StemCells second-quarter net loss decreases to $4.61 million

StemCells, Inc. (Nasdaq:STEM), a leading stem cell company developing and commercializing novel stem cell therapeutics and tools for use in stem cell-based research and drug discovery, today reported financial results and business highlights for the second quarter ended June 30, 2010.

"During the second quarter, we continued to advance the clinical development of our lead product candidate, HuCNS-SC^® neural stem cells," said Martin McGlynn, President and CEO of StemCells, Inc. "Our PMD trial is underway at UCSF and our goal is to complete enrollment by year end. We also expect to initiate our second NCL trial later this year. In addition, we have made progress towards accomplishing our goal of initiating clinical trials in spinal cord injury and age-related macular degeneration in 2011 and 2012, respectively.   

"Recognizing that economic and financial conditions remain highly uncertain, we continue to proactively control operating expenses and carefully manage cash resources. This difficult environment underscores the strategic rationale behind our investment in our research tools programs, as they represent nearer term commercial opportunities in the rapidly growing market for research grade cells, media and reagents. In this regard, we are focused on expanding access to global markets for our SC Proven^® specialty cell culture products, and on exploring ways to work with the pharmaceutical industry to leverage our stem cell-based drug discovery capabilities."

Second Quarter Business Highlights

• In May 2010, we appointed R. Scott Greer to our Board of Directors.  Mr. Greer is a successful entrepreneur with a proven track record in developing and growing life sciences companies, and adds more than twenty-five years of life sciences and financial services industry experience to our Board.  In addition, we reconstituted the Strategic Transactions Committee, which Mr. Greer chairs, as a standing committee of the Board to provide guidance to and consult with management on various corporate initiatives.
   
• In May 2010, we were authorized by the FDA to proceed to a second clinical trial in neuronal ceroid lipofusinosis (NCL, also often referred to as Batten disease), a fatal neurodegenerative disorder in children. This trial is designed to further assess the safety of HuCNS-SC cells in NCL, while also examining the ability of the cells to affect the progression of the disease.
   
• In May 2010, the co-principal investigator of our Phase I NCL trial, Nathan Selden, M.D., Ph.D., F.A.C.S., F.A.A.P., gave a feature presentation at the American Association of Neurological Surgeons 2010 Annual Meeting, one of the leading forums for neurosurgeons from around the world, to present and discuss cutting-edge research in the field.  In his presentation, Dr. Selden highlighted the positive safety profile of the HuCNS-SC cells and the transplantation procedure shown by the data from both the NCL trial and the ongoing long-term observational study.
   
• In June 2010, we announced that newly published independent research demonstrates that our GS2-M™ cell culture media formulation enhances the pluripotency of human embryonic stem (ES) and induced pluripotent stem (iPS) cells. Our GS2-M product has already been shown to enable the derivation and long-term maintenance of mouse iPS cells. With this new application of GS2-M, researchers may now be able to significantly advance human pluripotent stem cell research.
   
• In June 2010, three of our scientists made presentations at the International Society for Stem Cell Research (ISSCR) 8th Annual Meeting, which is the preeminent meeting of stem cell experts from public, private, academic, and government institutions from around the world. These presentations highlight our scientific leadership and progress in advancing discoveries to potential commercial applications.
   
• In June 2010, we sold seven million shares of our common stock to an institutional investor at a price of $0.865 per share. We received net proceeds, after deducting offering expenses and fees, of approximately $5,700,000.  No warrants were issued in this transaction. The institutional investor has agreed to purchase an additional five million shares approximately 12 weeks after the initial purchase, at a price to be calculated using the then-current trading price, although we may elect not to sell the additional shares.  No warrants would be issued in connection with the sale of the additional shares. 

Second Quarter Financial Results

For the second quarter of 2010, the Company reported a net loss of $4,610,000, or $(0.04) per share, compared with a net loss of $7,366,000, or $(0.07) per share, for the second quarter of 2009. The Company's net loss in the second quarter of 2010 was reduced by other income of $2,440,000, which was recorded to reflect a decrease in the estimated fair value of warrant liability. 

The Company's loss from operations was $7,051,000 in the second quarter of 2010, which was 7% lower than the loss from operations reported in the first quarter of 2010, reflecting the Company's continuing focus on cost control. In addition to this quarter-over-quarter decrease in operating loss, the loss from operations in the second quarter of 2010 represents a 5% year-over-year decrease compared to the second quarter of 2009.

Total revenue in the second quarter of 2010 was $244,000, which was a 6% increase compared to total revenue in the first quarter of 2010.  This increase was primarily due to a 51% increase in licensing and grant revenue, which offset lower product sales revenue from the Company's SC Proven^® line of specialty cell culture products. Research and development expenses in the second quarter of 2010 were $4,858,000, a decrease of 4% compared to the first quarter of 2010. Selling, general and administrative expenses in the second quarter of 2010 were $2,286,000, a 12% decrease compared to the first quarter of 2010. Total operating expenses declined 7% on a quarter-over-quarter basis and 4% on a year-over-year basis. 

Cash and cash equivalents at June 30, 2010 totaled $30,765,000, compared with $38,618,000 at December 31, 2009. For the first six months of 2010, cash used in operations totaled $13,746,000, and   the Company raised $7,015,000 in net proceeds through sales of common stock.