Stemcells, Inc. reports Q2 financials

StemCells, Inc. (NASDAQ: STEM) today reported financial results for the second quarter ended June 30, 2009.

Results for the quarter reflect the Company’s acquisition of the operations of Stem Cell Sciences Plc (SCS), a UK-based company focused on cell-based technologies for drug discovery and screening. This acquisition, which closed on April 1, 2009, solidifies StemCells’ leadership position in human neural stem cell technology, broadens its proprietary cell-based technologies, adds expertise and infrastructure for providing cell-based assays for drug discovery and screening, adds a revenue-generating cell culture media business, and establishes a European presence for the Company with operations in Cambridge, U.K. As consideration for the acquired operations, StemCells issued to SCS 2,650,000 shares of common stock and waived certain commitments of SCS to repay $709,000 in principal and accrued interest owed to the Company.

The Company reported a net loss of $7,366,000, or $0.07 per share, for the second quarter ended June 30, 2009, compared with a net loss of $6,715,000, or $0.08 per share, in the second quarter of 2008. Total revenue for the second quarter of 2009 was $265,000, compared to $30,000 for the second quarter of 2008. This significant increase in revenue reflects the consolidation of the acquired SCS operations, and includes $121,000 in product sales from the Company’s SC Proven^® portfolio of cell culture media products.

Total operating expenses for the quarter were $7,597,000, a 10% increase compared to the same period in 2008. Operating expenses in the second quarter of 2009 include two non-recurring items: (i) a charge of $310,000 to set up a reserve for costs and expenses associated with the Company’s exit from its Melbourne, Australia site, and (ii) transaction expenses of $172,000 related to the acquisition of the SCS operations. Research and development expenses were 14% higher in the second quarter of 2009 compared with the same period in 2008, primarily due to the consolidation of the SCS operations, while general and administrative expenses were 6% lower in the second quarter compared with the same period in 2008, primarily due to lower external services fees.

Cash, cash equivalents and short-term marketable debt securities totaled $36,760,000 at June 30, 2009. In the second quarter of 2009, the Company raised $8,655,000 in gross proceeds through the sale of 4,937,400 shares of common stock. For the first six months of 2009, the Company’s cash used in operations totaled $12,383,000, which was 1% higher than the same period in 2008. This modest increase reflects the Company’s continuing efforts to control expenses and manage working capital requirements.

Significant recent events include:

• In April 2009, StemCells announced that a major international pharmaceutical company acquired a non-exclusive license to the Company’s Internal Ribosome Entry Site (IRES) technology, which was acquired as part of the SCS operations. 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, the U.S. Patent and Trademark Office (PTO) upheld the validity of StemCells’ two remaining neural stem cell patents, which were subjected to reexamination proceedings commenced by Neuralstem, Inc. The PTO’s decision to uphold the two patents is final and cannot be appealed. The upheld patents are the subject of litigation initiated by the Company against Neuralstem alleging infringement of a total of six patents. These six patents collectively claim the manufacture and use of human neural stem and progenitor cells as tools for drug discovery and as therapeutic agents. In August 2009, the court approved a scheduling order for discovery and trial.
• In May 2009, the Company’s collaborators at Oregon Health & Science University Casey Eye Institute presented data at the Association for Research in Vision and Ophthalmology (ARVO) 2009 Annual Meeting showing that StemCells’ human central nervous system stem cells, when transplanted into an 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.
• In June 2009, StemCells announced positive results from a Phase I clinical trial of its HuCNS-SC product candidate (purified human neural stem cells) in infantile and late infantile neuronal ceroid lipofuscinosis (NCL), often referred to as Batten disease. This first Phase I trial was designed primarily to assess the safety of HuCNS-SC cells as a potential cell-based therapeutic. Overall, the trial data demonstrated that the HuCNS-SC cells, the transplantation procedure and the immunosuppression regimen were well tolerated by all six patients enrolled in the trial, and the patients’ medical, neurological and neuropsychological conditions, following transplantation, appeared consistent with the normal course of the disease. In addition to this favorable safety profile, the Company reported evidence of engraftment and long-term survival of the HuCNS-SC cells.
• In June 2009, StemCells was added to the Russell 3000^® Index, a broad market index that measures the performance of the 3000 largest companies in the United States. As part of membership in the Russell 3000, StemCells is also included in the Russell 2000^® Index, which is a subset of the Russell 3000 representing the small capitalization segment of the U.S. equity market.

“This was a notable quarter for StemCells as we announced positive results from our first clinical trial and, for the first time, we are reporting revenue from product sales,” said Martin McGlynn, President and CEO of StemCells, Inc. “Our Phase I clinical trial in Batten disease was a landmark achievement, and we are encouraged by the favorable safety profile of our HuCNS-SC product and the evidence that our cells engrafted and survived after transplantation. We are working diligently to initiate a second clinical trial of our HuCNS-SC cells in Pelizaeus-Merzbacher Disease (PMD) before year-end, and we are pursuing a clinical study with our liver cell. With respect to product sales, we are experiencing strong demand for our SC Proven media, and are focused on growing this business.

“We continue to be mindful of the difficult economic environment and remain committed to proactively managing our expenses and cash balance,” continued Mr. McGlynn. “During the past six months, we have taken advantage of the liquidity of our shares to opportunistically raise $15 million. Our ability to access the capital markets in these trying conditions has enabled us to maintain a strong balance sheet and given us the resources and flexibility to execute on our strategic agenda, which is to build a sustainable business focused on cell-based technologies.”

www.stemcellsinc.com