells (TRCs) – Aastrom’s proprietary mixture

containing large numbers of stem, stromal and progenitor cells derived from a small sample of the patient’s own bone marrow – received an Orphan Drug Designation from the U.S. Food and Drug Administration (FDA) for the use in the treatment of osteonecrosis at the hip, and the clinical trial protocol for this indication is currently being prepared. The tissues destroyed in the osteonecrosis disease process include bone, bone marrow and vascular (blood vessels); TRCs have been used in clinical trials to regenerate all three of these tissues. TRCs may offer a novel means to restore healthy tissue at osteonecrotic sites.

Positive patient treatment results were presented at the combined

Orthopaedic Research Society and American Academy of Orthopaedic Surgeons annual meetings. Matthew L. Jimenez, M.D., Principal Investigator of Aastrom’s U.S. Phase I/II multi-center clinical trial evaluating the use of TRCs in the treatment of severe fractures that have failed prior treatment interventions, presented results from his early clinical experience with the first seven patients treated for recalcitrant long bone non-union fractures. Bone regeneration, evidenced by callus formation or bone bridging, was observed in radiographs for all seven patients by 6 months, and early healing was seen in four of the patients by 3 months, after the

TRC treatment.

A collaboration agreement was announced for the development of

products for the orthopedics market using Orthovita’s synthetic ceramic

matrices and ceramic-collagen matrices (VITOSS) and Aastrom’s proprietary TRCs. The companies believe that a broad range of orthopedic indications may benefit from the combination of VITOSS and TRCs to regenerate tissue.

“An important highlight of these milestones is that each one

provides third party validation of Aastrom’s progress in the development of our TRC products for tissue regeneration. This increased level of support is evidenced by the addition of highly accomplished industry executives to our board of directors, an agreement for a new strategic collaboration, the increasing positive clinical treatment data from physicians using Aastrom TRC products, and the receipt of an Orphan Drug Designation from the FDA for our TRC product as a new treatment option for patients suffering from the debilitating disease of osteonecrosis.”

Total revenues for the quarter, consisting of

product sales and grant funding, were $238,000 compared to $252,000 for the same period in fiscal year 2005. Total revenues for the nine months ended March 31, 2006 were $535,000 compared to $813,000 for the same period in fiscal year 2005.

Total costs and expenses for the quarter and nine months ended March

31, 2006 increased to $5,037,000 and $13,467,000, respectively, from

$3,805,000 and $9,625,000 for the same periods in fiscal year 2005.

AastromReplicell System is now almost exclusively used to manufacture the company?s proprietary TRC cell products for treatments in tissue regeneration, rather than being marketed as a stand-alone product. Therefore, product sales decreased to $85,000 and $142,000 for the quarter and nine months ended March 31, 2006, respectively, from $150,000 and $377,000 for the same periods in fiscal year 2005.

Grant revenues increased for the quarter to

$153,000 from $102,000 for the same period in fiscal year 2005, and

decreased for the nine months to $393,000 from

$436,000 for the same period in fiscal year 2005. Grant revenues accounted for 73 percent of total revenues for the nine months, compared to 54 percent for the same period in fiscal year 2005 and are recorded on a cost-reimbursement basis. As the company continues to pursue grant funding, grant revenues may vary in any period based on timing of grant awards, grant-funded activities, level of grant funding and number of grant awards received.