StemCells first-quarter total revenue up 307%

May 5 2010

StemCells, Inc. (Nasdaq:STEM), a leading stem cell technology company with the dual focus of novel therapeutics and innovative research products, today reported financial results for the first quarter ended March 31, 2010 and recent business highlights.

"It has been an exciting start to the year with important advances in our clinical development programs and our research products business," said Martin McGlynn, President and CEO of StemCells, Inc. "Our PMD trial is proceeding well, and we are poised to begin a second NCL trial later this year with increased emphasis on the measurement of clinical benefit. With these endeavors well underway, we are actively pursuing a broader agenda focused on initiating clinical trials in spinal cord injury and age-related macular degeneration, thereby expanding our clinical development programs to all regions of the central nervous system – the brain, the spinal cord, and the eye – something we believe no other company in the field is positioned to do. With respect to our SC Proven^® business, we have expanded our portfolio with the launch of two new products, and are committed to pursuing creative ways to take full advantage of the rapidly growing market for research grade cells, media and reagents."

Recent and First Quarter Business Highlights

• In January 2010, the Company 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, the Company 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.
• In February 2010, the first patient in a Phase I clinical trial of the Company's HuCNS-SC^® product candidate (purified human neural stem cells) in Pelizaeus-Merzbacher Disease (PMD) was enrolled and dosed. PMD is a fatal myelination disorder that primarily afflicts infants and young children, and this event marked the first time that neural stem cells had been transplanted as a potential treatment for a myelination disorder. This study, which is the second clinical trial of HuCNS-SC cells in a neurodegenerative disease, is being conducted at the University of California, San Francisco (UCSF) Children's Hospital.
• In March 2010, the United Kingdom (UK) Intellectual Property Office granted patent number GB2451523 with broad claims covering true (germline competent) pluripotent rat stem cells and genetically engineered rats derived from these cells. This patented technology is expected to have significant utility to academic and pharmaceutical industry researchers by enabling them to create novel rat models for the study of a wider range of human diseases previously not possible due to a lack of the true pluripotent rat stem cells needed for precise genetic engineering. The Company holds an exclusive license to commercialize this technology and is globally prosecuting the patent family that claims it.
• In April 2010, the Company submitted a protocol to the FDA for initiation of a second clinical trial of HuCNS-SC cells in infantile and late infantile neuronal ceroid lipofuscinosis (NCL, also often referred to as Batten disease), a fatal neurodegenerative disorder in children. The proposed new 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.

First Quarter Financial Results

The Company's financial results include the operations of Stem Cell Sciences Plc (SCS) since April 1, 2009.

For the first quarter of 2010, the Company reported a net loss of $6,124,000, or $(0.05) per share, compared with a net loss of $9,281,000, or $(0.10) per share, for the first quarter of 2009. Total revenue was $230,000, a 307% increase over total revenue of $57,000 for the same period of 2009. The growth in revenue in 2010 compared to 2009 was primarily due to the consolidation of the SCS operations, which added product sales revenue from the Company's SC Proven portfolio of specialty cell culture products, as well as increased licensing and grant revenue.

For the first quarter of 2010, the Company's loss from operations was $7,601,000, an increase of $678,000, or 10%, compared to the same period in 2009. Operating expenses were $807,000 higher in the first quarter of 2010 compared to 2009, primarily due to the consolidation of the SCS operations. Almost all of the increase in operating expenses in 2010 was due to increased research and development expenses, as selling, general and administrative expenses were essentially unchanged in 2010 compared to 2009. Also in the first quarter of 2010, the Company recorded other income of $1,516,000 to reflect a decrease in the estimated fair value of warrant liability. In the first quarter of 2009, the Company had recorded other expense of $2,755,000 to reflect an increase in the estimated fair value of warrant liability.

Cash and cash equivalents at March 31, 2010 totaled $31,337,000, compared with $38,618,000 at December 31, 2009. In the first quarter of 2010, the Company raised $1,088,000 in gross proceeds through the sale of 882,200 shares of common stock.