October 30, 2008

StemCells, Inc. Announces Preclinical Results Showing Its Proprietary Human Neural Stem Cells Can Prevent Vision Loss

StemCells, Inc. (NASDAQ:STEM) reported today that its proprietary HuCNS-SC(R) product candidate (purified human neural stem cells), when transplanted into a well-established animal model, can protect the retina from progressive degeneration. Retinal degeneration leads to loss of vision in diseases such as age-related macular degeneration and retinitis pigmentosa. This promising study was conducted by Dr. Raymond Lund, a researcher and professor at the Casey Eye Institute at Oregon Health & Science University (OHSU) and his research team. Dr. Lund will present the study results at a seminar sponsored by the Foundation Fighting Blindness on Saturday, November 1, 2008. The seminar is scheduled to begin at 9:00 a.m. and will be held at the University of California - San Francisco, Cole Hall (Medical Sciences Building on Parnassus Campus) in San Francisco, California.

"This study confirms the results of previously published academic studies evaluating neural stem cell transplantation into the retina and provides us with the rationale to pursue clinical testing of HuCNS-SC cells for retinal disorders," said Stephen Huhn, MD, FACS, FAAP, Vice President and Head of the CNS Program at StemCells, Inc. "We are already conducting additional preclinical studies and a pre-IND meeting has been scheduled with the FDA for December of this year to determine the pathway to a successful IND filing."

In this preclinical study, Dr. Lund and his co-investigator at OHSU, Dr. Peter Francis, transplanted HuCNS-SC cells into the Royal College of Surgeons (RCS) rat, a well established animal model of retinal degeneration. In the RCS model, a genetic mutation causes dysfunction of the retinal pigmented cells. Dysfunction in these cells, whose normal function is to support photoreceptors in the eye, causes progressive loss of the photoreceptors and degeneration of the retina, and ultimately, loss of visual function. Photoreceptor loss in the RCS rat begins as early as three weeks of age and by 24 weeks all photoreceptors are typically lost. In the study, the researchers transplanted HuCNS-SC cells into one eye of 21-day-old RCS rats while keeping the opposite eye as the control. Animals were evaluated starting at day 40 (19 days post transplant) and then at routine intervals up to 150 days post transplant. The evaluations showed that the HuCNS-SC cells survived the transplants and engrafted, and the eyes transplanted with the cells showed preservation of the photoreceptors and stabilization of visual function.

"The HuCNS-SC cell has proven to have very robust survival, preserving vision in our rat model at time points beyond six months," commented Dr. Lund. "These data are very encouraging and suggest cell-based therapies for retinal degeneration can be a viable treatment approach."

Dr. Francis, a retina specialist and researcher, added, "I am excited by our burgeoning collaboration with StemCells. The results of the early preclinical studies support the potential for these cells to treat retinal degenerative disease. I am especially excited by the fact that the cell is currently being tested in a clinical trial for Batten disease, a disorder of the central nervous system, which should make the transition from the laboratory to clinical use in retinal disease that much easier."

Dr. Lund received his PhD in Anatomy from University College London, after which he joined the faculty and received tenure within two years. Shortly thereafter, he moved to the United States, joining the faculty at Stanford University. Throughout his career, Dr. Lund has held several impressive academic positions including Chair of the Anatomy Department at the Medical University of South Carolina, Chair of the Neurobiology and Anatomy Department at the University of Pittsburgh, chair of the Anatomy Department at the University of Cambridge in England, the Duke Elder Professorship at the Institute of Ophthalmology in London, and the Calvin and JeNeal Hatch Chair of Ophthalmology at the Moran Eye Center at the University of Utah. In 2005, he was appointed Vice Chair of research at the Moran Eye Center in Utah. In 2007, Dr. Lund was recruited to join the faculty of the Oregon Retinal Degeneration Center at the Casey Eye Institute.

Throughout his career, Dr. Lund's research has centered on the response of the central nervous system to injury and mechanisms of rescue and repair. Focusing on the retina and its connections with the brain, he pioneered eye transplants in mammals in the late 1970s. Currently, he is investigating the use of cell-based therapies for photoreceptor degeneration in animal models of human disease.

Dr. Francis is an ophthalmologist and retina specialist at the Casey Eye Institute, and an Associate Professor, Oregon Health & Science University. Dr. Francis received his MD from University of Southampton, Southampton, England, and his PhD in molecular genetics at the Institute of Ophthalmology in London. He co-directs the Casey Macular Degeneration and Oregon Retinal Degeneration Centers. His clinical and research interests have focused on age-related macular degeneration and inherited retinal disorders.

About Retinal Degeneration

The retina is a thin layer of neural cells that lines the back of the eye and is responsible for converting external light into neural signal processed by the brain. The loss of function in retinal cells leads to an impairment or loss of vision. The macula, one of the most critical parts of the retina, is responsible for processing detailed vision. The most common forms of retinal degeneration are age-related macular degeneration and retinitis pigmentosa. In the United States, age-related macular degeneration affects over 1.7 million people in the over-65 population and is the leading cause of blindness in that group. Retinitis pigmentosa is a class of hereditary diseases that also leads to progressive degeneration of retinal cells. In the United States, the most common types of retinitis pigmentosa affect approximately 65,000 people. Preventative measures for both age-related macular degeneration and retinitis pigmentosa have limited impact on the disease and current treatments are not curative.

About HuCNS-SC Cells

StemCells' lead product candidate, HuCNS-SC cells, is a purified composition of normal human neural stem cells that are expanded and stored as banks of cells. The Company's preclinical research has shown that HuCNS-SC cells can be directly transplanted; they engraft, migrate, differentiate into neurons and glial cells; and they 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, act like normal stem cells, suggesting the possibility of a continual replenishment of normal human neural cells.

About StemCells, Inc.

StemCells, Inc. is a clinical-stage biotechnology company focused on the discovery, development and commercialization of cell-based therapeutics to treat diseases of the central nervous system and liver. The Company's product development programs seek to repair or repopulate CNS and liver tissue that has been damaged or lost as a result of disease or injury. StemCells has pioneered the discovery and development of HuCNS-SC(R) cells, its highly purified, expandable population of human neural stem cells. StemCells has completed enrollment and dosing of a six patient Phase I clinical trial of its proprietary HuCNS-SC product candidate as a treatment for neuronal ceroid lipofuscinosis (NCL) and expects the trial to be completed in January 2009. NCL, which is often referred to as Batten disease, is a rare and fatal neurodegenerative disease that affects infants and young children. StemCells owns or has exclusive rights to more than 50 issued or allowed U.S. patents and more than 150 granted or allowed non-U.S. patents. Further information about the Company is available on its web site at: www.stemcellsinc.com.

About OHSU and Casey Eye Institute

Oregon Health & Science University is Oregon's only health and research university and the state's only academic health center. OHSU is Portland's largest employer and the fourth largest in Oregon (excluding government), with more than 12,400 employees. OHSU's size contributes to its ability to provide many services and community support activities not found anywhere else in the state. It serves patients from every corner of the state, and is a conduit for learning for more than 3,400 students and trainees. OHSU is the source of more than 200 community outreach programs that bring health and education services to every county in the state.

The Casey Eye Institute, named after the founders of United Parcel Service, opened on the OHSU Marquam Hill Campus in 1991. The Casey Eye Institute is an academic regional eye center dedicated to preventing blindness through research, and to bringing advanced technology to the Pacific Northwest through continuing education of physicians. Casey is the seventh and final regional eye research center in the nation sponsored by Research to Prevent Blindness, the world's leading voluntary organization in support of eye research.

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. (the "Company") and its ability to conduct clinical trials as well as its research and product development efforts. 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 uncertainty as to whether the FDA or other applicable regulatory agencies will permit the Company to continue clinical testing in NCL 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 regarding the Company's ability to obtain the increased capital resources needed to continue its current research and development operations and to conduct the research, preclinical development and clinical trials necessary for regulatory approvals; uncertainty regarding the validity and enforceability of the Company's patents; uncertainty as to whether HuCNS-SC 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 the Company's manufacturing capabilities given its increasing preclinical and clinical commitments; uncertainties as to whether the Company will achieve revenues from product sales or become profitable; and other factors that are described under the heading "Risk Factors" in Item 1A of Part II of the Company's Annual Report on Form 10-K.