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StemCells, Inc. Provides Business Update and Reports Third Quarter 2011 Financial Results

NEWARK, Calif., Nov 1, 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 provided a business update and reported financial results for the third quarter ended September 30, 2011.

"As our quarterly results show, we are making real progress in containing our expenses and cash burn, and I am pleased to report that we are also making significant progress in the clinic with our HuCNS-SC(R) cells," said Martin McGlynn, President and CEO of StemCells, Inc. "We successfully dosed the first patient in our spinal cord injury trial and are on track to complete dosing of the first patient cohort this year. In our PMD trial, we have conducted a review of interim data with the clinical investigators at UCSF and are cautiously optimistic that changes we are seeing in patient MRIs are consistent with early development of new myelin in the regions in which the cells were transplanted. Obviously, we must await the final results of this trial before definitive conclusions can be drawn. I am also pleased to report that there have only been two SAEs in this trial to date, both of which appear unrelated to the cells or the procedure. We anticipate being able to report final study results in Q2 of next year."

Third Quarter and Recent Business Highlights

Therapeutic Product Development

  --  In September 2011, the first patient in our breakthrough Phase I/II
      trial in chronic spinal cord injury was successfully transplanted with
      our proprietary HuCNS-SC cells. The clinical trial is being conducted at
      Balgrist University Hospital, University of Zurich, a world leading
      medical center for spinal cord injury and rehabilitation, and is
      designed to assess both safety and preliminary efficacy.

  --  In September 2011, the California Institute of Regenerative Medicine
      (CIRM) approved our application for a "Disease Team Therapy Development
      Planning Award," making us one of only four companies to be awarded a
      planning grant. The grant, totaling approximately $100,000, will help
      fund our plans to develop our HuCNS-SC cells in Alzheimer's disease by
      enabling us and our collaborators to prepare and submit an application
      for a "Disease Team Therapy Development Research Award." Each Research
      Award may be up for to $20 million payable over four years, and the CIRM
      plans to approve and fund Research Awards in mid 2012.


Tools and Technologies Programs

  --  In July 2011, researchers from the Company and their collaborators
      published a study in which the Company's commercially available SC
      Proven serum-free cell culture media was used for the reproducible and
      robust production of large numbers of genetically stable, self-renewing
      cells that retain true multi-potent biological function over extended
      culture periods. This work overcomes a key hurdle to the use of
      non-immortalized cells for regenerative medicine, and demonstrates the
      utility of human tissue-derived neural stem cells as a scalable platform
      for cell-based drug discovery and drug screening applications.


Other Business Activities

  --  In July 2011, we relocated our corporate headquarters and U.S.-based
      research and development operations to Newark, California. The new
      facilities comprise newly constructed, custom designed laboratory and
      office space, and houses the majority of our U.S. workforce. The move
      also significantly reduces the Company's annual facility lease and
      operating expenses.

  --  In July 2011, following the affirmative vote of our stockholders at our
      Annual Meeting, we effected a one-for-ten reverse stock split which
      reduced the number of shares outstanding from approximately 139 million
      to approximately 13.9 million.

  --  In July 2011, we received notification from The NASDAQ Stock Market that
      we had regained compliance with the minimum bid price requirement needed
      to continue listing on the NASDAQ Global Market. The NASDAQ Listing
      Rules require our stock to evidence a closing bid price of $1.00 per
      share or more for ten consecutive days.


Third Quarter Financial Results

For the third quarter of 2011, the Company reported a net loss of $4,334,000, or $(0.31) per share, compared with a net loss of $5,552,000, or $(0.44) per share, for the third quarter of 2010. Loss from operations in the third quarter of 2011 was $6,163,000, which was 12% lower when compared to the $7,001,000 loss from operations in the third quarter of 2010.

Total revenue during the third quarter of 2011 was $224,000, compared to $254,000 in the same period of 2010. Revenue from product sales in the third quarter of 2011 was $182,000, which was a 40% increase compared to the same period of 2010. 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 $41,000, which was a 67% decrease compared to the previous year primarily due to the completion and termination of several projects funded by grants.

Total operating expenses in the third quarter of 2011 were $6,326,000, compared to $7,218,000 in the third quarter of 2010. In the third quarter of 2011, selling, general and administrative expenses totaled $1,733,000, which was a 14% decrease compared to the same period of 2010, while research and development expenses totaled $4,524,000, or 13% lower than in the third quarter of 2010. The significant reduction in operating expenses quarter over quarter was primarily attributable to the reduction in force effected in May 2011.

Other income in the third quarter of 2011 was $1,829,000, compared to $1,449,000 in the third quarter of 2010. This increase was primarily due to a decrease in the estimated fair value of warrant liability.

Cash, cash equivalents and marketable securities at September 30, 2011 totaled $12,534,000, compared with $19,899,000 at December 31, 2010. For the nine-month period ended September 30, 2011, net cash used in operating activities was $16,846,000, which was 14% lower than the same period in 2010.

Conference Call

StemCells will host a live conference call and webcast today, November 1, 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 the dry form of 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 timing and nature of the final data from the Company's Phase I clinical study in PMD; the timing of patient dosing and possible outcomes of the Company's Phase I/II clinical study in spinal cord injury; the Company's ability to apply for, and possibly secure in 2012, funding from the California Institute of Regenerative Medicine; 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; uncertainties about whether myelination formed by donor cells, if any, will have any biologic effect; uncertainties about whether preliminary data in any Phase I clinical study will prove to be reproducible or biologically meaningful in any future clinical study; 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; uncertainties about the Company's ability to secure funding from any governmental agency, such as the California Institute of Regenerative Medicine; 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 and in its subsequent reports on Form 10-Q and Form 8-K.

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




                                      Three months ended        Nine months ended
                                         September 30              September 30
                                   ------------------------  ------------------------

                                      2011         2010         2011         2010
                                   -----------  -----------  -----------  -----------
  Revenue:
    Revenue from licensing
     agreements and grants                $ 41        $ 124        $ 163        $ 409

    Revenue from product sales             182          130          516          319
                                   -----------  -----------  -----------  -----------
  Total revenue                            223          254          679          728

  Cost of product sales                     60           36          167          105
                                   -----------  -----------  -----------  -----------
  Gross profit                             163          218          512          623

  Operating expenses:
    Research and development             4,524        5,201       15,104       15,096
    Selling, general and
     administrative                      1,733        2,018        5,912        6,889

    Wind-down expenses                      69           --          259          291
                                   -----------  -----------  -----------  -----------


  Total operating expenses               6,326        7,219       21,275       22,276
                                   -----------  -----------  -----------  -----------

  Loss from operations                 (6,163)      (7,001)     (20,763)     (21,653)

  Other income (expense):
    Realized gain on sale of
     marketable securities                  --           --           84           --
    Change in fair value of
     warrant liability                   1,697        1,228        6,500        5,184
    Interest income (expense),
     net                                  (13)         (11)         (45)         (48)

    Other income, net                      145          232          107          230
                                   -----------  -----------  -----------  -----------
  Total other income (expense),
   net                                   1,829        1,449        6,646        5,366
                                   -----------  -----------  -----------  -----------


  Net loss                           $ (4,334)    $ (5,552)   $ (14,117)   $ (16,287)
                                   ===========  ===========  ===========  ===========

  Basic and diluted net loss per
   share                              $ (0.31)     $ (0.44)     $ (1.02)     $ (1.33)
                                   ===========  ===========  ===========  ===========

  Shares used to compute basic
   and diluted loss per share*      14,009,341   12,709,172   13,831,749   12,201,532
                                   ===========  ===========  ===========  ===========

  * Adjusted for the impact of the 1 for 10 reverse stock split


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



                                September  December
                                30, 2011   31, 2010
                                ---------  ---------

  ASSETS:
  Current Assets:
    Cash & cash equivalents       $ 7,294   $ 19,708
    Marketable securities           5,240        191

    Other current assets            1,090      1,270
                                ---------  ---------
  Total current assets             13,624     21,169

  Property, plant and
   equipment, net                   2,248      2,627
  Goodwill and other
   intangible assets, net           4,674      4,874

  Other assets, non-current         1,914      1,932
                                ---------  ---------

  Total assets                   $ 22,460   $ 30,602
                                =========  =========

  LIABILITIES AND
   STOCKHOLDERS' EQUITY:
  Current liabilities               5,467      5,528
  Fair value of warrant
   liability                          172      6,672
  Other non-current
   liabilities                      2,846      2,921

  Stockholders' equity             13,975     15,481
                                ---------  ---------
    Total liabilities and
     stockholders' equity        $ 22,460   $ 30,602
                                =========  =========

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

SOURCE: StemCells, Inc.

CONTACT: Rodney Young
Chief Financial Officer
(510) 456-4128