Aastrom Biosciences Inc announced that, through its wholly owned subsidiary, Zellera AG, it has signed an agreement with Mathys Medical Ltd. and Bergmannsheil University Clinic to begin the first collaborative clinical trial using the Company's Tissue Repair Cells (TRCs) for bone graft applications. If successful, the study may lead to an alternative to the current, highly invasive standard of treatment in the multi-billion dollar bone graft market.

The bone graft clinical study will use Aastrom's proprietary bone-forming TRCs in combination with Mathys' commercial synthetic bone graft matrix to treat patients with serious leg (tibia) fractures that require a bone graft for recovery. Mathys is a leading supplier of synthetic bone graft matrix for the orthopedic market. The trial, which expects to accrue five to ten patients, will be conducted at the University, a leading orthopedic treatment center in Germany. The lead investigator for the trial is Thomas A. Schildhauer, Senior Physician of the Traumatology-Surgery Department.

Aastrom's TRCs are produced from small samples of bone marrow (which contain adult stem cells), using the AastromReplicell System, the Company's pioneering automated platform. TRCs are enriched for early-stage stem and progenitor cells that can form bone and other tissues. A typical TRC product contains more than an 80-fold increase in the bone-forming cell types. To date, TRCs have been safely used in more than 150 patients to generate normal bone marrow, blood and immune system cells. The Company recently announced that in the April 2003 issue of The Journal of Bone and Mineral Research, results of a compassionate-use study were published that demonstrated the ability of TRCs to form skeletal bone in a patient with a genetic skeletal disease.

"This collaboration follows a very successful two years of progress in our research program and is an excellent example of the expanding product and collaboration opportunities that Aastrom is pursuing for our proprietary technology," said R. Douglas Armstrong, President, Chief Executive Officer and Chairman of Aastrom. "Success in this clinical approach may provide the more than one million patients in the U.S. and Europe who require bone grafting procedures with an efficacious but less invasive, and therefore less morbid, alternative to the current standard procedure. If this approach is successful, it should result in an important product opportunity for the clinical use of TRCs in a major, multi-billion dollar market."

Typical bone grafting procedures include various types of spinal fusions and repair of major fractures such as non-union fractures of legs and arms. The long-time standard procedure involves surgically chiseling out bone chips and marrow from the patient's hip to obtain the necessary quantities of bone graft material. This process generally results in substantial acute and chronic pain and complications at the hip collection site. In an attempt to eliminate this clinical problem, various bone matrix substitutes have been developed and are sometimes used as an alternative to the standard procedure. They are not as effective, however, because they lack the cellular components needed to generate bone. In this clinical study, Aastrom's bone-forming TRCs will be combined with Mathys' synthetic bone matrix product, and used by Dr. Schildhauer to augment the repair of serious non-union leg fractures.

In addition to this German bone grafting trial, Aastrom is planning other bone graft trials. The Company has submitted its lead bone graft trial plan to the U.S. Food and Drug Administration (FDA), and is currently in discussion with the FDA to move forward with this clinical track.

Aastrom has demonstrated success with its TRCs in clinical trials for bone marrow transplantation and, on a compassionate-use basis, in a young patient requiring bone generation. This progress has stimulated the Company to move toward larger market opportunities, such as bone grafting. With Aastrom's focus shifting to products for these multi-billion dollar markets, efforts previously directed to the now-declining bone marrow transplantation market are being decreased. Consequently, Aastrom's U.S. SC-I clinical trials are being closed out and there are no current plans to continue this product development activity.