StemCells Announces 2007 Fourth Quarter and Year End Results

PALO ALTO, Calif. - (Business Wire) StemCells, Inc. (NASDAQ:STEM) today reported its financial results for the fourth quarter and year ended December 31, 2007.

The Company reported a net loss of $7,826,000, or $0.10 per share, for the fourth quarter ended December 31, 2007, compared to a net loss of $5,903,000, or $0.08 per share, for the fourth quarter of 2006. For the fiscal year ended December 31, 2007, the Company reported a net loss of $25,023,000, or $0.31 per share, compared to a net loss of $18,948,000, or $0.25 per share, for the 2006 fiscal year. The increase in net loss from 2006 to 2007 was primarily attributable to an increase in operating expenses associated with the continued expansion of operations in cell processing and clinical development. Total revenue for 2007 was $57,000, compared to $93,000 in 2006. Revenue for 2007 and 2006 was primarily from grants and licensing agreements.

Cash, cash equivalents and short-term marketable securities were $36,456,000 at the end of 2007, compared with $51,796,000 at the end of 2006. Cash used for operating activities in 2007 was $20,857,000 compared to $16,104,000 in 2006.

Highlights for 2007 and significant events since the end of the year include:

• In January 2008, we completed enrollment and dosing of a six-patient Phase I clinical trial of our HuCNS-SC^® product candidate (purified human neural stem cells) as a treatment for infantile and late infantile neuronal ceroid lipofuscinosis (NCL, also often referred to as Batten disease) at Oregon Health & Science University (OHSU) Doernbecher Children’s Hospital.
• In January 2008, we entered into a research collaboration with OHSU Casey Eye Institute to evaluate our HuCNS-SC cells as a potential treatment for retinal degeneration, a leading cause of blindness. Published studies have shown that in a well established animal model of retinal degeneration, the Royal College of Surgeons Rat Model, human neural stem cells protect retinal function and thereby preserve vision. Under the collaboration, we will evaluate the engraftment and function of our HuCNS-SC cells in this model.
• In December 2007, we announced that we were exploring a possible acquisition of Progenitor Cell Therapy, LLC (PCT), a provider of cGMP-quality cell processing services headquartered in Hackensack, NJ. PCT agreed to a period of exclusivity to allow for due diligence and negotiations and in consideration thereof, we made a secured loan of $1.0 million to PCT. In March 2008, we terminated discussions to acquire PCT because the parties were unable to reach mutually agreeable terms and conditions. We anticipate the $1.0 million loan will be repaid in accordance with its terms.
• In September 2007, we entered into a research collaboration with Belgium's Université Catholique de Louvain (UCL) and the UCL-affiliated Cliniques Universitaires Saint Luc to further the development of our proprietary human liver engrafting cells (hLEC) as a potential cell-based liver therapy. Under the collaboration, we are working with UCL to improve processes to isolate and purify hLEC, which we believe is an important step prior to initiating any clinical study of the cells.
• In June 2007, we announced publication of a paper describing a new technique for non-invasive tracking of our human neural stem cells transplanted into the brains of mice. The technique, which involves tagging the human neural stem cells with Feridex^®, a commonly used magnetic resonance imaging agent approved by the U.S. Food and Drug Administration for use in humans, does not appear to alter the stem cells’ function or viability.
• In February 2007, we raised net proceeds of approximately $3 million through the sale of 5,275,000 ordinary shares of ReNeuron Group plc. We received the shares as part of a license and settlement agreement we entered into with ReNeuron in 2005 in which we granted ReNeuron a license under some of our patents to exploit their conditionally immortalized adult human neural stem cell technology for therapy and other purposes.
• In January 2007, Desmond H. O’Connell, Jr., joined our Board of Directors. Currently an independent management consultant and private investor, Mr. O’Connell is a director of Abiomed, Inc. and was formerly a director, acting chief executive officer and chairman of the board of Serologicals Corporation until that company was sold in 2006.

“We are very pleased with the steady progress being made on a number of fronts,” said Martin McGlynn, President and Chief Executive Officer of StemCells, Inc. “First and foremost, we completed dosing of all patients in our ground-breaking, FDA-approved, Phase I clinical trial for Batten disease. We look forward to finishing this trial in January of next year and to discussing the results with the FDA shortly thereafter.”

“Secondly, we have made great strides towards achieving our goal of expanding our clinical research activities with our HuCNS-SC neural stem cell product candidate into all three elements of the central nervous system – the brain, the spinal cord and the eye. We have already announced that we plan to initiate a clinical trial this year in spinal cord injury and that, in collaboration with the Casey Eye Institute, we have initiated preclinical testing of our cells in a rat model of retinal degeneration. We anticipate results later this year, and if the cells are shown to be protective of the retina in the rat, we will work towards initiating a clinical trial for a retinal disorder in 2009.”

“Thirdly, in conjunction with our Belgian collaborators at UCL, we are making progress on improving the process used to isolate hLEC, our human liver engrafting cells derived from human liver tissue. Upon successful completion of this part of the collaboration, we will work towards initiating a planned clinical study in a pediatric metabolic disorder.”

Mr. McGlynn added, “In addition to our research and development efforts, we had a busy year in other aspects of our business. We recently terminated acquisition discussions with PCT due to a combination of unfavorable market conditions and the inability of the parties to reach agreement on terms. However, we remain convinced of the merits of a strategy designed to leverage our core competencies while at the same time diversifying our business, and so we will continue to proactively evaluate other possible business transactions.”

“Finally, we have been actively engaged with the US Patent and Trademark Office with regard to its re-examination of five of our 50 plus issued or allowed US patents and remain confident that all five of these patents will reissue. We have made a considerable investment in our intellectual property over the years and have built a very deep and broad patent portfolio that provides us multiple layers of protection in the neural stem cell field. We intend to protect this important strategic asset, which has already generated considerable value for our shareholders from licensing activities, such as with ReNeuron. In addition, we will continue to explore business arrangements that will produce additional value from this asset and pursue our legal remedies against infringers.”

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”) and its ability to conduct clinical trials as well as its research and product development efforts. These forward-looking statements speak only as of the date of this news release. StemCells 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 uncertainty as to whether the FDA or other applicable regulatory agencies will permit the Company to continue clinical testing in NCL 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 regarding the Company’s ability to obtain the increased capital resources needed to continue its current research and development operations and to conduct the research, preclinical development and clinical trials necessary for regulatory approvals; uncertainty regarding the validity and enforceability of the Company’s patents; 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 the Company’s manufacturing capabilities given its increasing pre-clinical and clinical commitments; uncertainties as to whether the Company will achieve revenues from product sales or become profitable; and other factors that are described under the heading “Risk Factors” in Item 1A of Part II of the Company’s Annual Report on Form 10-K.

StemCells, Inc.
Condensed Consolidated Statement of Operations
(in thousands, except share and per share amounts)
		Three months ended				Twelve months ended
		December 31,				December 31,
		2007		2006		2007		2006
Revenue from grants and licensing agreements		$30		$12		$57		$93
Operating Expenses
Research and development		5,798		4,198		19,938		13,600
General & administrative		2,211		2,175		7,927		7,154
Wind-down expenses		344		210		783		709
Total operating expenses		8,353		6,583		28,648		21,463
Loss from operations		(8,323)		(6,571)		(28,591)		(21,370)
Other income (expense)
License and settlement agreement, net		-		-		550		103
Interest Income		533		701		2,460		2,480
Other income (expense)		(36)		(33)		558		(161)
Total other income (expense)		497		668		3,568		2,422
Net loss basic and diluted		($7,826)		($5,903)		($25,023)		($18,948)
Net loss per share; basic and diluted		($0.10)		($0.08)		($0.31)		($0.25)
Weighted average shares – basic and diluted		80,644,213		77,945,138		79,772,351		74,611,196

StemCells, Inc.
Condensed Consolidated Balance Sheets (in thousands)
		December 31,		December 31,
		2007		2006
Assets
Current assets:
Cash & cash equivalents		$9,759		$51,796
Marketable securities, current		26,697		4,132
Other current assets		2,297		1,602
Total current assets		38,753		57,530
Marketable securities, non-current		3,151		3,134
Property, plant & equipment, net		3,905		3,596
Other assets, net		2,473		2,597
Total assets		$48,282		$66,857
Liabilities and stockholders’ equity
Current liabilities		$5,848		$4,150
Non-current liabilities		7,222		8,331
Stockholders’ equity		35,212		54,376
Total liabilities and stockholders’ equity		$48,282		$66,857

StemCells, Inc.
Rodney Young, 650-475-3100 ext. 105
Chief Financial Officer
irpr@stemcellsinc.com