StemCells, Inc. Reports Third Quarter Financial Results and Recent Highlights

 “Over the past few months, we have continued to make significant progress on a number of fronts,” said Martin McGlynn, President and CEO of StemCells, Inc.  “We are building considerable momentum in the clinical development of our HuCNS-SC® cells, with our PMD trial expected to complete enrollment in early 2011, and the recent initiation of our second clinical trial in Batten disease.  In addition, we continue to advance toward our goal of initiating clinical trials in spinal cord injury in 2011 and in age-related macular degeneration in 2012. 

“At the same time, the economic and financial environment remains difficult.  We are therefore carefully prioritizing expenditures while pursuing initiatives to control costs and cash burn. We have taken recent steps to meaningfully reduce our overhead, such as our facilities expenses and general and administrative expenses, and we have also selectively reduced our overall headcount.  Additionally, we continue to pursue a growing number of opportunities to expand product sales and to monetize some of our investments through partnering and licensing activities.”

Recent Business Highlights

• In August 2010, we published new preclinical data demonstrating that our proprietary human neural stem cells restore lost motor function in mice with chronic spinal cord injury.  This was the first published study to show that human neural stem cells can restore mobility even when administered at time points beyond the acute phase of trauma, suggesting the prospect of treating a much broader population of injured patients than previously demonstrated.  This study, entitled “Human Neural Stem Cells Differentiate and Promote Locomotor Recovery in an Early Chronic Spinal Cord Injury NOD-scid Mouse Model,” was published in the international peer-reviewed journal PLoS ONE.

• In August 2010, independent researchers used our technology to achieve the first-ever genetically engineered rat derived from rat embryonic stem (ES) cells. This work demonstrates the potential for the types of genetic manipulations previously only possible in mice, and for modeling a broader range of human diseases with the rat.   While both mice and rats are used as models of human disease, the rat is the preferred species because certain aspects of its physiology, behavior and metabolism are closer to the human.  This study, published in the international peer-reviewed journal Nature, validates intellectual property owned by us, including patents covering both rat ES and rat induced pluripotent stem (iPS) cells as well as genetically engineered rats derived from these cells.

• In August 2010, we were notified by Nasdaq that the closing bid price for our shares had been below $1.00 per share for 30 consecutive business days, and therefore we did not meet the requirements for continued listing on the Nasdaq Global Market.  In accordance with Nasdaq listing rules, we have 180 calendar days, or until February 8, 2011, to regain compliance with this requirement. To do so, the closing bid price for our shares must be $1.00 per share or higher for a minimum of ten consecutive business days. If compliance is not achieved by February 8, 2011, Nasdaq will notify us that our shares are subject to delisting from the Nasdaq Global Market. 

• In October 2010, we announced that two of four planned patients in our Phase I clinical trial in Pelizaeus-Merzbacher Disease (PMD) had been enrolled and transplanted with our HuCNS-SC product candidate (purified human neural stem cells).  PMD is a fatal myelination disorder that afflicts male children and this trial is the first to evaluate purified neural stem cells as a potential treatment for a myelination disorder.  This trial is being conducted at UCSF Benioff Children’s Hospital.

• In October 2010, we initiated a second clinical trial of HuCNS-SC cells in neuronal ceroid lipofuscinosis (NCL, also often referred to as Batten disease), a fatal neurodegenerative disorder in children.  This Phase 1b trial is designed to evaluate the safety and preliminary efficacy of the cells in patients with either infantile or late infantile NCL.  The trial will enroll six patients with less advanced stages of the disease than those who enrolled in our Phase 1 NCL trial.  This second trial is being conducted at Oregon Health & Science University (OHSU) Doernbecher Children’s Hospital.  

• In October 2010, we were awarded cash grants by the U.S. government totaling $977,917 for projects related to our development of cell-based therapeutics targeting the central nervous system (CNS) and the liver.  The funds will be used to advance the preclinical and clinical development of our HuCNS-SC product candidate for diseases and disorders affecting the brain, the spinal cord and the eye, as well as the further development of our hLEC™ human liver engrafting cells.  These grants were certified under the Qualifying Therapeutic Discovery Project program, which was created as part of the Patient Protection and Affordable Care Act of 2010. 

Third Quarter Financial Results

For the third quarter of 2010, the Company reported a net loss of $5,552,000, or $(0.04) per share, compared with a net loss of $5,145,000, or $(0.05) per share, for the third quarter of 2009. 

Total revenue in the third quarter of 2010 was $254,000, compared to total revenue of $253,000 in the third quarter of 2009.  Total revenue includes licensing and grant revenues as well as product sales revenue from the Company’s SC Proven® line of specialty cell culture products. 

Loss from operations in the third quarter of 2010 was $7,001,000, which was essentially flat compared to the third quarter of 2009.   On a sequential basis, loss from operations declined for the third straight quarter.  Selling, general and administrative expenses also declined for the third straight quarter, accounting for much of the decline in loss from operations.  Selling, general and administrative expenses of $2,018,000 in the third quarter of 2010 were also 4% lower than the third quarter of 2009.  Research and development expenses in the third quarter of 2010 were $5,201,000, a 4% increase compared to $4,989,000 in the third quarter of 2009. 

Other income in the third quarter of 2010 was $1,449,000 compared to $1,838,000 in the third quarter of 2009.  This included a $1,228,000 decrease in the estimated fair value of warrant liability in the third quarter of 2010, compared to a $1,830,000 decrease in the third quarter of 2009.

Cash and cash equivalents at September 30, 2010 totaled $24,555,000, compared with $38,618,000 at December 31, 2009.  For the first nine months of 2010, cash used in operations totaled $19,655,000, and the Company raised $7,015,000 in net proceeds through sales of common stock.