Stem Cells Inc. (STEM): Prices $10M secondary at $1.25

In a surprise offering Stem Cells Inc. (NASDAQ: STEM) announced the pricing of 8 million share offering with matching warrants for gross proceeds of $10M, at the bottom of what has been a declining valuation. Earlier in the week we discussed the perfect storm, the macro-economic outlook coupled with declining balance sheets has hurt biotechnology companies that have "miles to go" before they can reach commercialization. Dendreon's implosion and Geron's departure did not help. As a result valuations have declined for everyone in the cell therapy space. Raising capital at the bottom hurts, but it is the nature of biotechnology and the rule here is dilution versus extinction.

It is surprising to us that the company announced earlier in the week news that the first cohort of the Phase I/II trial in chronic spinal cord injury has been treated (successfully transplanted with the STEM's proprietary HuCNS-SC® neural stem cells).

This trial has a unique design, in which patients with progressively decreasing severity of injury will be treated in three sequential cohorts. The first cohort of patients all have spinal cord injury classified as AIS A, the most severe level identified by the American Spinal Injury Association Impairment Scale (AIS).

We have seen Dr. Stephen Huhn MD, FACS, FAAP, (Vice President and Head of the CNS Program at StemCells) present in the past. He is considered a KOL (Key Opinion Leader) in the field and is highly respected. He is quoted:

"Having completed dosing of the AIS A cohort, screening for AIS B patients, who have a less severe, incomplete type of spinal cord injury, can now begin. Of course, our first priority is to assess safety in each patient, but we will also be evaluating trial patients for changes in sensation, motor and bowel/bladder function."

It’s still early days for STEM and impossible to know if these cells will translate into any efficacy but the good news is that this raise does give the company some runway to see a signal from this trial. It’s a longshot for sure and there are other companies in the space with more mature trials, defined mechanisms of action, dose responses defined, large target markets, and great efficacy signals established in P1 and 2 trials. Look at the developments in cardiology (AMI / CHF) - Mesoblast, Cytori, NeoStem, where we believe proof of concept is coming, but the holy grail of stem cell therapy is to be able to show a signal, anything, in paralysis. STEM now will carry that banner.