StemCells Announces 2009 First Quarter Financial Results

PALO ALTO, Calif., May 8, 2009, – StemCells, Inc. (NASDAQ: STEM) today reported its financial results for the first quarter ended March 31, 2009.

For the quarter, the Company’s loss from operations was $6,924,000, which was essentially unchanged compared to the loss from operations of $6,897,000 in the first quarter of 2008. The loss from operations in the first quarter of 2009 includes approximately $544,000 of expenses related to the Company’s acquisition of the operating assets and liabilities of Stem Cell Sciences Plc (“SCS”) which closed on April 1, 2009. In the first three months of 2009, net cash used in operating activities was $5,782,000, a decline of 21% compared to the $7,291,000 in net cash used for operating activities in the first quarter of 2008. The decline in cash used for operating activities in the first quarter of 2009 as compared to the same period in 2008 was primarily attributable to more proactive management of the Company’s working capital.

The Company reported a net loss of $9,282,000, or $0.10 per share, for the first quarter ended March 31, 2009, compared to a net loss of $6,545,000, or $0.08 per share, for the first quarter of 2008. The increase in net loss in 2009 compared to the same period in 2008 was primarily attributable to a non-cash expense of $2,755,000 recorded in the first quarter of 2009 to reflect an increase in the Company’s estimated warrant liability.

Cash, cash equivalents and short-term marketable debt securities were $34,957,000 at March 31, 2009, compared with $34,038,000 at December 31, 2008. In the first quarter of 2009, the Company sold 3,325,000 shares of common stock and received net proceeds of $6,645,000. Since the first quarter of 2009, the Company has sold an additional 4,162,400 shares of common stock and received net proceeds of $6,919,000. On a pro forma basis including the sale of these additional shares net of sales commissions, the Company’s cash, cash equivalents and short-term marketable debt securities at March 31, 2009 would be $41,876,000.

Significant recent events in 2009 included:

• In January 2009, we completed the six-patient Phase I clinical trial of our HuCNS-SC® product candidate as a treatment for infantile and late infantile neuronal ceroid lipofuscinosis (NCL), also often referred to as Batten disease.
  
• In April 2009, we acquired substantially all of the operating assets and liabilities of SCS for 2,650,000 shares of common stock. We also waived certain obligations of SCS to repay approximately $709,000 in loan principal and accrued interest owed to us. We now have proprietary cell technologies relating to embryonic stem cells, induced pluripotent stem (iPS) cells, and tissue-derived (adult) stem cells; expertise and infrastructure for providing cell-based assays for drug discovery; a media formulation and reagent business; and an intellectual property portfolio with claims relevant to cell processing, reprogramming and manipulation, as well as to gene targeting and insertion.
  
• In April 2009, we announced that a major international pharmaceutical company acquired a non-exclusive license to our Internal Ribosome Entry Site (IRES) technology, which we acquired as part of the SCS transaction. The IRES technology enables researchers to genetically modify any mammalian cell and to monitor the activity of a particular gene of interest without blocking the normal function of the gene. The IRES technology is particularly important for evaluating the success of gene knock-outs or knock-ins in stem cells, as well as for the successful creation of transgenic mouse and rat disease models.
  
• In May 2009, our collaborators at Oregon Health & Science University Casey Eye Institute presented a paper showing that human central nervous system stem cells, when transplanted in a well established animal model of retinal degeneration, engraft long-term and can protect the retina from progressive degeneration. Retinal degeneration leads to loss of vision in diseases such as age-related macular degeneration and retinitis pigmentosa. The human neural stem cells used in the study were supplied by us and were selected, purified and grown as neurospheres using our proprietary methods.
  
• Also in May 2009, we terminated an agreement to purchase a building in Sunnyvale, California which we had entered into with North Pastoria Sunnyvale, LLC in March 2009.  Our obligation to purchase the building was subject to due diligence and other pre-closing conditions, and we decided not to purchase the building.

“The economic and financial environment remains difficult, so we have continued to proactively manage operating expenses and cash burn,” said Martin McGlynn, President and CEO of StemCells, Inc. “In addition, we have continued to opportunistically strengthen our balance sheet. By doing so, we are able to focus on advancing our development programs, while at the same time executing our strategic agenda.”

“We have a full agenda for the rest of 2009,” added Mr. McGlynn. “We have completed our Batten’s trial and are preparing the Final Study Report for submission to the FDA; we are working diligently to get our PMD and hLEC trials initiated; and as our recent preclinical data in the retina shows, we continue to make progress in our search for additional clinical applications for our HuCNS-SC cells. Lastly, we have closed the acquisition of the SCS business and have begun the process of integrating our people, technologies and programs.”

About StemCells, Inc.
StemCells, Inc. is a clinical-stage biotechnology company focused on the research, development and commercialization of products derived from stem and progenitor cell technologies. In its therapeutic product development programs, StemCells is focused on developing cell-based therapeutics to treat diseases of the central nervous system and liver. StemCells has pioneered the discovery and development of HuCNS‑SC ® cells, its highly purified, expandable population of human neural stem cells. StemCells has completed a six patient Phase I clinical trial of its proprietary HuCNS-SC product candidate as a treatment for neuronal ceroid lipofuscinosis (NCL), a rare and fatal neurodegenerative disease that affects infants and young children.  StemCells has also received approval from the US Food and Drug Administration (FDA) to initiate a Phase I clinical trial of the HuCNS-SC cells to treat Pelizaeus-Merzbacher Disease (PMD), a rare and fatal brain disorder that mainly affects young children. StemCells is also pursuing applications of its cell technologies to develop research tools, such as cell-based assays, media and reagent tools, which the Company believes represent nearer-term commercial opportunities. StemCells 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 on its web site at: www.stemcellsinc.com.

Apart from statements of historical fact, the text of this press release constitutes forward-looking statements regarding, among other things, the future business operations of StemCells, Inc. (the “Company”). 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 about, and the costs associated with, the integration of the acquired SCS operations; uncertainties about the effects of the integration with respect to maintaining relationships with employees, licensees, other business partners or governmental entities; 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 whether the Company will receive the necessary support of a clinical trial site and its institutional review board to initiate a clinical trial in PMD; 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 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” in Item 1A of Part II of the Company’s Quarterly Report on Form 10-Q.

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    CONTACT: StemCells, Inc.
             Rodney Young
             Chief Financial Officer
             650-475-3100, Ext. 105
             irpr@stemcellsinc.com
                          
    SOURCE:  StemCells, Inc.

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