Aastrom Biosciences Inc. is adding $25.5 million in a direct placement to fund clinical trials of its Tissue Repair Cell technology and to expand its AastromReplicell manufacturing platform.

The Ann Arbor, Mich.-based firm agreed to sell about 15.9 million shares of its common stock priced at $1.60 each to a group of institutional investors. The transaction is expected to close within the next few days and will bring in estimated net proceeds to the company of $23.8 million.

Merriman Curhan Ford & Co., of San Francisco, served as the sole placement agent, with Dawson James Securities Inc., of Boca Raton, Fla., acting as subplacement agent.

Following the offering, Aastrom will have about 119.3 million shares outstanding.

The company could not be reached for comment, but said in its prospectus that about 45 percent of the net proceeds would be used for clinical trials and research and development activities. About 35 percent would go toward manufacturing development and expansion, and the remaining funds would be used for working capital and general corporate purposes.

Derived from its adult stem cell technology, Aastrom's lead products, Tissue Repair Cells (TRCs), are designed to repair or regenerate human tissues. TRCs comprise a mixture of bone marrow-derived adult stem cells and progenitor cells that are produced ex vivo using the AastromReplicell system to create patient-specific products.

Results reported last month at the Orthopedic Research Society and American Academy of Orthopedic Surgeons meetings in Chicago demonstrated that TRCs were safe and effective in inducing new tissue growth. Data showed that all seven patients - who had tibia fractures that had failed to heal after prior standard-of-care bone grafting and surgical treatments - showed bone regeneration by six months, and early healing was seen by four of the patients by three months. In that study, the TRCs were applied directly to the fracture site with an allograft bone matrix graft extender developed by the Musculoskeletal Transplant Foundation in Edison, N.J.

To date, the company has focused on testing TRCs in bone grafting and blood vessel regeneration. An ongoing Phase I/II trial is evaluating the product in patients with severe non-union fractures of long bones, and a second Phase I/II trial is testing the ability of TRCs to help form new bone tissue in the spine. Aastrom also is investigating the product's potential in upper jaw bone reconstruction for supporting dental implants.

Last month, the FDA granted orphan drug designation for TRCs to treat osteonecrosis, a condition resulting from poor blood supply.

Aastrom is preparing a protocol to evaluate the cells in osteonecrosis of the hip, which would involve the removal of the dead tissue from the interior of the deteriorated bone before implanting the TRCs into the femoral head.

In the vascular regeneration indication, the first focus will be on blood vessel regeneration in diabetic patients with limb ischemia, and the company is conducting preclinical work in cardiac repair.

Aastrom reported a net loss of $4.1 million for the three months ending Dec. 31, the second quarter of its 2005-2006 fiscal year. The company, which posted a monthly burn rate of $1.2 million for the first six months, anticipates an increase of $1.5 million per month for the remainder of the fiscal year ending June 30.

Aastrom's shares (NASDAQ:ASTM) closed at $1.66 Thursday, down 12 cents.