StemCells, Inc. (NASDAQ: STEM) today reported financial results for the second quarter ended June 30, 2009.

Results for the quarter reflect the Company’s acquisition of the operations of Stem Cell Sciences Plc (SCS), a UK-based company focused on cell-based technologies for drug discovery and screening. This acquisition, which closed on April 1, 2009, solidifies StemCells’ leadership position in human neural stem cell technology, broadens its proprietary cell-based technologies, adds expertise and infrastructure for providing cell-based assays for drug discovery and screening, adds a revenue-generating cell culture media business, and establishes a European presence for the Company with operations in Cambridge, U.K. As consideration for the acquired operations, StemCells issued to SCS 2,650,000 shares of common stock and waived certain commitments of SCS to repay $709,000 in principal and accrued interest owed to the Company.

The Company reported a net loss of $7,366,000, or $0.07 per share, for the second quarter ended June 30, 2009, compared with a net loss of $6,715,000, or $0.08 per share, in the second quarter of 2008. Total revenue for the second quarter of 2009 was $265,000, compared to $30,000 for the second quarter of 2008. This significant increase in revenue reflects the consolidation of the acquired SCS operations, and includes $121,000 in product sales from the Company’s SC Proven^® portfolio of cell culture media products.

Total operating expenses for the quarter were $7,597,000, a 10% increase compared to the same period in 2008. Operating expenses in the second quarter of 2009 include two non-recurring items: (i) a charge of $310,000 to set up a reserve for costs and expenses associated with the Company’s exit from its Melbourne, Australia site, and (ii) transaction expenses of $172,000 related to the acquisition of the SCS operations. Research and development expenses were 14% higher in the second quarter of 2009 compared with the same period in 2008, primarily due to the consolidation of the SCS operations, while general and administrative expenses were 6% lower in the second quarter compared with the same period in 2008, primarily due to lower external services fees.

Cash, cash equivalents and short-term marketable debt securities totaled $36,760,000 at June 30, 2009. In the second quarter of 2009, the Company raised $8,655,000 in gross proceeds through the sale of 4,937,400 shares of common stock. For the first six months of 2009, the Company’s cash used in operations totaled $12,383,000, which was 1% higher than the same period in 2008. This modest increase reflects the Company’s continuing efforts to control expenses and manage working capital requirements.

Significant recent events include:

• In April 2009, StemCells announced that a major international pharmaceutical company acquired a non-exclusive license to the Company’s 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 transgenic mouse and rat disease models.
• In May 2009, the U.S. Patent and Trademark Office (PTO) upheld the validity of StemCells’ two remaining neural stem cell patents, which were subjected to reexamination proceedings commenced by Neuralstem, Inc. The PTO’s decision to uphold the two patents is final and cannot be appealed. The upheld patents are the subject of litigation initiated by the Company against Neuralstem alleging 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 May 2009, the Company’s collaborators at Oregon Health & Science University Casey Eye Institute presented data at the Association for Research in Vision and Ophthalmology (ARVO) 2009 Annual Meeting showing that StemCells’ human central nervous system stem cells, when transplanted into an animal model of retinal degeneration, engraft long-term and can protect the retina from progressive degeneration. Retinal degeneration leads to loss of vision in diseases such as age-related macular degeneration.
• In June 2009, StemCells announced positive results from a Phase I clinical trial of its HuCNS-SC product candidate (purified human neural stem cells) in infantile and late infantile neuronal ceroid lipofuscinosis (NCL), often referred to as Batten disease. This first Phase I trial was designed primarily to assess the safety of HuCNS-SC cells as a potential cell-based therapeutic. Overall, the trial data demonstrated that the HuCNS-SC cells, the transplantation procedure and the immunosuppression regimen were well tolerated by all six patients enrolled in the trial, and 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, the Company reported evidence of engraftment and long-term survival of the HuCNS-SC cells.
• In June 2009, StemCells was added to the Russell 3000^® Index, a broad market index that measures the performance of the 3000 largest companies in the United States. As part of membership in the Russell 3000, StemCells is 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.

“This was a notable quarter for StemCells as we announced positive results from our first clinical trial and, for the first time, we are reporting revenue from product sales,” said Martin McGlynn, President and CEO of StemCells, Inc. “Our Phase I clinical trial in Batten disease was a landmark achievement, and we are encouraged by the favorable safety profile of our HuCNS-SC product and the evidence that our cells engrafted and survived after transplantation. We are working diligently to initiate a second clinical trial of our HuCNS-SC cells in Pelizaeus-Merzbacher Disease (PMD) before year-end, and we are pursuing a clinical study with our liver cell. With respect to product sales, we are experiencing strong demand for our SC Proven media, and are focused on growing this business.

“We continue to be mindful of the difficult economic environment and remain committed to proactively managing our expenses and cash balance,” continued Mr. McGlynn. “During the past six months, we have taken advantage of the liquidity of our shares to opportunistically raise $15 million. Our ability to access the capital markets in these trying conditions has enabled us to maintain a strong balance sheet and given us the resources and flexibility to execute on our strategic agenda, which is to build a sustainable business focused on cell-based technologies.”

About StemCells, Inc.

StemCells, Inc. is a clinical-stage biotechnology company focused on the research, development and commercialization of cell-based technologies. In its therapeutic product development programs, StemCells is focused on developing cell-based therapeutics to treat diseases of the central nervous system and liver. StemCells’ lead product candidate, HuCNS-SC^® cells, are highly purified human neural stem cells which can be expanded and banked until they are delivered as patient doses. StemCells has completed a Phase I clinical trial of HuCNS-SC cells in neuronal ceroid lipofuscinosis (NCL), a fatal neurodegenerative disease that affects infants and young children. The trial data demonstrated that the HuCNS-SC cells were well tolerated by the trial participants. StemCells has also received approval from the U.S. Food and Drug Administration to initiate a Phase I clinical trial of HuCNS-SC cells in Pelizaeus-Merzbacher Disease (PMD), a fatal brain disorder that primarily affects young children. StemCells also operates a specialty cell culture media business, which is marketing a portfolio of products under the brand SC Proven^®, and is developing its cell-based technologies for use in drug discovery and screening. StemCells has exclusive rights to approximately 55 issued or allowed U.S. patents and approximately 200 granted or allowed non-U.S. patents. Further information about StemCells is available on its web site at: www.stemcellsinc.com.

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. and its wholly-owned subsidiaries (together, the “Company”). 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 about, and the costs associated with, the integration of the acquired SCS operations; uncertainties about the effects of the integration with respect to maintaining relationships with employees, licensees, other business partners or governmental entities; 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 NCL or any other disease; risks whether the FDA or other applicable regulatory agencies will permit the Company to continue clinical testing in NCL, PMD 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 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 in NCL, PMD or in proposed therapies for other diseases or conditions; 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; 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; and other factors that are described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and in its subsequent reports on Form 10-Q and Form 8-K.

StemCells, Inc.
Megan Meloni, 650-475-3100, ext. 105
Investor Relations