Scimitar Equity Blog

StemCells Inc,  a clinical-stage biotechnology company focuses on commercialization of products derived from stem cell technologies. STEM is targeting diseases of the central nervous system and liver. StemCells also markets specialty cell culture media products under the brand SC Proven ® and is developing its cell-based technologies for use in drug screening and drug development.  (www.stemcellsinc.com)

Focus: STEM’s is focused on a library of monoclonal antibodies to human proteins and state of the art cell sorting capabilities; using this library it can identify, purify, and characterize the human stem cell (of interest).  The stem cells are sorted and tested in rigorous in vitro models; purified populations of stem cells are then expanded, banked and retested in vivo models to demonstrate that the expanded cells maintain the original stem cell properties.

Regulatory Status: The lead product candidate, HuCNS-SC® cells (purified human neural stem cells) is in clinical development for the treatment of 2 fatal neurodegenerative disorders that primarily affect young children.

• The IND application received FDA approval using its proprietary human neural stem cells for the treatment of neuronal ceroid lipofuscinosis, a lysosomal storage disorder,
• Preclinical research has shown that HuCNS-SC cells can be directly transplanted in the central nervous system. The transplanted cells are able to engraft, migrate, differentiate into neurons and glial cells and possess the ability to survive for as long as one year with no sign of tumor formation or adverse effects. These findings show that HuCNS-SC cells, when transplanted, behave like normal stem cells – suggesting – the possibility of a continual replenishment of normal human neural cells,
• Completed a Phase I clinical trial of its HuCNS-SC cells for the treatment of a Neuronal Ceroid Lipofuscinosis (NCL), a fatal brain disorder in children. Data from this trial demonstrated the safety and tolerability of these cells,
• The human safety data is accumulating for its HuCNS-SC cells through clinical initiatives and is expected to facilitate the clinical testing in other central nervous system disorders, including retinal degenerative diseases such as AMD and retinitis pigmentosa,
• STEM’s Neural Stem Cells shows – promise – for treating Age-Related Macular Degeneration (AMD). Preclinical data presented at Society for Neuroscience Annual Meeting on 10/19/09 highlighted new – preclinical – data showing that its human neural stem cells protect cone photoreceptors (cones) in the eye from progressive degeneration and preserve visual function long term,
• The eye contains millions of photoreceptor cells, known as rods and cones, which are responsible for picking up light and converting it into electrical impulses that are sent along the optic nerve for the brain to interpret what we see. Rods allow us to see under dark conditions, while cones allow us to see color and fine detail. Cones are highly concentrated within the macula, the part of the eye that is responsible for our central, “straight ahead” vision. Patients with AMD lose central vision when the cones within the macula degenerate. It is estimated that 25 – 30 million people worldwide suffer from AMD, including as many as 15 million Americans, and today there is no cure,
• The demonstrated ability of human neural stem cells to preserve cones is very meaningful, because it is the progressive deterioration of these specific cells that ultimately results in vision loss in AMD. The data supported the hypothesis that neural stem cells may provide neuroprotection to existing cells but … must be replicated in the clinic.  Results of the study did demonstrate that, when transplanted into the eye of a well-established animal model of retinal degeneration; the neural stem cells preserved visual function as measured by 2 separate visual tests and exhibit robust, long-term protection of both rod and cone photoreceptors,

Financial: Net loss for Q3/09 was $5.1 M, or $0.05 per share.  Total revenue for Q3/09 was $253,000. Total operating expenses for Q3/09 were $7.09 M reflecting expanded operations to support manufacturing, research and clinical development. On 11/2/09, STEM raised $12.5 M in a Registered Direct Offering (RDO) through the sale of 10 M shares of common stock and warrants.  It has $33.2 M in cash post the offering and has a pro forma cash balance of $45.1 M.

Bottom Line: Initially, they are focusing R&D efforts in adult as opposed to embryonic stem cell technologies. Their strategy might have a number of advantages: adult stem cells are preprogrammed to become specialized cells of tissue of origin, posing fewer development challenges than embryonic stem cells:

• STEM has 2 product development programs: the CNS Program, which is developing applications for its human neural stem cell and Liver applications for its human liver engrafting cells,
• Adult stem cell product candidates’ face a less challenging regulatory pathway, use of adult stem cells is not encumbered by restrictive federal, state legislation or policies,
• On 4/1/09, as part of the acquisition of the SCS operations; STEM acquired 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;
• STEM then closed the site in Australia and consolidated personnel and programs to Cambridge,UK and Palo Alto, Ca,
• A strong intellectual property position includes exclusive rights to approximately 55 issued or allowed U.S. patents and approximately 200 granted or allowed non-U.S. patents,
• STEM is in litigation with Neuralstem to stop the development of rival products saying it owns the basic technology for the use of neural stem cells, derived from the brain and spinal cord and that Neuralstem lacks a license, according to a lawsuit filed in US District court in Maryland. STEM sued over 4 patents tied to the cell cultures grown in labs, ways to make them grow and their use. STEM has failed (to date) to persuade the U.S. Patent and Trademark Office to withdraw a Neuralstem patent,
• STEM trades at $1.13 with a market cap of $137.73 M with 118.35 M shares outstanding,  a 116.92 M share float and a short interest ratio of 6.9%; however, the price per share has been going down for a number of months as the consolidation took place and market conditions depreciated all stem cell stocks,
• Q3/09 ended with a loss of about $5 M or $0.05 a share as compared to a loss in Q3/08 of $5.7 M or $0.07 a share and had revenues of $253 k.  However, operating expenses were $7 M up as compared to $5.8 M in Q3/08,
• Insiders hold 0.94% shares with 16% owned by institutions,
• Investors include: Barclays Global Investors, Vanguard, Dimensional Fund Advisors, State Street, TIAA-CREF, Northen Trust,  Goldman, Morgan Stanley, Ramius and BNY Mellon,
• No ranking or target at this time; but, would love to digest the fully diluted share number post the last financing re the warrant play and outstanding options,
• Internal (regulatory initiatives) news will drive this valuation!