StemCells, Inc. Reports Third Quarter Financial Results

http://www.businesswire.com/news/home/20091105005192/en

PALO ALTO, Calif.--(Business Wire)--
StemCells, Inc. (NASDAQ:STEM) today reported financial results for the third
quarter ended September 30, 2009.

Net loss for the third quarter of 2009 was $5,145,000, or $0.05 per share,
compared with a net loss of $5,744,000, or $0.07 per share, in the third quarter
of 2008.

Total revenue for the third quarter of 2009 was $253,000, compared to $12,000
for the third quarter of 2008. This revenue growth was primarily driven by the
consolidation of the Stem Cell Sciences (SCS) operations, which were acquired in
April 2009.

Total operating expenses for the third quarter of 2009 were $7,095,000, compared
to $5,857,000 for the third quarter of 2008. Approximately $749,000, or 61%, of
this increase was due to the consolidation of the SCS operations. Excluding
costs associated with the SCS operations, total operating expenses were 8%
higher than the same period in 2008, reflecting expanded operations to support
manufacturing, research and clinical development.

Other income in the third quarter of 2009 was $1,838,000, compared to $101,000
in the third quarter of 2008, and included a $1,830,000 decrease in the
Company`s warrant liability.

For the first nine months of 2009, cash used in operations totaled $18,491,000.
This total, which includes the consolidation of the acquired SCS operations
since April 1, 2009, was 8% higher than the same period in 2008. Cash, cash
equivalents and marketable debt securities totaled $33,206,000 at September 30,
2009. In the third quarter of 2009, the Company raised $2,800,000 in gross
proceeds through the sale of 1,555,000 shares of common stock. On November 2,
2009, the Company raised $12,500,000 in gross proceeds through the sale of
10,000,000 shares of common stock and warrants to purchase four million shares
of common stock at an exercise price of $1.50 per share. On a pro forma basis,
including the sale of these shares and warrants, and net of placement agency
fees and offering expenses, the Company`s cash, cash equivalents and marketable
debt securities at September 30, 2009 would be $45,106,000.

Significant recent events include:

* In September 2009, StemCells announced the publication of preclinical data
demonstrating the therapeutic potential of its HuCNS-SC® product candidate
(purified human neural stem cells) in neuronal ceroid lipofuscinosis (NCL),
often referred to as Batten disease, a fatal neurodegenerative disorder in
children. The Company`s neural stem cells, when transplanted in a mouse model of
infantile NCL, were shown to engraft, migrate throughout the brain and
continuously secrete the missing lysosomal enzyme characteristic of NCL.
Moreover, mice that received the transplanted cells showed statistically
significant reduction in cellular waste build-up, protection of critical host
neurons and delayed loss of motor function compared with the control
(non-transplanted) group. This data was published in the peer-reviewed journal
Cell Stem Cell. The Company completed a Phase I clinical trial in NCL in January
2009, which demonstrated a favorable safety profile of the HuCNS-SC cells and
the transplantation procedure.

* In September 2009, StemCells announced plans to initiate a Phase I trial of
its HuCNS-SC cells in patients with Pelizaeus-Merzbacher Disease (PMD), a fatal
myelination disorder that primarily affects infants and young children. This
trial will be the first ever clinical trial of neural stem cells in a
myelination disorder, and will be the Company`s second clinical trial of its
HuCNS-SC cells. The trial will be conducted at the University of California, San
Francisco (UCSF) Children`s Hospital.
* In September 2009, StemCells announced organizational initiatives focused on
growing its SC Proven cell culture products business and advancing the
development and commercialization of its cell-based assay platforms for use in
drug screening and drug development. These initiatives included new personnel
appointments and a realignment of activities within the Company`s Cambridge, UK
and Palo Alto, California locations to more effectively leverage the Company`s
cell-based technology platforms and expertise. StemCells also announced that it
had completed the wind-down of its operations in Melbourne, Australia.
* In October 2009, StemCells announced new preclinical data showing that its
human neural stem cells protect cone photoreceptors (cones) from progressive
degeneration and preserve visual function long term. Cones are light sensing
cells that are highly concentrated within the macula of the human eye, and the
ability to protect these cells suggests a promising approach to treating
age-related macular degeneration (AMD), the leading cause of vision loss and
blindness in people over the age of 55. These important findings were presented
at the Society for Neuroscience 2009 Annual Meeting.

"This is our second quarter consolidating the SCS operations, and some of the
benefits of the combination are beginning to materialize," said Martin McGlynn,
president and CEO of StemCells, Inc. "Product sales from our SC Proven cell
culture business are growing rapidly and we anticipate our first
post-acquisition new cell culture media product launch early next year. We have
also realigned resources to accelerate the development of cell-based drug
discovery and drug development tools for the pharmaceutical industry, and
reaffirmed our participation in NEUROscreen, a European Union-funded research
consortium that seeks to advance the use of cell-based technologies to screen
potential drug candidates for neurological disorders.

"We also continue to make progress in our therapeutic product development
programs. We anticipate initiating our PMD trial at UCSF by year-end, and are
excited about our HuCNS-SC product entering the clinic in a second indication.
Additionally, we will meet with the FDA this month to discuss the results of our
Phase I NCL trial and the potential pathway for this indication, and, based on
the promising results reported this past quarter, we are pushing ahead with
preclinical development for AMD and other retinal disorders."

About StemCells, Inc.

StemCells, Inc. is focused on the development and commercialization of
cell-based technologies. In its cellular medicine programs, StemCells is
targeting diseases of the central nervous system and liver. StemCells` lead
product candidate, HuCNS-SC® cells (purified human neural stem cells), is in
clinical development for the treatment of two fatal neurodegenerative disorders
that primarily affect young children. StemCells also markets specialty cell
culture media products under the brand SC Proven®, and is developing its
cell-based technologies for use in drug screening and drug development. The
Company has exclusive rights to approximately 55 issued or allowed U.S. patents
and approximately 200 granted or allowed non-U.S. patents. Further information
about StemCells is available at www.stemcellsinc.com.

Apart from statements of historical fact, the text of this press release
constitutes forward-looking statements within the meaning of the U.S. securities
laws, and is subject to the safe harbors created therein. These statements
include, but are not limited to, statements regarding the future business
operations of StemCells, Inc. (the "Company"); the prospect and timing
associated with launching a new SC Proven product; the Company`s ability to
accelerate its development of drug discovery and drug development tools; the
prospect and timing associated with initiating the Company`s PMD trial; the
prospect for continued clinical development of its HuCNS-SC cells in NCL; the
Company`s plans to continue preclinical studies of its HuCNS-SC cells in retinal
disorders; and the prospect and timing associated with the Company`s pursuit of
an Investigational New Drug application with the FDA in retinal disorders.These
forward-looking statements speak only as of the date of this news release. The
Company does not undertake to update any of these forward-looking statements to
reflect events or circumstances that occur after the date hereof. Such
statements reflect management`s current views and are based on certain
assumptions that may or may not ultimately prove valid. The Company`s actual
results may vary materially from those contemplated in such forward-looking
statements due to risks and uncertainties to which the Company is subject,
including uncertainties regarding the potential for the Company to grow its SC
Proven business and to advance the development and commercialization of drug
screening and drug development tools; uncertainties with respect to the fact
that additional trials will be required to confirm the safety and demonstrate
the efficacy of the Company`s HuCNS-SC cells for the treatment of NCL or any
other disease;risks whether the FDA or other applicable regulatory agencies will
permit the Company to continue clinical testing in NCL, PMD or in future
clinical trials of proposed therapies for other diseases or conditions despite
the novel and unproven nature of the Company`s technologies; uncertainties about
the design of future clinical trials and whether the Company will receive the
necessary support of a clinical trial site and its institutional review board to
pursue future clinical trials in NCL, PMD or in proposed therapies for other
diseases or conditions; uncertainties regarding the Company`s ability to obtain
the increased capital resources needed to continue its current and planned
research and development operations, including such operations of the Company
for non-therapeutic applications, and to conduct the research, preclinical
development and clinical trials necessary for regulatory approvals; uncertainty
as to whether HuCNS-SC cells and any products that may be generated in the
future in the Company`s cell-based programs will prove safe and clinically
effective and not cause tumors or other adverse side effects; uncertainties
regarding whether results in preclinical research in animals will be indicative
of future clinical results in humans; uncertainties regarding the Company`s
manufacturing capabilities given its increasing preclinical and clinical
commitments; and other factors that are described under the heading "Risk
Factors" disclosed in Part I, Item 1A in the Company`s Annual Report on Form
10-K for the year ended December 31, 2008 and Part II, Item 1A of the Company`s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.

StemCells, Inc.
Unaudited Condensed Consolidated Statement of Operations
(in thousands, except share and per share amounts)
(unaudited)

Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
Revenue:
Revenue from licensing agreements and grants $ 99 $ 12 $ 300 $ 60
Revenue from product sales 154 - 275 -
Total revenue 253 12 575 60
Cost of product sales (141 ) - 201 -
Gross profit 112 12 374 60

Operating expenses:
Research and development 4,989 4,172 14,279 13,087
Selling, general and administrative 2,112 1,631 6,853 6,232
Wind-down expenses (6 ) 54 539 381

Total operating expenses 7,095 5,857 21,671 19,700

Loss from operations (6,983 ) (5,845 ) (21,297 ) (19,640 )

Other income (expense):
Realized gain on sale of marketable securities - - 398 -
Change in fair value of warrant liability 1,830 - (822 ) -
Interest income (expense), net (22 ) 112 (29 ) 654
Other income (expense), net 30 (11 ) (42 ) (18 )
Total other income (expense), net 1,838 101 (495 ) 636

Net loss $ (5,145 ) $ (5,744 ) $ (21,792 ) $ (19,004 )

Basic and diluted net loss per share $ (0.05 ) $ (0.07 ) $ (0.21 ) $ (0.24 )

Shares used to compute basic and diluted loss per share 108,257,345 80,961,150 103,071,957 80,827,141

StemCells, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)

September 30, 2009 December 31, 2008 (a)
(unaudited) (unaudited)
ASSETS:
Current Assets:
Cash & cash equivalents $ 28,226 $ 30,043
Marketable securities 5,176 4,182
Other current assets 767 1,107
Total current assets 34,169 35,332

Property, plant and equipment, net 3,013 3,173
Goodwill and other intangible assets, net 5,385 646
Other assets, non-current 2,358 2,079
Total assets $ 44,925 $ 41,230

LIABILITIES AND STOCKHOLDERS` EQUITY:
Current liabilities 5,661 5,318
Fair value of warrant liability 9,262 8,440
Other non-current liabilities 4,782 5,663
Stockholders' equity 25,220 21,809
Total liabilities and stockholders` equity $ 44,925 $ 41,230

(a) Derived from audited financial statements included in StemCells` annual report on form 10-K filed with the SEC.

StemCells, Inc.
Megan Meloni, 650-475-3100, ext. 105

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