StemCells, Inc. Reports Third Quarter 2013 Financial Results and Provides Business Update

StemCells, Inc. Reports Third Quarter 2013 Financial Results and Provides
Business Update

NEWARK, Calif., Nov. 5, 2013 (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, 2013 and provided a business update.

"In the third quarter, we made solid progress executing the clinical
development plan for our proprietary HuCNS-SC® cells by actively recruiting
more patients into our two enrolling studies and expanding regulatory
authorization for our spinal cord injury study into the United States and
Canada," said Martin McGlynn, President and CEO of StemCells, Inc. "We are on
track to complete enrollment in our spinal cord injury trial in the first
quarter of next year and complete enrollment in our dry age-related macular
degeneration (AMD) trial by mid 2014. We have been laying the groundwork for
the Phase II proof-of-concept trials to be initiated next year for both
indications, including investing in our own state-of-the-art current Good
Manufacturing Practice (cGMP) cell-processing facility in Sunnyvale,
California.Lastly, we strengthened our balance sheet in early October by
raising $18.6 million.The additional capital provides the resources and
flexibility to execute our strategy."

Third Quarter and Recent Business Highlights

  *In July 2013, we formally launched our Alzheimer's disease program, which
    is being supported by the California Institute for Regenerative Medicine
    (CIRM).The goal of this project is to file, within four years, an
    Investigational New Drug (IND) application with the U.S. Food and Drug
    Administration to evaluate our HuCNS-SC cells as a potential therapeutic
    for Alzheimer's disease.CIRM has agreed to provide approximately $19.3
    million in the form of a forgivable loan to help fund our preclinical
    development and IND-enabling activities, and in July we received an
    initial disbursement of $3.8 million from CIRM.
    
  *In August 2013, we presented data which show that, two years after
    transplantation of our HuCNS-SC cells into patients with
    Pelizeaus-Merzbacher disease (PMD), the evidence of myelination, by
    magnetic resonance imaging (MRI), is more pronounced compared to one year
    post-transplantation, the gains in neurological function reported after
    one year were maintained, and there were no safety concerns. The
    neurological and MRI changes suggest a departure from the natural history
    of the disease and may represent signals of a clinical effect.
    
  *In September 2013, we published a comprehensive overview of the
    therapeutic potential and results from early clinical trials of our
    HuCNS-SC cells. The paper was published in Stem Cell Research & Therapy,
    an international peer-reviewed journal considered to be the major forum
    for translational research into stem cell therapies.
    
  *In September 2013, we dosed the first high-dose patient in our Phase I/II
    clinical trial in dry AMD. The patient, the fifth overall in the
    16-patient trial, was transplanted with one million of our HuCNS-SC cells.
    The first four patients each received a dose of 200,000 cells. An
    independent Data Safety Monitoring Committee conducted a review of the
    trial data related to the first four patients, and found no safety issues
    to preclude the trial from proceeding to the high dose.
    
  *In September 2013, we published preclinical data confirming that our
    HuCNS-SC cells preserve photoreceptor cells and visual function in a
    widely used model of retinal degeneration. The data show not only that
    HuCNS-SC cells preserve the number of photoreceptors that would otherwise
    be lost, but also that the surviving photoreceptors appear healthy and
    normal, and maintain their synaptic connection to other important cells
    necessary for visual function. The study was published in Investigative
    Ophthalmology and Visual Science (IVOS), the peer-reviewed journal of the
    Association for Research in Vision and Ophthalmology.
    
  *In October 2013, the FDA authorized our IND application for clinical
    testing of our HuCNS-SC cells as a treatment for spinal cord injury. As a
    first step under this IND, we are working to open U.S. sites for our Phase
    I/II clinical trial for chronic spinal cord injury, which is currently
    underway in Switzerland and Canada.
    
  *In October 2013, we sold a total of 12,845,500 units in an underwritten
    public offering at a price of $1.45 per unit and received total proceeds,
    net of offering expenses, underwriting discounts and commissions, of
    approximately $17.3 million. Each unit sold consisted of one share of
    common stock and a warrant to purchase one-half share of common stock.
    The warrants have an exercise price of $1.80 per share, are exercisable
    immediately, and will expire five years from the date of issuance.
    
  *In October 2013, we presented the results of a four-year observation study
    in patients with neuronal ceroid lipofuscinosis (NCL), also often referred
    to as Batten disease, who had been transplanted with our HuCNS-SC cells in
    a Phase I study. Key results include long-term (up to five years
    post-transplantation) evidence of safety of the surgical transplantation
    of HuCNS-SC cells into multiple sites in the brain and at doses of up to
    one billion cells. The study results represent the first, and thus far
    only, multi-year data set following transplantation of neural stem cells
    into human subjects, and supports the feasibility of our approach in
    multiple neurological disorders. The data was presented by the
    co-principal investigator of the studies at the Congress of Neurological
    Surgeons Annual Meeting in San Francisco, California.
    
  *In October 2013, we acquired a portfolio of issued U.S. and Canadian
    patents to which we had previously held an exclusive worldwide license.
    The portfolio broadly claims the manufacture and proliferation of
    purified populations of human neural stem cells and their use as
    therapeutics and as tools for drug discovery. The acquisition relieves us
    of all milestone and royalty obligations under the license agreements for
    products claimed by the patents, such as products derived from our
    HuCNS-SC cells. As consideration for the portfolio, we will issue 139,548
    shares of our common stock to Neurospheres Holdings Ltd., an intellectual
    property holding company affiliated with the University of Calgary.

Third Quarter Financial Results

Total revenue during the third quarter of 2013 was $325,000, compared to
$264,000 in the third quarter of 2012.Revenue from product sales was
approximately $272,000 in the quarter, an increase of 34% compared to the same
period in 2012.The increase was due primarily to higher unit volumes. 

Total operating expenses in the third quarter of 2013 were $6,895,000, which
was 31% higher than the third quarter of 2012.This increase was driven by
higher research and development expenses, which totaled $5,184,000 in the
quarter, which was 49% more than the same period in 2012.The increase in
research and development expenses was primarily due toincreased clinical
trial expenses, increased expenses related to manufacturing and quality
control activities to support ongoing clinical trials, higher personnel costs
due to the addition of key personnel to strengthen our product development
capabilities, andincreased expenses related to preclinical studies of our
HuCNS-SC cells.Selling, general and administrative expenses totaled
approximately $1,711,000 in the third quarter of 2013, which was a modest
increase compared to the third quarter of 2012. Loss from operations in the
third quarter of 2013 was $6,656,000, a 31% increase compared to $5,077,000
loss from operations in the third quarter of 2012.

Other expense in the third quarter of 2013 was $536,000, compared to
$11,259,000 in the third quarter of 2012.This decrease was almost entirely
related to changes in the estimated fair value of warrant liability, with
increases in the warrant liability shown as an expense and decreases shown as
income.

For the third quarter of 2013, net loss was $7,192,000, or $(0.17) per share,
compared with a net loss of $16,336,000, or $(0.54) per share, for the third
quarter of 2012.For the nine months ended September 30, 2013, net cash used
in operating activities totaled $16,432,000, which was 10% higher than the
comparable nine-month period in 2012.

At September 30, 2013, our cash and cash equivalents totaled $20,955,000. In
October 2013, we received approximately $17.3 million, net of underwriting
discounts and commissions, from an underwritten public offering of common
stock and warrants. Including these net proceeds, our pro forma cash and cash
equivalents at September 30, 2013, would have been $38.3 million.

In the third quarter of 2013, in connection with new employee hires, we
awarded an aggregate total of 50,000 restricted stock units (RSUs) pursuant to
our 2012 Commencement Incentive Plan and in accordance with Nasdaq Listing
Rule 5635(c)(4) concerning inducement grants to new employees.Each RSU gives
the holder the right to receive upon vesting, without cash payment, one share
of our common stock.All of these granted RSUs vest over four years, with
one-quarter vesting on each of the first four service anniversaries, starting
in 2014 and ending in 2017.

Conference Call

StemCells will host a live conference call and webcast today, November 5, 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-calendar. An
archived version of the webcast will be available for replay on our website
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 proprietary HuCNS-SC® cells (purified human
neural stem cells) are 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 conducting a Phase I/II clinical trial in
chronic spinal cord injury in Switzerland, Canada and the United States, and
has reported positive interim data for the first three patients.The Company
is also conducting a Phase I/II clinical trial in dry age-related macular
degeneration (AMD) in the United States.In addition, the Company is pursuing
preclinical studies in Alzheimer's disease, with support from the California
Institute for Regenerative Medicine (CIRM).  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.

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 and timing for continued clinical
development of the Company's HuCNS-SC cells in CNS disorders; the prospect for
growth in the Company's product sales; and the timing and prospects for
continued funding by the California Institute for Regenerative Medicine. 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 any disease or disorder;
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; the risk that our clinical trials could be
substantially delayed beyond their expected dates or cause us to incur
substantial unanticipated costs; uncertainties regarding the Company's ability
to obtain the increased capital resources needed to continue its current and
planned research and development operations; 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, 2012 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
                              2013        2012        2013        2012
Revenue:                                                        
Revenue from licensing         $53       $61       $160      $472
agreements, grants and other
Revenue from product sales    272        203        731        685
Total revenue                  325        264        891        1,157
Cost of product sales          86         72         230        208
Gross profit                   239        192        661        949
                                                               
Operating expenses:                                             
Research and development      5,184      3,478      14,553     11,166
Selling, general and          1,711      1,636      5,180      5,336
administrative
Wind-down expenses            --         155        62         200
                                                               
Total operating expenses      6,895      5,269      19,795     16,702
                                                               
Loss from operations           (6,656)    (5,077)    (19,134)   (15,753)
                                                               
Other income (expense):                                         
Change in fair value of        (144)      (11,239)   425        (9,974)
warrant liability
Interest income (expense), net (382)      (9)        (776)      (31)
Other income (expense), net    (10)       (11)       8          25
Total other income (expense),  (536)      (11,259)   (343)      (9,980)
net
                                                               
Net loss                       $(7,192)  $(16,336) $(19,477) $(25,733)
                                                               
Basic and diluted net income   $(0.17)   $(0.54)   $(0.49)   $(0.99)
(loss) per share
                                                               
Shares used to compute basic
and diluted income (loss) per  41,402,717 30,168,475 39,787,527 25,992,764
share


StemCells, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
                                         September 30, 2013 December 31, 2012
                                         (unaudited)        (unaudited)
ASSETS:                                                     
Current Assets:                                             
Cash & cash equivalents                  $20,955          $8,471
Marketable securities                    --                13,901
Other current assets                     1,244             1,669
Total current assets                      22,199            24,041
                                                           
Property, plant and equipment, net        5,439             1,375
Goodwill and other intangible assets, net 3,646             3,806
Other assets, non-current                 1,032             948
Total assets                              $32,316          $30,170
                                                           
LIABILITIES AND STOCKHOLDERS' EQUITY:                       
Loan payable net of discount, current     3,603             --
Other current liabilities                 4,459             5,097
Fair value of warrant liability           8,421             9,265
Loan payable net of discount, non current 9,865             --
Other non-current liabilities             2,407             1,823
Stockholders' equity                      3,561             13,985
Total liabilities and stockholders'      $32,316          $30,170
equity

CONTACT: Rodney Young
         StemCells, Inc.
         Chief Financial Officer
         (510) 456-4128
        
         Tony Russo
         Russo Partners
         (212) 845-4251
        
         Andrea Flynn
         Russo Partners
         (646) 942-5631

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