StemCells reports net loss of $5.23M for fourth-quarter fiscal 2009

Mar 11 2010

StemCells, Inc. (Nasdaq:STEM) today reported financial results for the fourth quarter and year ended December 31, 2009. The Company's results include the operations of Stem Cell Sciences Plc (SCS) since April 1, 2009.

For the fourth quarter of 2009, the Company reported a net loss of $5,234,000, or $(0.05) per share, compared with a net loss of $10,082,000, or $(0.11) per share, for the fourth quarter of 2008. Loss from operations was $8,081,000, compared to $7,098,000 for the same period of 2008. Total revenue was $418,000, compared to $172,000 for the same period of 2008. The growth in revenue in the fourth quarter of 2009 compared to the same period of 2008 was primarily due to the consolidation of the SCS operations, which included the addition of product sales revenue from the Company's SC Proven^® portfolio of specialty cell culture products. 

For the full year 2009, the Company reported a net loss of $27,026,000, or $(0.25) per share, compared with a net loss of $29,087,000, or $(0.35) per share, for 2008. Loss from operations was $29,378,000, compared to $26,738,000 for 2008. Total revenue was $993,000, a 328% increase over total revenue of $232,000 reported in 2008. This increase was primarily due to the SCS operations, which included a total of $385,000 in product sales from the SC Proven business for the period April 1 to December 31, 2009.

Total operating expenses in 2009 were $30,110,000, compared to $26,970,000 in 2008. Approximately 80%, or $2,537,000, of the increase in 2009 was due to the SCS operations. Operating expenses in 2009 also included two non-recurring items: (i) transaction expenses of $693,000 related to the SCS acquisition, and (ii) a charge of $310,000 to set up a reserve for expenses associated with the Company's exit from its Melbourne, Australia site. Excluding these non-recurring items and the expenses associated with the SCS operations, operating expenses were essentially unchanged compared to 2008.

For the full year 2009, the Company recorded other income of $1,899,000 due to a decrease in warrant liability, while in 2008 the Company recorded a charge of $937,000 to reflect an increase in warrant liability. In 2008, the Company also recorded a charge of $2,083,000 to write down the value of its investment in marketable equity securities. There was no such write down in 2009.

For the full year 2009, cash used in operations totaled $24,683,000, compared to $22,740,000 in 2008. At December 31, 2009, the Company's cash, cash equivalents and marketable debt securities totaled $38,618,000. 

Highlights for 2009 and significant recent events since the end of the year include:

Clinical Development

• In January 2009, we completed a Phase I clinical trial of our HuCNS-SC^® product candidate (purified human neural stem cells) in infantile and late infantile neuronal ceroid lipofuscinosis (NCL, also often referred to as Batten disease), a fatal neurodegenerative disorder in children.
   
• In June 2009, we announced positive results from our NCL trial. The Phase I data demonstrated that the HuCNS-SC cells, the transplantation procedure, and the immunosuppression regimen were well tolerated, and that 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, we reported evidence of engraftment and long-term survival of the HuCNS-SC cells.
   
• In November 2009, we met with the U.S. Food and Drug Administration (FDA) to review the results of our NCL trial and to discuss our proposed clinical development plans.  During this meeting, the FDA acknowledged our position that the risk-benefit profile shown by the Phase I data merits further clinical evaluation of HuCNS-SC cells in NCL. We continue to be in discussions with the FDA regarding our plans for a second NCL trial.
   
• In November 2009, we initiated a Phase I clinical trial designed to test the safety and preliminary efficacy of our HuCNS-SC cells in Pelizaeus-Merzbacher Disease (PMD), a fatal myelination disorder that primarily afflicts infants and young children. This study, which is the second clinical trial of our HuCNS-SC cells in a neurodegenerative disease, is being conducted at the University of California, San Francisco (UCSF) Children's Hospital.
   
• In February 2010, we enrolled and treated the first patient in our PMD trial, marking the first time that neural stem cells have been transplanted as a potential treatment for a myelination disorder.    We expect it will take 12-18 months to complete enrollment in this trial. 

Preclinical Development

• In May 2009, our collaborators at Oregon Health & Science University (OHSU) Casey Eye Institute presented data showing that our human neural stem cells, when transplanted into an animal model of retinal degeneration, engraft long term and protect the retina from progressive degeneration. Retinal degeneration leads to loss of vision in diseases such as age-related macular degeneration (AMD). These findings were presented at the Association for Research in Vision and Ophthalmology 2009 Annual Meeting.

• In September 2009, our preclinical data demonstrating proof-of-concept of our HuCNS-SC cells in NCL was published in the peer-reviewed journal Cell Stem Cell. Our human neural stem cells, when transplanted in a mouse model of infantile NCL, were shown to engraft, migrate throughout the brain and continuously secrete the missing lysosomal enzyme characteristic of NCL. Moreover, mice transplanted with our neural stem cells showed statistically significant reduction in cellular waste build-up, protection of critical host neurons and delayed loss of motor function compared with the control (non-transplanted) group. 
   
• In September 2009, we received ethics committee approval at the Universite Catholique de Louvain (UCL) in Belgium to initiate a clinical study evaluating our human liver engrafting cells (hLEC) as a potential cellular therapy for liver-based metabolic disorders. However, we have decided to defer initiating a clinical study of hLEC pending additional refinements to our process of isolating and purifying these cells.
   
• In October 2009, our collaborators at OHSU Casey Eye Institute presented preclinical data showing that our human neural stem cells, in an animal model of retinal degeneration, protect cone photoreceptors (cones) from progressive degeneration and preserve visual function long term. Cones are light sensing cells that are highly concentrated within the macula of the human eye. The ability to protect these cells suggests a promising approach to treating AMD, the leading cause of vision loss and blindness in people over the age of 55. These findings were presented at the Society for Neuroscience 2009 Annual Meeting.

Enabling Technologies

• In April 2009, we closed the acquisition of substantially all of the operating assets and liabilities of SCS for 2,650,000 shares of our common stock and approximately $700,000 in cash. As a result of this transaction, we added proprietary cell technologies relating to embryonic stem cells, induced pluripotent stem (iPS) cells, and tissue-derived (adult) stem cells; expertise and infrastructure for providing cell-based assays for drug discovery; a specialty cell culture products business; an intellectual property portfolio with claims relevant to cell processing, reprogramming and manipulation, as well as to gene targeting and insertion; and a European presence with operations in Cambridge, UK.
   
• In September 2009, we announced organizational initiatives focused on growing our SC Proven cell culture products business and advancing the development and commercialization of cell-based assay platforms for use in drug discovery and development. These initiatives included new personnel appointments and a realignment of activities within our Cambridge, UK and Palo Alto, California locations, as well as the wind-down of our operations in Melbourne, Australia. 
   
• In January 2010, we launched GS1-R^TM, the first commercially available medium to enable the derivation, maintenance and growth of true (germline competent) rat embryonic stem cells. GS1-R is expected to have significant utility in the creation of genetically engineered rat models of human disease for use in academic, medical and pharmaceutical research. 
   
• In February 2010, we launched GS2-M^TM, a new cell culture medium that enables the derivation and long-term maintenance of true mouse iPS cells. GS2-M has been shown to increase the efficiency of reprogramming 'pre-iPS' cells to derive fully pluripotent stem cells, and to maintain mouse iPS cells in a pluripotent state in long-term culture.

Intellectual Property and Licensing Activities

• In April 2009, we announced that a major international pharmaceutical company acquired a non-exclusive license to our 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 genetically engineered mouse and rat models of human disease.
   
• In May 2009, the U.S. Patent and Trademark Office (PTO) upheld the validity of our two remaining neural stem cell patents that were subjected to reexamination proceedings commenced by Neuralstem, Inc.  The decision by the PTO to uphold the two patents is final and cannot be appealed. A total of five patents were reexamined in proceedings requested by Neuralstem, and the validity of all five has been upheld by the PTO. Four of the upheld patents are the subject of litigation initiated by us against Neuralstem, in which we allege various unfair competition torts and 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 December 2009, we received a Notice of Allowance and a Notice of Issuance from the PTO for two patents claiming technologies for the establishment and maintenance of cell pluripotency, including the reprogramming of cells to create pluripotent stem cells. These patents strengthen our intellectual property position in both the embryonic stem cell and iPS cell fields.

Financing and Stock-related Activities

• In June 2009, we were added to the Russell 3000^® Index, a broad market index that measures the performance of the 3000 largest companies in the United States. We are 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. 
   
• In November 2009, we raised $12,500,000 in gross proceeds through the sale of 10,000,000 shares of common stock and warrants to purchase four million shares of common stock at an exercise price of $1.50 per share. We received total proceeds, net of offering expenses and placement agency fees, of approximately $11,985,000.

"2009 was a watershed year for StemCells," said Martin McGlynn, President and CEO of StemCells, Inc.  "With our SCS acquisition, we took an important step towards our strategic objective of building a sustainable business that has the dual focus of stem cell therapeutics and enabling technologies for use in stem cell research. With regard to the latter, we are currently marketing our SC Proven specialty cell culture products, and we anticipate continued strong growth in this business in the coming year. We are also pursuing opportunities to leverage our core competencies in the development of stem cell-based assays for drug discovery. In our therapeutic programs, we are very encouraged by the positive safety profile of our HuCNS-SC cells demonstrated in our NCL trial, and we are working diligently to advance our programs in additional indications. 

"Economic and financial conditions remain challenging. We continue to proactively control our operating expenses and cash burn, and despite market volatility, we successfully raised $30 million in 2009, which enables us to remain focused on the execution of our strategic agenda."