StemCells Announces Fourth Quarter and Year End 2005 Financial Results

The Company reported a net loss of $4,328,000, or $0.07 per share,for the fourth quarter ended December 31, 2005, compared to a net lossof $4,919,000, or $0.08 per share, for the fourth quarter of 2004. Forthe fiscal year ended December 31, 2005, the Company reported a netloss of $11,738,000, or $0.18 per share, as compared to a net loss of$15,330,000, or $0.31 per share, for the 2004 fiscal year. Thedecrease in net loss from 2004 to 2005 was primarily attributable tothe one-time receipt of shares in ReNeuron as part of a license andsettlement agreement for which the Company recorded approximately$3,736,000 as other income, net of legal and other expenses.

Total revenue for 2005 was $206,000, compared with $141,000 in2004. Revenue for 2005 and 2004 was primarily from grants andlicensing agreements. Net cash used in operating activities for fiscalyear 2005 was $11,871,000, compared with $11,274,000 for fiscal year2004. Cash and cash equivalents were $34,541,000 at the end of 2005,compared with $41,060,000 at the end of 2004. The decline in cash andcash equivalents from the end of 2004 to the end of 2005 was primarilyattributable to net cash used in operating activities, partiallyoffset by net proceeds from warrant exercises of approximately$5,939,000.

Highlights for the past year and important recent events include:

-- The approval in March 2006 by the Institutional Review Board (IRB) of the Oregon Health & Sciences University to allow a Phase I clinical trial of the company's human neural stem cells (HuCNS-SC(TM)) for the treatment of infantile and late infantile neuronal ceroid lipofuscinosis (NCL) to be conducted at Doernbecher Children's Hospital in Portland, Oregon. NCL, which is also often referred to as Batten disease, is a rare fatal neurodegenerative condition afflicting infants and children. The IRB approval means the Company may begin screening and enrolling patients for the trial.

-- The approval in October 2005 by the Food and Drug Administration (FDA) of our Investigational New Drug application (IND) to conduct this clinical trial. Commencement of the trial required the approval of both the FDA and an IRB.

-- The publication of the first study to show a direct link between the presence of transplanted HuCNS-SC and restoration of motor function in spinal cord injured mice, in Proceedings of the National Academy of Sciences of the United States of America (PNAS).

-- The agreement with ReNeuron Limited, a UK biotechnology corporation, under which StemCells, Inc. granted ReNeuron a license that allows ReNeuron to exploit their "c-mycER" conditionally immortalized adult human neural stem cell technology for therapy and other purposes. In return for the license, we received a 7.5% fully diluted equity interest in ReNeuron Group plc, the listed UK parent corporation of ReNeuron Limited, and a cross-license to the exclusive use of their technology for certain clinical applications.

-- Further strengthening of the management team, including the addition of the Chief Medical Officer, Chief Financial Officer, Director, Human Resources, Director, Cell Processing and Director, Liver Cell Transplant Program. In addition, the Company promoted George Koshy to the newly created position of Chief Accounting Officer.

-- The transfer of the listing of our shares to the Nasdaq National Market from the Nasdaq Capital Market.

-- The receipt by the Company of a manufacturing license for the Company's California-based cell processing facility from the State of California Department of Health Services.

"2005 was a very good year for StemCells, Inc. We accomplishedseveral major goals, most notably approval of our IND to begin testingour human neural stem cells in infantile and late infantile Battendisease," said Martin McGlynn, President and CEO of StemCells, Inc."Now, with IRB approval from OHSU, we look forward to enrolling anddosing our first Batten patient in Q2 of this year."

Mr. McGlynn added, "We are also extremely pleased with ourfinancial performance in 2005. We accomplished a lot this year, andmanaged to do so with a high degree of operating efficiency. For theentire year, our cash balance decreased by only $6.5 million and weended the year with $34.5 million in cash and cash equivalents."

About StemCells, Inc.

StemCells, Inc. is a clinical stage biotechnology company focusedon the discovery, development and commercialization of stem cell-basedtherapies to treat diseases of the nervous system, liver and pancreas.The Company's stem cell programs seek to repair or repopulate neuralor other tissue that has been damaged or lost as a result of diseaseor injury. StemCells is the first company to directly identify andisolate human neural stem cells from normal brain tissue. These stemcells are expandable into cell banks for therapeutic use, whichdemonstrates the feasibility of using normal, non-genetically modifiedcells as cell-based therapies. StemCells is a publicly traded companysolely focused on stem cell research and development and hasapproximately 40 U.S. and 100 non-U.S. patents, as well as 100 patentapplications pending worldwide. Further information about the Companyis available on its web site at: www.stemcellsinc.com.

Apart from statements of historical facts, the text of this pressrelease constitutes forward-looking statements regarding, among otherthings, the future business operations of StemCells, Inc. (the"Company") and its ability to conduct clinical trials as well as itsresearch and product development efforts. The forward-lookingstatements speak only as of the date of this news release. StemCellsdoes not undertake to update any of these forward-looking statementsto reflect events or circumstances that occur after the date hereof.Such statements reflect management's current views and are based oncertain assumptions that may or may not ultimately prove valid. TheCompany's actual results may vary materially from those contemplatedin the forward-looking statements due to risks and uncertainties towhich the Company is subject, including uncertainty whether resultsobtained in the animal models of Infantile NCL, spinal cord injury, orother diseases and conditions will be able to be translated intotreatment for humans; uncertainty as to whether the FDA or otherapplicable regulators or review boards will permit the Company tocontinue clinical testing in Batten disease or in future clinicaltrials of proposed therapies for other diseases or conditions despitethe novel and unproven nature of the Company's technology;uncertainties regarding the timing and duration of any clinicaltrials; uncertainties regarding the Company's ability to obtain theincreased capital resources needed to continue its current researchand development operations and to conduct the research, preclinicaldevelopment and clinical trials necessary for regulatory approvals;uncertainties regarding ReNeuron's technology, the Company's abilityto develop products using the ReNeuron technology, the likelihood ofobtaining milestone or royalty payments from ReNeuron under thelicense agreement, the likelihood of any future collaborations withReNeuron, and the value of the Company's equity interest in ReNeuron;uncertainty regarding the validity and enforceability of the Company'spatents; uncertainty as to whether HuCNS-SC and any products that maybe generated in the future in the Company's stem cell programs willprove safe and clinically effective and not cause tumors or other sideeffects; uncertainty as to whether the Company will achieve revenuesfrom product sales or become profitable; the Company's likely increasein the use of cash in 2006 and future periods as compared to theCompany's historical use of cash; the non-recurrence of one-timeevents such the ReNeuron transaction; and other factors that aredescribed under the heading "Risk Factors" in Item 1A of the Company'sAnnual Report on Form 10-K.
StemCells, Inc.
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Condensed Consolidated Statement of Operations
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(in thousands, except share and per share amounts)
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Three months ended Twelve months ended
----------------------- -----------------------
December 31, December 31,
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Revenue from grants
and licensing
agreements $ 43 $ 38 $ 206 $ 141

Operating Expenses

Research and
development 2,476 2,878 8,929 8,760

General &
administrative 1,357 1,309 4,837 3,954

Wind-down expenses
related to our
former corporate
headquarters 812 883 2,828 2,827
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Total operating
expenses 4,645 5,070 16,594 15,541

Loss from operations (4,602) (5,032) (16,388) (15,400)

Other income (expense)

License and
settlement
agreement, net - - 3,736 -

Other income
(expense) 274 113 914 70
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Total other income
(expense) 274 113 4,650 70
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Net loss applicable to
common shareholders;
basic and diluted ($4,328) ($4,919) ($11,738) ($15,330)
===============================================
Net loss per share
applicable to common
shareholders; basic
and diluted ($0.07) ($0.08) ($0.18) ($0.31)

Weighted average
shares - basic and
diluted 64,880,464 59,951,486 63,643,176 49,606,277



StemCells, Inc.
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Condensed Consolidated Balance Sheets
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December 31, December 31,
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2005 2004
(in thousands) (a)
Assets
Current assets:
Cash & cash equivalents $ 34,541 $ 41,060
Other current assets 589 390
---------------------------
Total current assets 35,130 41,450
Marketable securities 3,721 -
Property, plant & equipment, net 3,283 3,424
Other assets, net 2,705 2,753
---------------------------
Total assets 44,839 47,627

Liabilities and stockholders' equity
Current liabilities 3,548 3,383
Non-current liabilities 8,915 7,295
Stockholders' equity 32,376 36,949
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Total liabilities and stockholders' equity $ 44,839 $ 47,627
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(a) Derived from audited financial statements included in StemCells'
annual report on form 10-K filed with the SEC.