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StemCells, Inc. Reports Third Quarter 2012 Financial Results and Provides Business Update

StemCells, Inc. Reports Third Quarter 2012 Financial Results and Provides
Business Update

NEWARK, Calif., Nov. 8, 2012 (GLOBE NEWSWIRE) -- 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 third quarter
ended September 30, 2012 and provided a business update.

"We remain committed to building shareholder value by generating meaningful
preclinical and clinical data in a cash-efficient manner," said Martin
McGlynn, President and CEO of StemCells, Inc. "As to meaningful data, we
recently published two papers demonstrating the therapeutic potential of our
proprietary HuCNS-SC® cells for a range of myelination disorders, including
the data from our Phase I clinical trial in Pelizaeus-Merzbacher disease
showing evidence of new myelination and measurable gains in neurological
function; we reported interim data from our spinal cord injury trial showing
considerable gains in sensory function in two of three patients compared to
pre-transplant baselines; and we reported exciting preclinical data in two
animal models relevant to Alzheimer's disease. The data we are generating and
reporting illustrate the considerable potential of our HuCNS-SC human neural
stem cells to address a broad range of CNS disorders.

"As to cash management, we continue to look for ways to do more with less.
This quarter we reported further reductions in operating expenses, continuing
a downward trend begun in 2010, while sales of reagents marketed under the SC
Proven® brand continue to show good growth. During the quarter, we
strengthened our balance sheet and now have $27 million in the bank. In
addition, we were approved for two disease team awards from the California
Institute for Regenerative Medicine (CIRM) for up to $40 million in funding,
and are working with CIRM to finalize the terms and conditions associated with
this funding."

Third Quarter and Recent Business Highlights

Therapeutic Product Development

  oIn July 2012, we presented preclinical data demonstrating that our
    proprietary human neural stem cells restored memory and enhanced synaptic
    function in two animal models relevant to Alzheimer's disease.
    Importantly, these results did not require reduction in beta amyloid or
    tau, substances that accumulate in the brains of patients with Alzheimer's
    disease and account for the pathological hallmarks of the disease.The
    data was presented at the Alzheimer's Association International Conference
    2012 in Vancouver, Canada.
    
  oIn September 2012, we presented interim six-month data from the first
    patient cohort in our Phase I/II clinical trial of our HuCNS-SC cells for
    chronic spinal cord injury.The first patient cohort all have no sensory
    or motor function below the level of injury and are considered to have
    complete spinal cord injuries. The interim data continues to demonstrate a
    favorable safety profile, and showed considerable gains in sensory
    function in two of the three patients compared to pre-transplant
    baselines; the third patient remained stable.The data was presented at
    the 51st Annual Scientific Meeting of the International Spinal Cord
    Society in London, England.
    
  oAlso in September 2012, the first patient with an incomplete spinal cord
    injury was enrolled and dosed in our Phase I/II clinical trial in chronic
    spinal cord injury.This is the first patient in the second cohort of the
    trial, which will be comprised of four patients who retain some sensory
    function below the level of trauma and are therefore considered to have an
    incomplete injury.
    
  oIn October 2012, the first patient in our Phase I/II clinical trial in dry
    age-related macular degeneration (AMD) was enrolled and dosed. AMD
    afflicts approximately 30 million people worldwide and is the leading
    cause of vision loss and blindness in people over 55 years of age. Our
    preclinical data, which was published in the peer-reviewed European
    Journal of Neuroscience, demonstrated that our HuCNS-SC cells protect host
    photoreceptors and preserve vision in a well-established animal model of
    retinal disease.Moreover, the number of cone photoreceptors remained
    constant over an extended period, consistent with the sustained visual
    acuity and light sensitivity observed in the study. In humans,
    degeneration of the cone photoreceptors accounts for the unique pattern of
    vision loss in dry AMD.
    
  oIn October 2012, two papers reporting clinical and preclinical data
    demonstrating the therapeutic potential of our proprietary HuCNS-SC cells
    for a range of myelination disorders were published in Science
    Translational Medicine, the peer-review journal of the American
    Association for the Advancement of Science.The first paper summarized the
    data from our Phase I trial in Pelizaeus-Merzbacher disease (PMD), which
    showed preliminary evidence of progressive and durable donor cell-derived
    myelination in all four patients transplanted with HuCNS-SC cells. Three
    of the four patients showed modest gains in neurological function; the
    fourth patient remained stable.These gains may represent signals of a
    clinical effect from the HuCNS-SC cells and warrant further investigation
    in a controlled trial.The second paper demonstrated that transplantation
    of our neural stem cells in an animal model of severe myelin deficiency
    results in new, functional myelin.Sophisticated analytical techniques
    were used to confirm that changes measured by magnetic resonance images
    were in fact derived from new human myelin generated by the transplanted
    HuCNS-SC cells and these results supported the use of similar techniques
    to detect and evaluate the degree of myelination in our Phase I PMD
    trial.

Other Business Activities

  oIn July 2012, CIRM approved an award to us for up to $20 million under the
    Disease Team Therapy Development Award program (RFA 10-05). The award is
    to fund preclinical development of our HuCNS-SC cells in cervical spinal
    cord injury over a maximum four-year period, with the goal of filing an
    IND in that time. Funding under the award is expected to be in the form of
    a forgivable loan, the terms and conditions for which must be mutually
    agreed by CIRM and us.
    
  oIn July 2012, the Japan Patent Office granted us Patent Number 5007003
    which broadly covers the prospective isolation and enrichment of neural
    stem and progenitor cells using antibody selection, as well as the use of
    these cells to treat disorders of the central nervous system. Some of the
    more noteworthy claims in this patent include methods for isolating human
    neural stem cells, as well as compositions of matter comprising enriched
    neural stem cells, such as our proprietary HuCNS-SC cells, and the use of
    enriched neural stem cells as a medicament for the treatment of
    neurodegenerative diseases, acute brain injury and dysfunction of the
    central nervous system.The term of this patent extends into 2020.
    
  oIn September 2012, CIRM approved a second disease team award to us for up
    to $20 million under RFA 10-05. This second award is to fund preclinical
    development of our HuCNS-SC cells in Alzheimer's disease over a maximum
    four-year period, with the goal of filing an IND in that time.Funding for
    this award is also expected to be in the form of a forgivable loan, the
    terms and conditions for which must be mutually agreed by CIRM and us.
    
  oIn October 2012, we were issued U.S. Patent Number 8,283,164 which broadly
    covers purified populations of human liver cells, including our human
    liver engrafting cells (hLEC).The hLEC cells were first isolated by our
    researchers in the late 1990s, and our scientists have repeatedly
    demonstrated the cells' engraftment and robust bioactivity in vivo and
    that they are expandable.While our hLEC cells are purified from donated
    adult livers not suitable for transplant, the newly issued '164 patent
    claims cells independent of tissue source, and therefore, has potential
    relevance to those deriving liver cells from induced pluripotent or
    embryonic stem cell platforms.The term of the '164 patent extends into
    2022.
    
  oIn October 2012, we launched four new SC Proven human neural stem cell
    kits for use in neuroscience research.Each kit will contain high-purity,
    multipotent neural stem cells derived from a different area of the human
    central nervous system, and will provide researchers with a reproducible
    and scalable serum-free platform with which to perform a broad range of
    assays. With these kits, researchers will now have the ability to compare
    and contrast the biological, functional and neural differentiation
    properties of human neural stem cells isolated from specific regions of
    the central nervous system, as well as to screen for the effects of
    different compounds on such cells.
    
  oIn October 2012 we partnered with an UK-based biomedical company, R
    Biomedical, to develop and commercialize a range of cell lines and
    reagents to facilitate induced pluripotent stem (iPS) cell-based research
    for regenerative medicine applications. The first product under the
    partnership, an "ultra-primary" human fibroblast cell line from which
    researchers can generate iPS cell lines, was launched under the SC Proven
    brand.

Third Quarter Financial Results

  *Revenue from product sales up 11%
    
  *Operating expenses down 17%
    
  *Pro forma cash balance $27.4 million
    
  *Anticipated 2012 cash burn $18-$20 million
    
  *CIRM approves two awards of up to $20 million each, the first for cervical
    spinal cord injury and the second for Alzheimer's disease

Revenue from product sales increased 11% to $203,000 in the third quarter of
2012 compared to the same period of 2011 as our SC Proven media and reagents
business continued to see increased unit volume.Total revenue in the third
quarter of 2012 was $264,000, compared to $224,000 in the same period of
2011.

Our operating expenses decreased 17% to $5,269,000 in the third quarter of
2012 compared to the same quarter of 2011.Research and development expenses
were 23% lower, and selling, general and administrative expenses were 6%
lower.The significant reduction in operating expenses was primarily
attributable to tight cost controls and a number of measures taken previously
to reduce infrastructure and overhead costs.

Other expense in the third quarter of 2012 was $11,259,000, compared to other
income of $1,829,000 in the third quarter of 2011.This increase in other
expense was primarily due to a non-cash expense from an increase in the
estimated fair value of warrant liability.Our outstanding warrants are
classified as a liability, with changes in the estimated fair value recorded
as income or loss.

Loss from operations in the third quarter of 2012 was $5,077,000, an 18%
decrease compared to the same period in 2011.Net loss for the quarter was
$16,337,000, or $0.54 per share, compared with a net loss of $4,334,000, or
$0.31 per share, for the third quarter of 2011.

Net cash used in operating activities for the third quarter of 2012 was
$4,235,000.Net cash used in operating activities for the first three quarters
of 2012 was $14,950,000, which was 11% lower than the same period in 2011.

At September 30, 2012, pro forma cash, cash equivalents and marketable debt
securities totaled $27,356,000. This total includes $5,611,000 in net proceeds
from the exercise of Series A Warrants and the sale of shares of common stock
subsequent to the end of the quarter. 

Conference Call

StemCells will host a live conference call and webcast today, November 8, at
4:30 PM Eastern Time (1:30 PM Pacific Time) to discuss our financial results
and recent business activities.Interested parties are invited to listen to
the call over the Internet via the Investors section of our 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 our 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®
cells (purified human neural stem cells), is currently in development as a
potential treatment for a broad range of central nervous system disorders. In
a PhaseI clinical trial in Pelizaeus-Merzbacher disease (PMD), a fatal
myelination disorder in children, the Company has shown preliminary evidence
of progressive and durable donor-derived myelination in all four patients
transplanted with HuCNS-SC cells.The Company is also conducting a Phase I/II
clinical trial in chronic spinal cord injury in Switzerland and has reported
positive interim data for the first patient cohort.The Company is also
conducting a Phase I/II clinical trial in dry age-related macular degeneration
(AMD), and is pursuing preclinical studies in Alzheimer's disease. StemCells
also markets stem cell research products, including media and reagents, under
the SC Proven® brand.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
prospects associated with detecting 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 Company's ability to apply for, and possibly
secure funding from, the California Institute of Regenerative Medicine; and
the adequacy of our existing supply of HuCNS-SC cells to complete our ongoing
and planned clinical trials; 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, AMD, 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 PhaseI 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 or conduct future
clinical trials; 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;
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, 2011 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
                              2012        2011        2012        2011
Revenue:                                                        
Revenue from licensing         $61       $41       $472      $163
agreements, grants and other
Revenue from product sales     203        182        685        516
Total revenue                  264        223        1,157      679
Cost of product sales          72         60         208        167
Gross profit                   192        163        949        512
                                                               
Operating expenses:                                             
Research and development       3,478      4,524      11,166     15,104
Selling, general and           1,636      1,733      5,336      5,912
administrative
Wind-down expenses             155        69         200        259
                                                               
Total operating expenses      5,269      6,326      16,702     21,275
                                                               
Loss from operations           (5,077)    (6,163)    (15,753)   (20,763)
                                                               
Other income (expense):                                         
Change in fair value of        (11,239)   1,697      (9,975)    6,500
warrant liability
Realized gain on sale of       --         --         --         84
marketable securities
Interest income (expense), net (10)       (13)       (30)       (45)
Other income (expense), net    (11)       145        25         107
Total other income (expense),  (11,260)   1,829      (9,980)    6,646
net
                                                               
Net loss                       $(16,337) $(4,334)  $(25,733) $(14,117)
                                                               
Basic and diluted net loss per $(0.54)   $(0.31)   $(0.99)   $(1.02)
share
                                                               
Weighted average number of
common shares outstanding,     30,168,478 14,009,341 25,992,764 13,831,749
basic and diluted

                                                           
StemCells, Inc.                                             
Unaudited Condensed Consolidated Balance                    
Sheets
(in thousands)                                              
                                         September 30, 2012 December 31, 2011
                                         (unaudited)        (unaudited)
ASSETS:                                                     
Current Assets:                                             
Cash & cash equivalents                  $15,713          $13,311
Marketable securities                    6,032             3,281
Other current assets                     1,499             796
Total current assets                      23,244            17,388
                                                           
Property, plant and equipment, net        1,536             2,055
Goodwill and other intangible assets, net 3,844             3,906
Other assets, non-current                 1,033             1,856
Total assets                              $29,657          $25,205
                                                           
LIABILITIES AND STOCKHOLDERS' EQUITY:                       
Current liabilities                       4,053             5,653
Fair value of warrant liability           14,483            6,042
Other non-current liabilities             1,897             2,785
Stockholders' equity                      9,224             10,725
Total liabilities and stockholders'      $29,657          $25,205
equity

CONTACT: Rodney Young
         StemCells, Inc.
         Chief Financial Officer
         (510) 456-4128

         Ian Stone
         Russo Partners
         (619) 308-6541

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