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StemCells, Inc. Reports First Quarter Financial Results and Announces Reduction in Force

PALO ALTO, Calif., May 4, 2011 (GlobeNewswire via COMTEX) --

StemCells, Inc. (Nasdaq:STEM), a leading stem cell company developing and commercializing novel cell-based therapeutics and tools for use in stem cell-based research and drug discovery, today reported financial results for the first quarter ended March 31, 2011. The Company also announced it is reducing its US-based workforce by 30 percent to reduce its cash burn rate and extend its financial resources in order to focus on advancing the clinical development of its lead product candidate HuCNS-SC(R) cells (purified human neural stem cells) as a potential treatment for spinal cord injury, myelination disorders, age-related macular degeneration, and other central nervous system disorders.

"While decisions of this nature are never easy, we believe we are taking the necessary and appropriate steps to execute our clinical agenda and thereby maximize shareholder value," said Martin McGlynn, President and CEO of StemCells, Inc. "For the past several years, we have been investing significant resources to conduct the extensive research and preclinical studies needed to advance our HuCNS-SC neural stem cells into human clinical testing, and to manufacture a sufficient number of cGMP compliant cell banks to conduct those clinical trials. Now, with multiple clinical trials underway and others soon to begin, we will be generating clinical data regarding the therapeutic potential of our HuCNS-SC cells as these trials run their course. We anticipate that this reduction in force, combined with other initiatives to reduce our infrastructure and overhead costs, will put our burn rate on a downward trajectory for the next several years as we reap the rewards of those earlier investments."

StemCells is currently conducting a Phase I/II clinical trial in chronic spinal cord injury in Switzerland, and expects to enroll and dose the first cohort of that trial this year. The Company has completed patient enrollment in a Phase I trial in Pelizaeus-Merzbacher disease (PMD), a fatal myelination disorder in children, and results of this trial are expected to be reported in early 2012. In addition, the Company plans to file an IND in the fourth quarter of this year to initiate a Phase I/II clinical trial of HuCNS-SC cells in age-related macular degeneration, which is the leading cause of vision loss in people over the age of 55.

First Quarter and Recent Business Highlights

Therapeutic Product Development

  --  In February 2011, we completed enrollment and dosing of the fourth and
      final patient in a Phase I trial of our HuCNS-SC cells in PMD. Results
      of this trial will be reported in early 2012.
  --  In March 2011, we initiated a Phase I/II clinical trial of our HuCNS-SC
      cells in chronic spinal cord injury.  This trial will accrue patients
      with both complete and incomplete degrees of paralysis who are three to
      12 months post-injury. The trial is being conducted in Switzerland at
      the Balgrist University Hospital, University of Zurich, a world leading
      medical center for spinal cord injury and rehabilitation.
  --  In April 2011, we discontinued a Phase Ib clinical trial of our HuCNS-SC
      cells in neuronal ceroid lipofuscinosis (NCL, also referred to as Batten
      disease). NCL is a rare and fatal neurodegenerative disorder in
      children, and this Phase Ib trial was designed to enroll patients with
      less neuronal degeneration than patients in our Phase I NCL trial.
      However, despite six months of effort, no patients meeting the
      eligibility criteria for the trial were identified and we terminated the
      trial due to lack of patient accrual.
  --  In April 2011, we entered into a research collaboration with Frank
      LaFerla, Ph.D., a world renowned leader in Alzheimer's disease research,
      to study the therapeutic potential of our HuCNS-SC cells in Alzheimer's
      disease. Dr. LaFerla is director of the University of California, Irvine
      (UCI) Institute for Memory Impairments and Neurological Disorders (UCI
      MIND), and his published research has shown that mouse neural stem cells
      enhance memory in a mouse model of Alzheimer's disease. The goal of this
      collaboration is to replicate these results using our human neural stem
      cells.

Tools and Technologies Programs

  --  In January 2011, we launched two new antibody reagents that have utility
      for the detection of a range of different human cell types. These new
      reagents expand our SC Proven(R) portfolio of innovative stem cell
      research products.
  --  In March 2011, we launched nine new purified nucleic acid and protein
      stem cell lysate products and three related kits to further broaden our
      SC Proven portfolio of media and reagents. These new, serum-free
      reagents enable stem cell researchers to more accurately test and
      validate stem cell lines and associated genes and gene products.
  --  In March 2011, we launched three new cell culture supplements for the
      derivation, culture and differentiation of human and mouse embryonic
      stem cells, induced pluripotent stem (iPS) cells, and tissue-derived
      neural stem cells. These new SC Proven supplements provide stem cell
      researchers with well-defined reagents that are free of the serum and
      animal protein-derived contaminants that can cause variability of
      performance and impair analyses.

Financing Activities

  --  In January 2011, we raised gross proceeds of $10,000,000 through the
      sale of 10,000,000 shares of common stock to selected institutional
      investors at a price of $1.00 per share. The investors were also granted
      an option to purchase an additional 6,000,000 shares at $1.00 per share.
      The option was not exercised and expired on February 18, 2011.

First Quarter Financial Results

For the first quarter of 2011, the Company reported a net loss of $5,747,000, or $(0.04) per share, compared with a net loss of $6,124,000, or $(0.05) per share, for the first quarter of 2010. Loss from operations in the first quarter of 2011 was $7,509,000, which was 1% lower than the $7,601,000 loss from operations in the first quarter of 2010.

Total revenue during the first quarter of 2011 was $221,000, compared to $230,000 in the same period of 2010. Revenue from product sales in the first quarter of 2011 was $149,000, which was a 28% increase compared to the same period of the prior year. This growth was driven by both increased unit volumes and new product launches in the Company's SC Proven media and reagents business. Revenue from licensing agreements and grants was $72,000, which was a 37% decrease compared to the previous year primarily due to the completion and termination of several projects funded by grants.

Total operating expenses in the first quarter of 2011 were $7,676,000, compared to $7,787,000 in the same period of 2010. Selling, general and administrative expenses of $2,076,000 were 20% lower in the first quarter of 2011 compared to the first quarter of 2010, while research and development expenses of $5,525,000 were 10% higher than the first quarter of 2010 as the Company continued to prioritize its product development efforts.

Other income in the first quarter of 2011 was $1,762,000, compared to $1,477,000 in the first quarter of 2010. This increase was primarily due to a decrease in the estimated fair value of warrant liability, which totaled $1,783,000 in the first quarter of 2011 and $1,516,000 in the first quarter of 2010.

Cash, cash equivalents and marketable securities at March 31, 2011 totaled $21,623,000, compared with $19,899,000 at December 31, 2010. The Company raised approximately $9,400,000 in net proceeds in a financing in January 2011. For the first quarter of 2011, net cash used in operating activities was $7,418,000, which was 5% lower than the same period in 2010.

Reduction in Force

The Company is eliminating 20 full-time positions in its US-based workforce, primarily in the research and general and administrative areas, while maintaining a critical translational science capability to support the advancement of its preclinical and clinical development programs. The Company estimates this action will generate annual expense reductions of approximately $2.3 million, primarily from savings in salaries and benefits and reductions in laboratory supply costs. When combined with previous steps taken to reduce operating expenses and cash burn, the Company is targeting an annualized cash burn "run rate" of approximately $18 million going into 2012.

The Company estimates it will record a one-time charge for severance and related expenses of approximately $300,000 in the second quarter ending June 30, 2011.

Conference Call

StemCells will host a live conference call and webcast today, May 4, at 4:30 PM Eastern Time (1:30 PM Pacific Time) to discuss its financial results and recent business activities. Interested parties are invited to listen to the call over the Internet via the Investors section of the Company's website at http://investor.stemcellsinc.com/phoenix.zhtml?c=86230&p=irol-irhome. An archived version of the webcast will be available for replay on the Company's website beginning approximately two hours following the conclusion of the live call and continuing for a period of 30 days.

About StemCells, Inc.

StemCells, Inc. is engaged in the research, development, and commercialization of cell-based therapeutics and tools for use in stem cell-based research and drug discovery. The Company's lead therapeutic product candidate, HuCNS-SC(R) cells (purified human neural stem cells), is currently in development as a potential treatment for a broad range of central nervous system disorders. Clinical trials are currently underway in spinal cord injury and in Pelizaeus-Merzbacher disease (PMD), a fatal myelination disorder in children. In addition, the Company plans to file an IND by year-end 2011 to initiate a clinical trial of HuCNS-SC cells in age-related macular degeneration, and is also pursuing preclinical studies of its HuCNS-SC cells in Alzheimer's disease and stroke. StemCells also markets stem cell research products, including media and reagents, under the SC Proven(R)brand, and is developing stem cell-based assay platforms for use in pharmaceutical research, drug discovery and drug development. Further information about StemCells is available at http://www.stemcellsinc.com.

The StemCells, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7014

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 timing and prospect associated with beginning to detect potential clinical benefit from the use of the Company's HuCNS-SC cells; the prospect for continued clinical development of the Company's HuCNS-SC cells in CNS disorders; the prospect for growth in the Company's product sales; the ability to realize cost savings from the announced reduction in force; the ability to realize the benefit of the Company's earlier investments in process development and manufacturing; the adequacy of our existing supply of HuCNS-SC cells to complete our ongoing and planned clinical trials; and the timing and prospects associated with filing an IND to initiate a clinical trial in age-related macular degeneration. 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 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 spinal cord injury, PMD or any other condition; risks whether the FDA or other applicable regulatory agencies will permit the Company to continue clinical testing in spinal cord injury, PMD or in future clinical trials of proposed therapies for other diseases or conditions such as age-related macular degeneration; 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 spinal cord injury, PMD, age-related macular degeneration, or in proposed therapies for other diseases or conditions; uncertainties regarding the potential for the Company to grow its SC Proven business and to advance the development and commercialization of stem cell-based assays for drug discovery and development; 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; uncertainties regarding the validity and enforceability of the Company's patents; uncertainties as to whether the Company will become profitable; 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, 2010.

  StemCells, Inc.
  Unaudited Condensed Consolidated Statements of
   Operations
  (in thousands, except share and per share amounts)
                                    Three months ended
                                         March 31
                                --------------------------
                                    2011          2010
                                ------------  ------------
  Revenue:
    Revenue from licensing
     agreements and grants              $ 72         $ 114
    Revenue from product sales           149           116
                                ------------  ------------
  Total revenue                          221           230
  Cost of product sales                   54            44
                                ------------  ------------
  Gross profit                           167           186
  Operating expenses:
    Research and development           5,525         5,037
    Selling, general and
     administrative                    2,076         2,585
    Wind-down expenses                    75           165
                                ------------  ------------

  Total operating expenses             7,676         7,787
                                ------------  ------------
  Loss from operations               (7,509)       (7,601)
  Other income (expense):
    Change in fair value of
     warrant liability                 1,783         1,516
    Interest expense, net               (19)          (25)
    Other expense, net                   (2)          (14)
                                ------------  ------------
  Total other income (expense)         1,762         1,477
                                ------------  ------------

  Net loss                         $ (5,747)     $ (6,124)
                                ============  ============
  Basic and diluted net loss
   per share                        $ (0.04)      $ (0.05)
                                ============  ============
  Shares used to compute basic
   and diluted
  loss per share                 136,799,125   118,959,136
                                ============  ============
  StemCells, Inc.
  Unaudited Condensed Consolidated Balance Sheets
  (in thousands)

                                 March 31,   December
                                    2011     31, 2010
                                 ---------  ---------
  ASSETS:
  Current Assets:
    Cash & cash equivalents       $ 13,066   $ 19,708
    Marketable securities            8,557        191
    Other current assets             1,316      1,270
                                 ---------  ---------
  Total current assets              22,939     21,169
  Property, plant and
   equipment, net                    2,401      2,627
  Goodwill and other intangible
   assets, net                       4,976      4,874
  Other assets, non-current          1,931      1,932
                                 ---------  ---------
  Total assets                    $ 32,247   $ 30,602
                                 =========  =========
  LIABILITIES AND STOCKHOLDERS'
   EQUITY:
  Current liabilities                4,385      5,528
  Fair value of warrant
   liability                         4,889      6,672
  Other non-current liabilities      2,926      2,921
  Stockholders' equity              20,047     15,481
                                 ---------  ---------
     Total liabilities and
      stockholders' equity        $ 32,247   $ 30,602
                                 =========  =========

This news release was distributed by GlobeNewswire, www.globenewswire.com

SOURCE: StemCells, Inc.

CONTACT: Rodney Young
Chief Financial Officer
(650) 475-3100 x128