StemCells Inc. (NASDAQ: STEM)

StemCells Inc. (STEM) is a biopharmaceutical company engaged in the discovery and development of cell-based therapeutics to treat damage to, or degeneration of, major organ systems. The Company has two product development programs: CNS Program, which is developing applications for its human neural stem cell and Liver Program, which is developing applications for its human liver engrafting cells. In addition, it is conducting preclinical work for spinal cord injury, myelin disorders and retinal disorders. In December 2008, the Company received authorization from the U.S. Food and Drug Administration (FDA) to initiate a phase I clinical trial of its HuCNS-SC cells in a second indication, Pelizeaus-Merzbacher Disease (PMD), a fatal myelination disorder in the brain. In April 2009, STEM completed the acquisition of substantially all of the operating assets and liabilities of Stem Cell Sciences Plc.

The Company was founded in 1988 and is based in Palo Alto, California.

Source: Reuters.com, SEC Filings.

Financial Summary

Net loss for the third quarter of 2009 was $5,145,000, or $0.05 per share, compared with a net loss of $5,744,000, or $0.07 per share, in the third quarter of 2008.

Total revenue for the third quarter of 2009 was $253,000, compared to $12,000 for the third quarter of 2008. This revenue growth was primarily driven by the consolidation of the Stem Cell Sciences (SCS) operations, which were acquired in April 2009.

Total operating expenses for the third quarter of 2009 were $7,095,000, compared to $5,857,000 for the third quarter of 2008. Approximately $749,000, or 61%, of this increase was due to the consolidation of the SCS operations. Excluding costs associated with the SCS operations, total operating expenses were 8% higher than the same period in 2008, reflecting expanded operations to support manufacturing, research and clinical development.

Other income in the third quarter of 2009 was $1,838,000, compared to $101,000 in the third quarter of 2008, and included a $1,830,000 decrease in the Company’s warrant liability.

For the first nine months of 2009, cash used in operations totaled $18,491,000. This total, which includes the consolidation of the acquired SCS operations since April 1, 2009, was 8% higher than the same period in 2008. Cash, cash equivalents and marketable debt securities totaled $33,206,000 at September 30, 2009. In the third quarter of 2009, the Company raised $2,800,000 in gross proceeds through the sale of 1,555,000 shares of common stock. On November 2, 2009, the Company 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. On a pro forma basis, including the sale of these shares and warrants, and net of placement agency fees and offering expenses, the Company’s cash, cash equivalents and marketable debt securities at September 30, 2009, would be $45,106,000.

STEM has incurred significant operating losses since inception. It expects to incur additional operating losses over the foreseeable future. STEM has very limited liquidity and capital resources and must obtain significant additional capital and other resources in order to sustain its product development efforts, to provide funding for the acquisition of technologies, businesses and intellectual property rights, preclinical and clinical testing of the Company’s investigative products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, selling, general and administrative expenses and other working capital requirements. STEM relies on its cash reserves, proceeds from equity and debt offerings, proceeds from the transfer or sale of intellectual property rights, equipment, facilities or investments, government grants and funding from collaborative arrangements, to fund its operations. If STEM exhausts its cash reserves and is unable to obtain adequate financing, it may be unable to meet its operating obligations and therefore may be required to initiate bankruptcy proceedings.

Source: Reuters.com, SEC Filings.

Analyst Consensus

This is the consensus forecast amongst 1 polled investment analysts. Against the StemCells Inc company.

The one analyst offering a 12-month price target expects STEM share price to rise to 3.00 in the next year from the last price of 1.27.

Source: www.ft.com

Consensus Estimates Analysis

Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=STEM.W

Investment Highlights

STEM in late January announced the launch of GS1-R(TM), the first commercially available medium to enable the derivation, maintenance and growth of true (germline competent) rat embryonic stem (ES) cells. GS1-R, the latest addition to the Company’s SC Proven(R) line of specialty cell culture products, 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. The rat is a valuable tool in drug discovery. Both mice and rats are used by scientists as models for human disease.

However, because rats are physiologically more similar to humans than are mice, rat models can be better suited for assessing drug efficacy and toxicity. To date, efforts to model certain human diseases using rats have been hindered by a lack of the true rat ES cells needed to genetically engineer precise disease models. GS1-R will help scientists overcome this barrier as it provides the cell culture conditions necessary to consistently generate true rat ES cell lines. The proprietary, breakthrough technology behind GS1-R was first published in December 2008 in the peer-reviewed journal Cell 1,2 after academic researchers in the United Kingdom and the United States succeeded in deriving the first true rat ES cells.

STEM owns exclusive rights to the rat ES cell technology described in this publication and the media formulation used to create these rat pluripotent cell lines. The defined, serum-free GS1-R media formulation contains selective small molecule inhibitors that act to eliminate differentiation-inducing signals and promote cell survival, enabling the long-term maintenance of true germline competent rat ES cells in a pluripotent state. For more information about GS1-R and SC Proven cell culture products, interested parties are invited to visit www.scproven.com.

STEM announced in late December that it has received a Notice of Allowance and a Notice of Issuance from the U.S. Patent and Trademark Office for two patents claiming technologies for the establishment and maintenance of cell pluripotency (the ability to become any cell in the body, which is the defining attribute of embryonic stem cells), including the reprogramming of cells to create pluripotent stem cells. These patents strengthen the Company’s intellectual property position in both the induced pluripotent stem (iPS) cell and embryonic stem (ES) cell fields, and reflect the value that STEM continues to derive from its April 2009 acquisition of the operating business of Stem Cell Sciences Plc. The issued patent, U.S. Patent Number 7,595,193, “Propagation and/or Derivation of Embryonic Stem Cells,” claims a cell-free culture medium containing MEK inhibitors (small molecule compounds), which is applicable to the establishment and maintenance of cell pluripotency. This technology can be used to create and maintain ES cell lines, as well as to reprogram somatic cells (such as adult skin cells) to derive iPS cells.

The allowed patent, U.S. Patent Application Number 10/502,972, “Pluripotency Determining Factor and Uses Thereof,” covers the use of the Nanog gene in maintaining human and mouse ES cells in a pluripotent state. A related U.S. application from this same patent family claims the use of the Nanog gene in cell reprogramming. The Nanog gene codes for a protein which plays a key role in the ability of ES cells to multiply while remaining pluripotent, and can also be used to reprogram somatic cells into a fully pluripotent state. The Company owns or has exclusive rights to approximately 55 issued or allowed U.S. patents and approximately 200 granted or allowed non-U.S. patents. Many of the Company’s core patents, including U.S. Patent Numbers 5,750,376, 5,851,832, 5,968,829, 7,101,709, 7,153,686, and 7,361,505, include claims covering composition of matter and methods for the isolation, expansion, genetic manipulation, and use of neural stem and progenitor cells for both therapeutic use and non-therapeutic applications such as drug discovery and screening.

Source: http://www.stemcellsinc.com/

Technical Analysis

Source: http://stockcharts.com

STEM is trading below its 50-day moving average. However, this moving average is trending higher which suggests that there has been buying interest in this stock.

STEM is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

The MACD for STEM currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9-day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

Source: Yahoo Finance

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