e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: September 30, 2009
Commission File Number: 0-19871
STEMCELLS, INC.
(Exact name of registrant as specified in its charter)
|
|
|
DELAWARE
|
|
94-3078125 |
|
|
|
(State or other jurisdiction of
|
|
(I.R.S. Employer |
incorporation or organization)
|
|
identification No) |
3155 PORTER DRIVE
PALO ALTO, CA 94304
(Address of principal executive offices including zip code)
(650) 475-3100
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or
for such shorter periods that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
At November 2, 2009, there were 118,349,587 shares of Common Stock, $.01 par value, issued and
outstanding.
STEMCELLS, INC.
INDEX
NOTE REGARDING REFERENCES TO US AND OUR COMMON STOCK
Throughout this Form 10-Q, the words we, us, our, and StemCells refer to StemCells, Inc.,
including our directly and indirectly wholly-owned subsidiaries. Common stock refers to the
common stock, $.01 par value, of StemCells, Inc.
2
PART IFINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STEMCELLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
ASSETS
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
28,226,515 |
|
|
$ |
30,042,986 |
|
Marketable securities |
|
|
5,175,739 |
|
|
|
4,181,592 |
|
Other receivables |
|
|
273,937 |
|
|
|
164,204 |
|
Notes receivable |
|
|
|
|
|
|
298,032 |
|
Prepaid and other current assets |
|
|
492,979 |
|
|
|
645,242 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
34,169,170 |
|
|
|
35,332,056 |
|
Property, plant and equipment, net |
|
|
3,012,856 |
|
|
|
3,173,468 |
|
Other assets, non-current |
|
|
2,357,968 |
|
|
|
2,079,278 |
|
Goodwill and other intangible assets, net |
|
|
5,384,762 |
|
|
|
645,538 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
44,924,756 |
|
|
$ |
41,230,340 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,362,407 |
|
|
$ |
1,078,123 |
|
Accrued expenses and other liabilities |
|
|
2,306,007 |
|
|
|
2,261,245 |
|
Accrued wind-down expenses, current |
|
|
1,435,234 |
|
|
|
1,420,378 |
|
Deferred revenue, current |
|
|
147,678 |
|
|
|
43,909 |
|
Capital lease obligation, current |
|
|
71,337 |
|
|
|
18,739 |
|
Deferred rent, current |
|
|
180,429 |
|
|
|
346,930 |
|
Bond payable, current |
|
|
157,500 |
|
|
|
149,167 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
5,660,592 |
|
|
|
5,318,491 |
|
Capital lease obligation, non-current |
|
|
101,757 |
|
|
|
6,529 |
|
Bond payable, non-current |
|
|
741,250 |
|
|
|
860,000 |
|
Fair value of warrant liability |
|
|
9,262,448 |
|
|
|
8,439,931 |
|
Deposits and other long-term liabilities |
|
|
458,032 |
|
|
|
466,211 |
|
Accrued wind-down expenses, non-current |
|
|
3,322,076 |
|
|
|
4,092,939 |
|
Deferred rent, non-current |
|
|
|
|
|
|
90,215 |
|
Deferred revenue, non-current |
|
|
158,736 |
|
|
|
147,039 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
19,704,891 |
|
|
|
19,421,355 |
|
Commitments and contingencies (Note 6) |
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $.01 par value;
250,000,000 shares authorized; issued
and outstanding 108,319,091 at September
30, 2009 and 94,945,603 at December 31,
2008 |
|
|
1,083,190 |
|
|
|
949,455 |
|
Additional paid-in capital |
|
|
305,244,263 |
|
|
|
279,868,802 |
|
Accumulated deficit |
|
|
(280,794,177 |
) |
|
|
(259,001,524 |
) |
Accumulated other comprehensive loss |
|
|
(313,411 |
) |
|
|
(7,748 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
25,219,865 |
|
|
|
21,808,985 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
44,924,756 |
|
|
$ |
41,230,340 |
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
3
STEMCELLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from licensing agreements and grants |
|
$ |
98,806 |
|
|
$ |
12,379 |
|
|
$ |
300,260 |
|
|
$ |
59,561 |
|
Revenue from product sales |
|
|
154,362 |
|
|
|
|
|
|
|
274,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
253,168 |
|
|
|
12,379 |
|
|
|
575,221 |
|
|
|
59,561 |
|
Cost of product sales |
|
|
(141,453 |
) |
|
|
|
|
|
|
(200,979 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
111,715 |
|
|
|
12,379 |
|
|
|
374,242 |
|
|
|
59,561 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
4,988,569 |
|
|
|
4,171,799 |
|
|
|
14,278,958 |
|
|
|
13,087,165 |
|
Selling, general and administrative |
|
|
2,111,838 |
|
|
|
1,631,580 |
|
|
|
6,852,724 |
|
|
|
6,231,629 |
|
Wind-down expenses |
|
|
(5,679 |
) |
|
|
53,636 |
|
|
|
539,821 |
|
|
|
381,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
7,094,728 |
|
|
|
5,857,015 |
|
|
|
21,671,503 |
|
|
|
19,699,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(6,983,013 |
) |
|
|
(5,844,636 |
) |
|
|
(21,297,261 |
) |
|
|
(19,640,369 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain on sale of marketable securities |
|
|
|
|
|
|
|
|
|
|
397,866 |
|
|
|
|
|
Change in fair value of warrant liability |
|
|
1,830,414 |
|
|
|
|
|
|
|
(822,517 |
) |
|
|
|
|
Interest income |
|
|
5,531 |
|
|
|
138,332 |
|
|
|
55,816 |
|
|
|
738,107 |
|
Interest expense |
|
|
(27,613 |
) |
|
|
(26,849 |
) |
|
|
(84,863 |
) |
|
|
(84,010 |
) |
Other income (expense) |
|
|
29,940 |
|
|
|
(10,800 |
) |
|
|
(41,694 |
) |
|
|
(18,145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net |
|
|
1,838,272 |
|
|
|
100,683 |
|
|
|
(495,392 |
) |
|
|
635,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,144,741 |
) |
|
$ |
(5,743,953 |
) |
|
$ |
(21,792,653 |
) |
|
$ |
(19,004,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share |
|
$ |
(0.05 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.24 |
) |
Shares used to compute basic and diluted loss per share |
|
|
108,257,345 |
|
|
|
80,961,150 |
|
|
|
103,071,957 |
|
|
|
80,827,141 |
|
See Notes to Condensed Consolidated Financial Statements.
4
STEMCELLS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: Net loss |
|
$ |
(21,792,653 |
) |
|
$ |
(19,004,417 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,220,813 |
|
|
|
895,617 |
|
Stock-based compensation |
|
|
3,174,945 |
|
|
|
3,021,444 |
|
Gain on sale of marketable securities |
|
|
(397,866 |
) |
|
|
|
|
Change in fair value of warrant liability |
|
|
822,517 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Other receivables |
|
|
398,742 |
|
|
|
141,967 |
|
Prepaid and other current assets |
|
|
196,778 |
|
|
|
441,662 |
|
Other assets, non-current |
|
|
(269,393 |
) |
|
|
(322,821 |
) |
Accounts payable and accrued expenses |
|
|
(509,958 |
) |
|
|
(1,415,468 |
) |
Accrued wind-down expenses |
|
|
(775,547 |
) |
|
|
(707,061 |
) |
Deferred revenue |
|
|
(303,027 |
) |
|
|
(2,464 |
) |
Deferred rent |
|
|
(256,715 |
) |
|
|
(214,104 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(18,491,364 |
) |
|
|
(17,165,645 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from the sale of marketable securities |
|
|
4,510,213 |
|
|
|
22,658,794 |
|
Purchase of marketable securities |
|
|
(4,977,982 |
) |
|
|
|
|
Repayment (payment) of advances under notes receivable |
|
|
(79,829 |
) |
|
|
1,000,000 |
|
Purchases of property, plant and equipment |
|
|
(485,750 |
) |
|
|
(261,693 |
) |
Acquisition of other assets |
|
|
(15,000 |
) |
|
|
(24,375 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(1,048,348 |
) |
|
|
23,372,726 |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of issuance costs |
|
|
17,694,812 |
|
|
|
194,061 |
|
Proceeds from the exercise of stock options |
|
|
252,984 |
|
|
|
123,253 |
|
Proceeds from the exercise of warrants |
|
|
331,501 |
|
|
|
|
|
Payments related to net share issuance of stock based awards |
|
|
(380,548 |
) |
|
|
|
|
Proceeds from (repayment of) capital lease obligations |
|
|
147,825 |
|
|
|
(13,038 |
) |
Repayment of bonds payable |
|
|
(110,417 |
) |
|
|
(100,000 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
17,936,157 |
|
|
|
204,276 |
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(1,603,555 |
) |
|
|
6,411,357 |
|
Effects of foreign exchange rate changes on cash |
|
|
(212,916 |
) |
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
30,042,986 |
|
|
|
9,759,169 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
28,226,515 |
|
|
$ |
16,170,526 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
84,863 |
|
|
$ |
84,010 |
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Stock issued as part of our acquisition of the operations of SCS Plc (1) |
|
$ |
4,425,500 |
|
|
|
|
|
Forgiveness of principal and accrued interest on notes receivable (1) |
|
$ |
709,076 |
|
|
|
|
|
Stock issued for licensing agreement (2) |
|
$ |
10,000 |
|
|
$ |
10,000 |
|
|
|
|
(1) |
|
On April 1, 2009, we acquired the operations of Stem Cell Sciences Plc (SCS). As
consideration, we issued to SCS 2,650,000 shares of common stock with a closing price of $1.67
per share and waived certain commitments of SCS to repay approximately $709,000 in principal
and accrued interest owed to us. |
|
(2) |
|
Under terms of a license agreement with the California Institute of Technology (Cal Tech),
annual fees of $5,000 were due on each of two patents to which we hold a license from Cal
Tech, payable in cash or common stock at our choice. We elected to pay the fees in stock and
issued 5,900 and 6,924 shares of our common stock in 2009 and 2008 respectively. |
See Notes to Condensed Consolidated Financial Statements.
5
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2009 and 2008
Note 1. Summary of Significant Accounting Policies
Nature of Business
StemCells, Inc., a Delaware corporation, is a biopharmaceutical company that operates in one
segment, the development and commercialization of cell-based technologies.
The accompanying financial data as of and for the three and nine months ended September 30, 2009
and 2008 has been prepared by us, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP) have been condensed or omitted pursuant to such rules and
regulations. The December 31, 2008 condensed consolidated balance sheet was derived from audited
financial statements, but does not include all disclosures required by U.S. GAAP. However, we
believe that the disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2008. Subsequent events have been evaluated through November 4,
2009, which represents the issuance date of these unaudited condensed consolidated financial
statements.
We have incurred significant operating losses since inception. We expect to incur additional
operating losses over the foreseeable future. We have very limited liquidity and capital resources
and must obtain significant additional capital and other resources in order to sustain our product
development efforts, to provide funding for the acquisition of technologies, businesses and
intellectual property rights, preclinical and clinical testing of our 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. We rely on our 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
our operations. If we exhaust our cash reserves and are unable to obtain adequate financing, we may
be unable to meet our operating obligations and we may be required to initiate bankruptcy
proceedings. The financial statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of StemCells, Inc., and
our wholly-owned subsidiaries, StemCells California, Inc., StemCells Property Holding LLC, Stem
Cell Sciences Holdings Ltd; Stem Cell Sciences (UK) Ltd; and Stem Cell Sciences (Australia) Pty
Ltd. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to
make judgments, assumptions and estimates that affect the amounts reported in our condensed
consolidated financial statements and accompanying notes. Actual results could differ materially
from these estimates.
Significant estimates include the following:
|
|
|
the grant date fair value of stock-based awards recognized as compensation expense (see
Note 4, Stock Based Compensation); |
|
|
|
accrued wind-down expenses (see Note 5, Wind-Down Expenses); |
|
|
|
the fair value of warrants recorded as a liability (see Note 7, Warrant Liability); and |
|
|
|
the fair value of goodwill and other intangible assets (see Note 9, Acquisition of SCS
Operations). |
6
Financial Instruments
Cash and Cash Equivalents
We consider money market accounts and investments with a maturity of 90 days or less from the
date of purchase to be cash equivalents.
Marketable Securities
Our existing marketable debt and equity securities are designated as available-for-sale
securities. These securities are carried at fair value (see Note 2, Financial Instruments), with
the unrealized gains and losses reported as a component of stockholders equity. The balance sheet
classification of our marketable debt securities as current or non-current is based on their
maturity dates. Investments with remaining maturities of 365 days or less not classified as cash
equivalents are classified as Marketable securities, current. Investments with remaining
maturities greater than 365 days are classified as Marketable securities, non-current. Management
determines the appropriate designation of its investments in marketable debt and equity securities
at the time of purchase and reevaluates such designation as of each balance sheet date. The cost of
securities sold is based upon the specific identification method.
If the estimated fair value of a security is below its carrying value, we evaluate whether we
have the intent and ability to retain our investment for a period of time sufficient to allow for
any anticipated recovery to the cost of the investment, and whether evidence indicating that the
cost of the investment is recoverable within a reasonable period of time outweighs evidence to the
contrary. Other-than-temporary declines in estimated fair value of all marketable securities are
charged to Other income (expense), net. No such impairment was recognized during the nine months
ended September 30, 2009 or 2008.
Other Receivables
Our receivables generally consist of interest income on our financial instruments, revenue
from licensing agreements and grants, revenue from product sales, and rent from our sub-lease
tenants.
Revenue Recognition
We currently recognize revenue resulting from the licensing and use of our technology and
intellectual property. Such licensing agreements may contain multiple elements, such as upfront
fees, payments related to the achievement of particular milestones and royalties. Revenue from
upfront fees for licensing agreements that contain multiple elements are generally deferred and
recognized on a straight-line basis over the term of the agreement. Fees associated with
substantive at risk performance-based milestones are recognized as revenue upon completion of the
scientific or regulatory event specified in the agreement, and royalties received are recognized as
earned. Revenue from collaborative agreements and grants are recognized as earned upon either the
incurring of reimbursable expenses directly related to the particular research plan or the
completion of certain development milestones as defined within the terms of the relevant
collaborative agreement or grant. Revenue from product sales are recognized when the product is
shipped and the order fulfilled.
Stock-Based Compensation
Compensation expense for stock-based payment awards to employees is based on their grant date
fair value as calculated and amortized over their vesting period. See Note 4, Stock-Based
Compensation for further information.
Compensation expense for stock-based awards granted to non-employees is based on the estimated
fair value of the award which is re-measured at each reporting date and is amortized over the
remaining vesting period.
We use the Black-Scholes-Merton (Black-Scholes) model to calculate the fair value of
stock-based awards.
7
Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of
shares of common stock outstanding during the period. Diluted net loss per share is computed based
on the weighted-average number of shares of common stock and other dilutive securities. To the
extent these securities are anti-dilutive, they are excluded from the calculation of diluted
earnings per share.
The following is a reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Net loss |
|
$ |
(5,144,741 |
) |
|
$ |
(5,743,953 |
) |
|
$ |
(21,792,653 |
) |
|
$ |
(19,004,417 |
) |
Weighted average shares outstanding
used to compute basic and diluted
net loss per share |
|
|
108,257,345 |
|
|
|
80,961,150 |
|
|
|
103,071,957 |
|
|
|
80,827,141 |
|
Basic and diluted net loss per share |
|
$ |
(0.05 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.24 |
) |
The following outstanding potentially dilutive common stock equivalents were excluded from the
computation of diluted net loss per share because the effect would have been anti-dilutive as of
September 30:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Options |
|
|
9,293,703 |
|
|
|
8,471,887 |
|
Restricted stock units |
|
|
2,367,901 |
|
|
|
1,650,000 |
|
Warrants |
|
|
10,344,828 |
|
|
|
1,255,000 |
|
|
|
|
|
|
|
|
Total |
|
|
22,006,432 |
|
|
|
11,376,887 |
|
|
|
|
|
|
|
|
Comprehensive Loss
Comprehensive loss is comprised of net losses and other comprehensive loss or income (OCL).
OCL includes certain changes in stockholders equity that are excluded from net losses.
Specifically, we include in OCL changes in unrealized gains and losses on our marketable securities
and unrealized gains and losses on foreign currency translations. Accumulated other comprehensive
loss was $313,411 as of September 30, 2009 and $7,748 as of December 31, 2008.
The activity in OCL was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net loss |
|
$ |
(5,144,741 |
) |
|
$ |
(5,743,953 |
) |
|
$ |
(21,792,653 |
) |
|
$ |
(19,004,417 |
) |
Net change in
unrealized gains
and losses on
marketable
securities |
|
|
(5,248 |
) |
|
|
(272,066 |
) |
|
|
128,512 |
|
|
|
(1,691,631 |
) |
Net change in
unrealized gains
and losses on
foreign currency
translations |
|
|
(208,537 |
) |
|
|
|
|
|
|
(434,175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(5,358,526 |
) |
|
$ |
(6,016,019 |
) |
|
$ |
(22,098,316 |
) |
|
$ |
(20,696,048 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
In August 2009, the FASB issued an Accounting Standard Update (ASU) under the topic Fair
Value Measurements and Disclosures Measuring Liabilities at
Fair Value. This ASU provides
amendments for fair value measurements of liabilities. It provides clarification that under
circumstances in which, a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or more techniques
prescribed in this update. This ASU also clarifies that when estimating a fair value of a
liability, a reporting entity is not required to include a separate input or adjustment to other
inputs relating to the existence of a restriction that prevents the transfer of the liability.
This ASU is effective for the first reporting period (including interim periods) beginning after
issuance or fourth quarter 2009. The Company is assessing the impact, if any, of this ASU on our
condensed consolidated financial statements and disclosures.
Note 2. Financial Instruments
The following table summarizes the fair value of our cash, cash equivalents and
available-for-sale marketable securities held in our current investment portfolio:
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Fair Value |
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
515,459 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
515,459 |
|
Cash equivalents (money market accounts) |
|
|
27,711,056 |
|
|
|
|
|
|
|
|
|
|
|
27,711,056 |
|
Marketable debt securities, current (maturity within 1 year) |
|
|
4,980,519 |
|
|
|
|
|
|
|
(711 |
) |
|
|
4,979,808 |
|
Marketable equity securities, current |
|
|
74,456 |
|
|
|
121,475 |
|
|
|
|
|
|
|
195,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and marketable securities |
|
$ |
33,281,490 |
|
|
$ |
121,475 |
|
|
$ |
(711 |
) |
|
$ |
33,402,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
243,883 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
243,883 |
|
Cash equivalents (money market accounts) |
|
|
29,799,103 |
|
|
|
|
|
|
|
|
|
|
|
29,799,103 |
|
Marketable debt securities, current (maturity within 1 year) |
|
|
4,002,537 |
|
|
|
|
|
|
|
(7,748 |
) |
|
|
3,994,789 |
|
Marketable equity securities, current |
|
|
186,803 |
|
|
|
|
|
|
|
|
|
|
|
186,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and marketable securities |
|
$ |
34,232,326 |
|
|
$ |
|
|
|
$ |
(7,748 |
) |
|
$ |
34,224,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized gains and losses on cash equivalents were not material at September 30, 2009
and December 31, 2008. At September 30, 2009, our investment in marketable debt securities was composed primarily of U.S. Treasury securities.
9
Our investment in marketable equity securities consists of ordinary shares of ReNeuron Group
Plc (ReNeuron), a publicly listed U.K. corporation. In July 2005, we entered into an agreement with
ReNeuron under which we 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.
We received shares of ReNeuron common stock, as well as a cross-license to the exclusive use of
ReNeurons technology for certain diseases and conditions, including lysosomal storage diseases,
spinal cord injury, cerebral palsy, and multiple sclerosis. The agreement also provides for full
settlement of any potential claims that either we or ReNeuron might have had against the other in
connection with any putative infringement of certain of each partys patent rights prior to the
effective date of the agreement. In July and August 2005, we received approximately 8,836,000
ordinary shares of ReNeuron common stock, net of approximately 104,000 shares that were transferred
to NeuroSpheres, and subsequently, as a result of certain anti-dilution provisions in the
agreement, we received approximately 1,261,000 more shares, net of approximately 18,000 shares that
were transferred to NeuroSpheres. In February 2007, we sold 5,275,000 shares for net proceeds of
approximately $3,075,000. We recognized approximately $716,000 as realized gain from this
transaction. At December 31, 2008, we owned 4,821,924 shares of ReNeuron with a carrying and fair
market value of approximately $187,000. In the first quarter of 2009, we sold 2,900,000 shares of
ReNeuron and received net proceeds of approximately $510,000 for a realized gain of approximately
$398,000. As of September 30, 2009, we owned 1,921,924 shares of ReNeuron with a carrying and fair
market value of approximately $196,000.
Changes in the fair market value of our ReNeuron shares as a result of changes in market price
per share or the exchange rate between the U.S. dollar and the British pound are accounted for as
an unrealized gain or loss under other comprehensive income (loss) if deemed temporary and are
not recorded as other income (expense), net until the shares are disposed of and a gain or loss
realized. If the fair value of a security is below its carrying value, we evaluate whether we have
the intent and ability to retain our investment for a period of time sufficient to allow for any
anticipated recovery to the cost of the investment, and whether evidence indicating that the cost
of the investment is recoverable within a reasonable period of time outweighs evidence to the
contrary. Other-than-temporary declines in estimated fair value of all marketable securities are
charged to other income (expense), net. For the three months ended September 30, 2009, we
recorded an unrealized gain of approximately $5,000.
Notes Receivable
In December 2008 and March 2009, we made two secured loans to Stem Cell Sciences Plc (SCS) in
connection with our acquisition negotiations with SCS. The loans accrued interest at 8% per annum
and were repayable six months after the initial funding. At March 31, 2009, the principal and
accrued interest for these two loans together totaled approximately $709,000. On April 1, 2009, we
closed the acquisition of the operations of SCS, and in connection with that transaction, we waived
the obligation of SCS to repay the principal and accrued interest of these two loans.
Note 3. Fair Value Measurement
The following tables present our assets and liabilities that are measured at fair value on a
recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has
three levels based on the reliability of the inputs used to determine fair value
Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Level 2 Directly or indirectly observable inputs other than in Level 1, that include quoted
prices for similar assets or liabilities in active markets or quoted prices for identical or
similar assets or liabilities in markets that are not active.
Level 3 Unobservable inputs which are supported by little or no market activity that reflects
the reporting entitys own assumptions about the assumptions that market participants would use
in pricing the asset or liability.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.
Our cash equivalents and marketable debt and equity securities are classified within Level 1
or Level 2. This is because our cash equivalents and marketable securities are valued primarily
using quoted market prices or alternative pricing sources and models utilizing market observable
inputs. We currently do not have any Level 3 financial assets or liabilities.
The following table presents financial assets and liabilities measured at fair value:
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement |
|
|
|
|
|
|
at Reporting Date Using |
|
|
|
|
|
|
Quoted Prices |
|
|
Significant |
|
|
|
|
|
|
in Active Markets |
|
|
Other |
|
|
|
|
|
|
for |
|
|
Observable |
|
|
As of |
|
|
|
Identical Assets |
|
|
Inputs |
|
|
September 30, |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
1,266,401 |
|
|
$ |
|
|
|
$ |
1,266,401 |
|
U.S. Treasury securities |
|
|
31,424,463 |
|
|
|
|
|
|
|
31,424,463 |
|
Marketable Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
195,931 |
|
|
|
|
|
|
|
195,931 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
32,886,795 |
|
|
|
|
|
|
|
32,886,795 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Bond payable |
|
$ |
|
|
|
$ |
898,750 |
|
|
$ |
898,750 |
|
Note 4. Stock-Based Compensation
We currently grant stock-based awards under three equity incentive plans. We had 19,025,067
shares authorized to be granted under the three plans as of September 30, 2009. Under these plans
we may grant incentive stock options, nonqualified stock options, stock appreciation rights,
restricted stock, restricted stock units, and performance-based shares to our employees, directors
and consultants, at prices determined by our Board of Directors. Incentive stock options may only
be granted to employees under these plans with a grant price not less than the fair market value of
the stock on the date of grant.
Our compensation expense for stock options and restricted stock units issued from our equity
incentive plans for the three and nine months ended September 30 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Research and development expense |
|
$ |
555,450 |
|
|
$ |
473,828 |
|
|
$ |
1,542,023 |
|
|
$ |
1,430,157 |
|
General and administrative expense |
|
|
542,400 |
|
|
|
465,351 |
|
|
|
1,525,699 |
|
|
|
1,443,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee stock-based compensation expense and
effect on net loss |
|
$ |
1,097,850 |
|
|
$ |
939,179 |
|
|
$ |
3,067,722 |
|
|
$ |
2,873,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on basic and diluted net loss per common share |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009, we had approximately $6,200,000 of total unrecognized compensation
expense related to unvested awards of stock options and restricted stock units granted under our
various stock-based plans that we expect to recognize over a weighted-average vesting period of 2.5
years.
Stock Options
Generally, stock options granted to employees have a maximum term of ten years, and vest over
a four year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly
over the remaining three-year service period. We may grant options with different vesting terms
from time to time. Upon employee termination of service, any unexercised vested option will be
forfeited three months following termination or the expiration of the option, whichever is earlier.
Unvested options are forfeited on termination.
A summary of our stock option activity for the three months ended September 30, 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average |
|
|
|
Number of options |
|
|
exercise price ($) |
|
Balance at June 30, 2009 |
|
|
9,380,197 |
|
|
|
2.27 |
|
Granted |
|
|
47,500 |
|
|
|
1.70 |
|
Exercised |
|
|
(69,654 |
) |
|
|
1.11 |
|
Cancelled |
|
|
(64,340 |
) |
|
|
1.93 |
|
|
|
|
|
|
|
|
Outstanding options at September 30, 2009 |
|
|
9,293,703 |
|
|
|
2.28 |
|
|
|
|
|
|
|
|
The estimated weighted-average fair value of options granted in the three months ended
September 30, 2009 and 2008 was approximately $1.38 and $0.93 per share respectively. The fair
value of options granted is estimated as of the date of grant using the Black-Scholes option
pricing model, which requires certain assumptions as of the date of grant. The weighted-average
assumptions used as of September 30, 2009 and 2008 were as follows:
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Expected life (years)(1)
|
|
|
7.59 |
|
|
|
7.71 |
|
|
|
7.38 |
|
|
|
7.22 |
|
Risk-free interest rate(2)
|
|
|
3.22 |
% |
|
|
3.56 |
% |
|
|
2.79 |
% |
|
|
3.32 |
% |
Expected volatility(3)
|
|
|
91.83 |
% |
|
|
93.78 |
% |
|
|
93.56 |
% |
|
|
93.81 |
% |
Expected dividend yield(4)
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
|
(1) |
|
The expected term represents the period during which our stock-based awards are expected to
be outstanding. We estimated this amount based on historical experience of similar awards,
giving consideration to the contractual terms of the awards, vesting requirements, and
expectation of future employee behavior, including post-vesting terminations. |
|
(2) |
|
The risk-free interest rate is based on U.S. Treasury debt securities with maturities close
to the expected term of the option as of the date of grant. |
|
(3) |
|
Expected volatility is based on historical volatility over the most recent historical period
equal to the length of the expected term of the option as of the date of grant. |
|
(4) |
|
We have not historically issued any dividends, and we do not expect to in the foreseeable
future. |
At the end of each reporting period we estimate forfeiture rates based on our historical
experience within separate groups of employees and adjust the stock-based compensation expense
accordingly.
A summary of changes in unvested options for the three months ended September 30, 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average grant |
|
|
|
Number of options |
|
|
date fair value ($) |
|
Unvested options at June 30, 2009 |
|
|
3,265,484 |
|
|
|
1.62 |
|
Granted |
|
|
47,500 |
|
|
|
1.38 |
|
Vested |
|
|
(360,500 |
) |
|
|
1.95 |
|
Cancelled |
|
|
(64,340 |
) |
|
|
1.45 |
|
|
|
|
|
|
|
|
Unvested options at September 30, 2009 |
|
|
2,888,144 |
|
|
|
1.58 |
|
|
|
|
|
|
|
|
The estimated fair value of shares vested were approximately $703,000 in the three months
ended September 30, 2009.
Restricted Stock Units
We have granted restricted stock units (RSUs) to certain employees which entitle the holders
to receive shares of our common stock upon vesting of the RSUs. The fair value of restricted stock
units granted are based upon the market price of the underlying common stock as if it were vested
and issued on the date of grant.
A summary of our restricted stock unit activity for the three months ended September 30, 2009
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average grant |
|
|
|
Number of RSUs |
|
|
date fair value ($) |
|
Balance at June 30, 2009 (1) |
|
|
2,303,068 |
|
|
|
1.49 |
|
Granted (2) |
|
|
103,333 |
|
|
|
1.70 |
|
Vested and converted to common shares |
|
|
|
|
|
|
|
|
Cancelled |
|
|
(38,500 |
) |
|
|
1.26 |
|
|
|
|
|
|
|
|
Balance unvested at September 30, 2009 |
|
|
2,367,901 |
|
|
|
1.50 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
1,100,000 of these restricted stock units vest and convert into shares of our common stock
over a three year period from the date of grant: one-third of the award will vest on each
grant date anniversary over the following three years. 953,068 of these restricted stock units
vest and convert into shares of our common stock over a four year period from the date of
grant: one-fourth of the award will vest on each grant date anniversary over the following
four years. 250,000 of these restricted stock units will vest and convert into shares of our
common stock subject to attainment of certain performance criteria and will be forfeited if
not met by March 31, 2011. |
|
(2) |
|
93,333 of these restricted stock units vest and convert into shares of our common stock over
a four year period from the date of grant: one-fourth of the award will vest on each grant
date anniversary over the following four years. 10,000 of these restricted stock units vest
and convert into shares of our common stock after one year from the date of grant. |
Stock Appreciation Rights
In July 2006, we granted cash-settled Stock Appreciation Rights (SARs) to certain
employees that give the holder the right, upon exercise, to the difference between the price per share of our common
stock at the time of exercise and the exercise price of the SARs.
12
The SARs have a maximum term of ten years with an exercise price of $2.00, which is equal to
the market price of our common stock at the date of grant. The SARs vest 25% on the first
anniversary of the grant date and 75% vest monthly over the remaining three-year service period.
Compensation expense is based on the fair value of SARs which is calculated using the Black-Scholes
option pricing model. The stock-based compensation expense and liability are re-measured at each
reporting date through the date of settlement.
A summary of the changes in SARs for the three months ended September 30, 2009 is as follows:
|
|
|
|
|
|
|
Number of SARs |
|
Outstanding at June 30, 2009 |
|
|
1,430,849 |
|
Granted |
|
|
|
|
Exercised |
|
|
|
|
Forfeited and expired |
|
|
|
|
|
|
|
|
Outstanding SARs at September 30, 2009 |
|
|
1,430,849 |
|
|
|
|
|
SARs exercisable at September 30, 2009 |
|
|
1,132,755 |
|
|
|
|
|
For the three months ended September 30, 2009, we re-measured the liability related to the
SARs and due to a decrease in our common stock price, the re-measured fair value of the liability
reduced compensation expense by approximately $5,000. For the same period in 2008, we recorded
compensation expense of approximately $25,000.
At September 30, 2009, approximately $210,000 of unrecognized compensation expense related to
SARs is expected to be recognized over a weighted average vesting period of approximately 1.0 year.
The resulting effect on net loss and net loss per share attributable to common stockholders is not
likely to be representative of the effects in future periods, due to changes in the fair value
calculation which is dependent on the stock price, volatility, interest and forfeiture rates,
additional grants and subsequent periods of vesting.
Note 5. Wind-Down Expenses
Rhode Island
In October 1999, we relocated to California from Rhode Island and established a wind down
reserve for the estimated lease payments and operating costs of the scientific and administrative
facility in Rhode Island. Even though we intend to dispose of the facility at the earliest possible
time, we cannot determine with certainty a fixed date by which such disposal will occur. In light
of this uncertainty, we periodically re-evaluate and adjust the reserve. We consider various
factors such as our lease payments through to the end of the lease, operating expenses, the current
real estate market in Rhode Island, and estimated subtenant income based on actual and projected
occupancy.
The summary of the changes to our wind-down reserve related to this facility as of September
30, 2009 and December 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January to |
|
|
April to |
|
|
July to |
|
|
January to |
|
|
January to |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
Accrued wind-down reserve at beginning of period |
|
$ |
4,448,000 |
|
|
$ |
4,323,000 |
|
|
$ |
4,060,000 |
|
|
$ |
4,448,000 |
|
|
$ |
4,875,000 |
|
Less actual expenses recorded against estimated
reserve during the period |
|
|
(331,000 |
) |
|
|
(293,000 |
) |
|
|
(286,000 |
) |
|
|
(910,000 |
) |
|
|
(1,293,000 |
) |
Additional expense recorded to revise estimated
reserve at period-end |
|
|
206,000 |
|
|
|
30,000 |
|
|
|
(6,000 |
) |
|
|
230,000 |
|
|
|
866,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised reserve at period-end |
|
|
4,323,000 |
|
|
|
4,060,000 |
|
|
|
3,768,000 |
|
|
|
3,768,000 |
|
|
|
4,448,000 |
|
Add deferred rent at period-end |
|
|
1,014,000 |
|
|
|
962,000 |
|
|
|
911,000 |
|
|
|
911,000 |
|
|
|
1,065,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued wind-down expenses at period-end
(current and non current) |
|
$ |
5,337,000 |
|
|
$ |
5,022,000 |
|
|
$ |
4,679,000 |
|
|
$ |
4,679,000 |
|
|
$ |
5,513,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued wind-down expenses, current |
|
$ |
1,496,000 |
|
|
$ |
1,438,000 |
|
|
$ |
1,357,000 |
|
|
$ |
1,357,000 |
|
|
$ |
1,420,000 |
|
Accrued wind-down expenses, non-current |
|
|
3,841,000 |
|
|
|
3,584,000 |
|
|
|
3,322,000 |
|
|
|
3,322,000 |
|
|
|
4,093,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued wind-down expenses |
|
$ |
5,337,000 |
|
|
$ |
5,022,000 |
|
|
$ |
4,679,000 |
|
|
$ |
4,679,000 |
|
|
$ |
5,513,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
On April 1, 2009, as part of our acquisition of the SCS operations, we acquired operations
near Melbourne, Australia. In order to
13
reduce operating complexity and expenses, we made the decision to close our site in Australia
and consolidate personnel and programs to our Cambridge, U.K. and Palo Alto, California sites. U.S.
GAAP requires that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. In accordance with U.S. GAAP requirements, at June 30,
2009, we established a short-term reserve of approximately $310,000 for the estimated costs to
close down and exit our Australia operations. The reserve reflects the estimated cost to terminate
our facility lease in Australia (with an original termination date of December 31, 2010), employee
termination benefits and other liabilities associated with the wind-down and relocation of our
operations in Australia.
|
|
|
|
|
|
|
July to |
|
|
|
September 30, |
|
|
|
2009 |
|
Accrued wind-down reserve at June 30, 2009 |
|
$ |
310,000 |
|
Less actual expenses recorded against estimated reserve during the period |
|
|
(232,000 |
) |
Additional expense recorded to revise estimated reserve at period-end |
|
|
|
|
|
|
|
|
Accrued wind-down reserve at September 30, 2009 |
|
$ |
78,000 |
|
|
|
|
|
Note 6. Commitments and Contingencies
Leases
Capital leases
We entered into direct financing transactions with the State of Rhode Island and received
proceeds from the issuance of industrial revenue bonds totaling $5,000,000 to finance the
construction of our pilot manufacturing facility in Rhode Island. The related lease agreements are
structured such that lease payments fully fund all semiannual interest payments and annual
principal payments through maturity in August 2014. The interest rate for the remaining bond series
is 9.5%. The bond contains certain restrictive covenants which limit, among other things, the
payment of cash dividends and the sale of the related assets. The outstanding principal was
approximately $899,000 at September 30, 2009 and $1,009,000 at December 31, 2008.
Operating leases
We entered into a fifteen-year lease agreement for a scientific and administrative facility in
Rhode Island in connection with a sale and leaseback arrangement in 1997. The lease term expires
June 30, 2013. The lease contains escalating rent payments, which we recognize on a straight-line
basis. Deferred rent expense for this facility was approximately $911,000 at September 30, 2009 and
$1,065,000 at December 31, 2008, and is included as part of the wind-down accrual on the
accompanying condensed consolidated balance sheet.
We entered into and amended a lease agreement for an approximately 68,000 square foot facility
located at the Stanford Research Park in Palo Alto, California. The facility includes space for
animals, laboratories, offices, and a GMP (Good Manufacturing Practices) suite. GMP facilities can
be used to manufacture materials for clinical trials. Under the term of the agreement we were
required to provide a letter of credit for a total of approximately $778,000, which serves as a
security deposit for the duration of the lease term. The letter of credit issued by our financial
institution is collateralized by a certificate of deposit for the same amount, which is reflected
as restricted cash in other assets, non-current on our condensed consolidated balance sheets. The
lease contains escalating rent payments, which we recognize as operating lease expense on a
straight-line basis. Deferred rent was approximately $180,000 as of September 30, 2009 and $437,000
as of December 31, 2008, and is reflected as deferred rent on our condensed consolidated balance
sheet. As of September 30, 2009, we had a space-sharing agreement covering approximately 10,451
square feet of this facility, under which we receive base payments plus a proportionate share of
the operating expenses based on square footage over the term of the agreement. In October 2009, we
amended the lease to extend the expiry date of the lease term from March 31, 2010 to August 31,
2011. The aggregate rent payment for the extended lease term is approximately $3,100,000.
On April 1, 2009, as part of our acquisition of the operations of SCS, we acquired operations
in Cambridge, U.K.. Our wholly-owned subsidiary, Stem Cell Sciences UK Ltd, has two lease
agreements with Babraham Bioscience Technologies Ltd., for approximately 3,900 square feet in total
of office and lab space in Cambridge, U.K. The lease term for one ends on February 28, 2010, and
the other on March 26, 2011, with annual lease payments of approximately 59,000 U.K. pounds (GBP)
and 51,000 GBP, respectively.
14
On April 1, 2009, as part of our acquisition of the operations of SCS, we acquired operations
near Melbourne, Australia. Our wholly-owned subsidiary, Stem Cell Sciences (Australia) Pty Ltd, is
in a lease agreement with Monash University for approximately 1,938 square feet of office and lab
space in Victoria, Australia. The lease term ends on December 31, 2010. In order to reduce
operating complexity and expenses, we made the decision to close our site in Australia and
consolidate personnel and programs to our Cambridge, U.K. and Palo Alto, California sites. We paid
approximately $86,000 for an early termination of the lease which cost is included as part of our
wind-down expenses in the accompanying condensed consolidated financial statements.
Contingencies
In July 2006, we filed suit against Neuralstem, Inc. in the Federal District Court for the
District of Maryland, alleging that Neuralstems activities violate claims in four of the patents
we exclusively licensed from NeuroSpheres. In December 2006, Neuralstem petitioned the U.S. Patent
and Trademark Office (PTO) to reexamine two of the patents in our infringement action against
Neuralstem, namely U.S. Patent No. 6,294,346 (claiming the use of human neural stem cells for drug
screening) and U.S. Patent No. 7,101,709 (claiming the use of human neural stem cells for screening
biological agents). In April 2007, Neuralstem petitioned the PTO to reexamine the remaining two
patents in the suit, namely U.S. Patent No. 5,851,832 (claiming methods for proliferating human
neural stem cells) and U.S. Patent No. 6,497,872 (claiming methods for transplanting human neural
stem cells). These requests were granted by the PTO and, in June 2007, the parties voluntarily
agreed to stay the pending litigation while the PTO considered these reexamination requests. In
April 2008, the PTO upheld the 832 and 872 patents, as amended, and issued Notices of Intent to
Issue an Ex Parte Reexamination Certificate for both. In May 2009, the PTO upheld the 346 and 709
patents, as amended, and issued Notices of Intent to Issue an Ex Parte Reexamination Certificate
for both.
In May 2008, we filed a second patent infringement suit against Neuralstem and its two
founders, Karl Johe and Richard Garr. In this suit, which we filed in the Federal District Court
for the Northern District of California, we allege that Neuralstems activities infringe claims in
two patents we exclusively license from NeuroSpheres, specifically U.S. Patent No. 7,361,505
(claiming composition of matter of human neural stem cells derived from any source material) and
U.S. Patent No. 7,115,418 (claiming methods for proliferating human neural stem cells). In
addition, we allege various state law causes of action against Neuralstem arising out of its
repeated derogatory statements to the public about our patent portfolio. Also in May 2008,
Neuralstem filed suit against us and NeuroSpheres in the Federal District Court for the District of
Maryland seeking a declaratory judgment that the 505 and 418 patents are either invalid or are
not infringed by Neuralstem and that Neuralstem has not violated California state law. In August
2008, the California court transferred our lawsuit against Neuralstem to Maryland for resolution on
the merits. In July 2009, the Maryland District Court granted our motion to consolidate these two
cases with the litigation we initiated against Neuralstem in 2006. In August 2009, the Maryland
District Court approved a scheduling order submitted by the parties for discovery and trial.
Indemnification Agreement
In July 2008, we amended our 1997 and 2000 license agreements with NeuroSpheres. NeuroSpheres
is the holder of certain patents exclusively licensed by us, including the six patents that are the
basis of our patent infringement suits against Neuralstem. As part of the amendment, we agreed to
pay all reasonable litigation costs, expenses and attorneys fees incurred by NeuroSpheres in the
declaratory judgment suit between us and Neuralstem. In return, we are entitled to off-set all
litigation costs incurred in that suit and any successor suit against amounts that would otherwise
be owed under the license agreements, such as annual maintenance fees, milestones and royalty
payments. At this time, we cannot estimate the likely total costs of our pending litigation with
Neuralstem, given the unpredictable nature of such proceedings, or the total amount we may
ultimately owe under the NeuroSpheres license agreements. However, the ability to apply the offsets
will run for the entire term of each license agreement. For these reasons, we have chosen to
approximate the potential value of the offset receivable by assuming that all litigation charges
actually incurred in the consolidated cases, as of September 30, 2009, will ultimately be offset
against royalties owed. Management will reevaluate this assumption on a quarterly basis based on
actual costs and other relevant factors.
Note 7. Warrant Liability
In November 2008, we sold 13,793,104 units to institutional investors at a price of $1.45 per
unit, for gross proceeds of $20,000,000. The units, each of which consisted of one share of common
stock and a warrant to purchase 0.75 shares of common stock at an exercise price of $2.30 per
share, were offered as a registered direct offering under an effective shelf registration statement
previously filed with and declared effective by the SEC. We received total proceeds, net of
offering expenses and placement agency fees, of approximately $18,637,000. We recorded the fair
value of the warrants to purchase 10,344,828 shares of our common stock as a liability. The fair
value of the warrant liability is revalued at the end of each reporting period, with the change in
fair value of the warrant liability recorded as a gain or loss in our Consolidated Statements of
Operations. We used the Black-Scholes option pricing
15
model to estimate the fair value of these warrants. In using this model, we make certain
assumptions about risk-free interest rates, dividend yields, volatility and expected term of the
warrants. Risk-free interest rates are derived from the yield on U.S. Treasury debt securities.
Dividend yields are based on our historical dividend payments, which have been zero to date.
Volatility is derived from the historical volatility of our common stock as traded on Nasdaq. The
expected term of the warrants is based on the time to expiration of the warrants from the date of
measurement.
The assumptions used for the Black-Scholes option pricing model at September 30, 2009 are as
follows:
|
|
|
|
|
Expected life (years) |
|
|
4.62 |
|
Risk-free interest rate |
|
|
2.39 |
% |
Expected volatility |
|
|
77.85 |
% |
Expected dividend yield |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
fair value for the |
|
|
|
At September 30, |
|
|
At June 30, |
|
|
quarter ended |
|
|
|
2009 |
|
|
2009 |
|
|
September 30, 2009 |
|
Fair value of warrant liability |
|
$ |
9,262,448 |
|
|
$ |
11,092,862 |
|
|
$ |
(1,830,414 |
) |
The fair value of the warrants will continue to be classified as a liability until such time
as the warrants are exercised, expire or an amendment of the warrant agreement renders these
warrants to be no longer classified as a liability.
Note 8. Common Stock
On June 8, 2009, we filed a prospectus supplement that relates to the issuance and sale, from
time to time, of up to $30,000,000 of our common stock, through our sales agent Cantor Fitzgerald &
Co (Cantor). These sales will be made pursuant to the terms of a sales agreement with Cantor, under
which we will pay Cantor a fee of 3.0% of the gross proceeds. The prospectus is a part of a
registration statement that we filed with the SEC on June 25, 2008, using a shelf registration
process. Under this shelf registration process, we may offer to sell in one or more offerings up to
a total dollar amount of $100,000,000. Under our sales agreement with
Cantor, in the three-month period ended September 30, 2009, we
sold 1,555,000 shares of common stock at a price of approximately $1.80 per share for gross
proceeds of approximately $2,800,000.
Note 9. Acquisition of SCS Operations
On April 1, 2009, we acquired the operations of SCS for an aggregate purchase price of
approximately $5,135,000. The acquired operations includes 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; a media
formulation and reagent business; and an intellectual property portfolio with claims relevant to
cell processing, reprogramming and manipulation, as well as to gene targeting and insertion. These
acquired operations will help us pursue applications of our cell technologies to develop cell-based
research tools, which we believe represent nearer-term commercial opportunities.
As consideration for the acquired operations, we issued to SCS 2,650,000 shares of common
stock and waived certain commitments of SCS to repay approximately $709,000 in principal and
accrued interest owed to us. The closing price of our common stock on April 1, 2009 was $1.67 per
share.
This transaction has been accounted for as a business purchase. We have evaluated the acquired
assets and liabilities and believe that the historical cost of the net tangible assets acquired
approximated fair market value. The primary method used to calculate the fair value of the
intangible assets was the Excess Earnings Method. These intangible assets will be amortized over
their estimated lives.
16
The purchase price has been allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated life of |
|
|
Allocated purchase |
|
|
intangible assets |
|
|
price |
|
|
in years |
Net tangible assets |
|
$ |
36,000 |
|
|
|
Intangible assets: |
|
|
|
|
|
|
Customer relationships and developed technology |
|
|
1,310,000 |
|
|
6 to 9 |
In process research and development |
|
|
1,340,000 |
|
|
13 to 19 |
Trade name |
|
|
310,000 |
|
|
15 |
Goodwill |
|
|
2,139,000 |
|
|
N/A |
|
|
|
|
|
|
Total |
|
$ |
5,135,000 |
|
|
|
In
connection with our acquisition of the operations of SCS, and in
accordance with U.S. GAAP, our acquisition costs of approximately
$692,000, which primarily consisted of legal and other professional fees, were expensed in the
nine-month period ended September 30, 2009. These costs were reported in our condensed consolidated
statements of operations as part of our selling, general & administrative expense.
Note 10. Subsequent Events
Subsequent
events have been evaluated through November 4, 2009, which represents the issuance
date of these unaudited condensed consolidated financial statements.
In November 2009, we raised gross proceeds of $12,500,000 through the sale to certain
institutional investors of 10,000,000 shares of common stock and warrants to purchase 4,000,000
shares of common stock. The common stock and warrants were sold in units, with each unit consisting
of (i) one share of common stock and (ii) a warrant to purchase 0.4 of a share of common stock at
an exercise price of $1.50 per share, and the purchase price was $1.25 per unit. The warrants will
generally be exercisable for a period of five years beginning six months after the date of
issuance. The shares and warrants were offered as a registered direct offering under our effective
shelf registration statement previously filed with the SEC. We
received total proceeds,
net of offering expenses and placement agency fees, of approximately $11,900,000. The net proceeds
of the financing will be used for general corporate purposes, including working capital, product
development and capital expenditures, as well as for other strategic purposes.
In October 2009, we amended the lease agreement for our facility located at the Stanford
Research Park in Palo Alto, California, to extend the expiry date of the lease term from March 31,
2010 to August 31, 2011. The aggregate rent payment for the extended lease term is approximately
$3,100,000.
|
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This report contains forward looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act that involve substantial risks and
uncertainties. Such statements include, without limitation, all statements as to expectation or
belief and statements as to our future results of operations; the progress of our research, product
development and clinical programs; the need for, and timing of, additional capital and capital
expenditures; partnering prospects; costs of manufacture of products; the protection of, and the
need for, additional intellectual property rights; effects of regulations; the need for additional
facilities; and potential market opportunities. Our actual results may vary materially from those
contained in such forward-looking statements because of risks to which we are subject, including
the fact that additional trials will be required to confirm the safety and demonstrate the efficacy
of the Companys HuCNS-SC cells for the treatment of neuronal ceroid lipofuscinosis (NCL, also
known as Batten disease) or any other disease; uncertainty as to whether the U.S. Food and Drug
Administration (FDA) or other regulatory authorities will permit us to proceed with clinical
testing of proposed products despite the novel and unproven nature of our technologies; the risk
that one or more of our clinical trials or studies could be substantially delayed beyond their
expected dates or cause us to incur substantial unanticipated costs; uncertainties in our ability
to obtain the capital resources needed to continue our current research and development operations
and to conduct the research, preclinical development and clinical trials necessary for regulatory
approvals; uncertainties about the design of future clinical trials and whether the Company will
receive the necessary support of a clinical trial site and its institutional review board to pursue
future clinical trials in NCL, PMD or in proposed therapies for other diseases or conditions; the
uncertainty regarding our ability to obtain a corporate partner or partners, if needed, to support
the development and commercialization of our potential cell-based therapeutics products; the
uncertainty regarding the outcome of our clinical trials or studies we may conduct in the future;
the uncertainty regarding the validity and enforceability of our issued patents; the risk that we
may not be able to manufacture additional master and working cell banks when needed; the
uncertainty whether any products that may be generated in our cell-based therapeutics programs will
prove clinically safe and effective; the uncertainty whether we will achieve significant revenue
from product sales or become profitable; uncertainties regarding our obligations with respect to
our former encapsulated cell therapy facilities in Rhode Island; obsolescence of our technologies;
competition from third parties; intellectual property rights of third parties; litigation risks;
and other risks to which we are subject. All forward-looking statements attributable to us or to
persons acting on our behalf are expressly qualified in their entirety by the cautionary statements
and risk factors set forth in Risk Factors in Part II, Item 1A of this report and Part I, Item 1A
included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
17
Overview
The Company
We are focused on developing and commercializing cell-based technologies. Our research and
development (R&D) programs are primarily focused on identifying and developing potential cell-based
therapeutics which can either restore or support organ function. In particular, since we relocated
our corporate headquarters to California in 1999, our R&D efforts have been directed at refining
our methods for identifying, isolating, culturing, and purifying the human neural stem cell and
human liver engrafting cells (hLEC) and developing these as potential cell-based therapeutics for
the central nervous system (CNS) and the liver, respectively. In our CNS Program, our
HuCNS-SC® product candidate (purified human neural stem cells) is in clinical
development for two indications. In January 2009, we completed a six patient Phase I clinical trial
of HuCNS-SC cells in infantile and late infantile neuronal ceroid lipofuscinosis (NCL), two forms
of a group of disorders often referred to as Batten disease. The data from this Phase I trial
showed that the HuCNS-SC cells were well tolerated, and there was evidence that the donor cells
engrafted and survived. In December 2008, the FDA approved our IND to initiate a Phase I clinical
trial of HuCNS-SC cells in a second indication, Pelizeaus-Merzbacher Disease (PMD), a fatal myelination disorder in the brain. In September 2009, we
announced that we plan to initiate the PMD trial at University of California-San Francisco
Childrens Hospital. We expect to begin enrolling patients by the end of 2009 and that the trial
will take 12-18 months to complete. In addition, our HuCNS-SC cells are in preclinical development
for spinal cord injury and retinal disorders. In our Liver Program, we are in preclinical research
and development with our human liver engrafting cells
and we plan to seek the necessary approvals to initiate a clinical
study to evaluate hLEC as
a potential cellular therapy, with the initial
indication likely to be liver-based metabolic disorders.
For a brief description of our significant
therapeutic research and development programs see Overview Research and Development Programs in
the Business Section of Part I, Item 1 included in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2008. We have also conducted research on several other cell types and in
other areas, which could lead to other possible product candidates, process improvements or further
research activities.
On April 1, 2009, we acquired the operations of Stem Cell Sciences Plc (SCS). The acquired
business includes 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; a media formulation and reagent business; and
an intellectual property portfolio with claims relevant to cell processing, reprogramming and
manipulation, as well as to gene targeting and insertion. These acquired operations will help us
pursue applications of our cell technologies to develop cell-based research tools, which we believe
represent nearer-term commercial opportunities. See Note 9 Acquisition of SCS Operations in the
notes to condensed financial statements of Part I, Item 1 of this form 10-Q for further
information.
We have not derived any revenue or cash flows from the sale or commercialization of any
therapeutic products. Through our acquisition of the SCS operations, we have derived revenue from sales
and royalties on sales of cell culture media. We have also derived revenue from licensing rights to
our intellectual property. To date, all such revenue has been limited and there can be no assurance
that these revenues will increase. As a result, we have incurred annual operating losses since
inception and expect to incur substantial operating losses in the future. Therefore, we are
dependent upon external financing from equity and debt offerings and revenue from collaborative
research arrangements with corporate sponsors to finance our operations. We have no such
collaborative research arrangements at this time and there can be no assurance that such financing
or partnering revenue will be available when needed or on terms acceptable to us.
Before we can derive revenue or cash inflows from the commercialization of any of our
therapeutic product candidates, we will need to: (i) conduct substantial in vitro testing and
characterization of our proprietary cell types, (ii) undertake preclinical and clinical testing for
specific disease indications; (iii) develop, validate and scale-up manufacturing processes to
produce these cell-based therapeutics, and (iv) pursue required regulatory approvals. These steps
are risky, expensive and time consuming.
Overall, we expect our R&D expenses to be substantial and to increase for the foreseeable
future as we continue the development and clinical investigation of our current and future
therapeutic product candidates. In addition, we expect our expenses and expenditures to increase as
we begin to develop and commercialize non-therapeutic applications of our cell-based technologies.
However, expenditures on R&D programs are subject to many uncertainties, including whether we
develop our product candidates with a partner or independently. We cannot forecast with any degree
of certainty which of our product candidates or technologies will be subject to future
collaboration, when such collaboration agreements will be secured, if at all, and to what degree
such arrangements would affect our development plans and capital requirements. In addition, there
are numerous factors associated with the successful commercialization of any of our cell-based
products, including future regulatory requirements and legal restrictions on the procurement of
human tissue for medical research, many of which cannot be determined with accuracy at this time
given the stage of
18
our development and the novel nature of stem cell technologies. The regulatory pathways, both
in the United States and internationally, are complex and fluid given the novel and, in general,
clinically unproven nature of stem cell technologies. At this time, due to such uncertainties and
inherent risks, we cannot estimate in a meaningful way the duration of, or the costs to complete,
our R&D programs or whether, when or to what extent we will generate revenues or cash inflows from
the commercialization and sale of any of our therapeutic product candidates or any non-therapeutic
applications of our cell-based technologies. While we are currently focused on advancing each of
our product development programs, our future R&D expenses will depend on the determinations we make
as to the scientific and clinical prospects of each product candidate, as well as our ongoing
assessment of the regulatory requirements and each product candidates commercial potential.
There can be no assurance that we will be able to develop any product successfully, or that we
will be able to recover our development costs, whether upon commercialization of a developed
product or otherwise. We cannot provide assurance that any of these programs will result in
products that can be marketed or marketed profitably. If certain of our development-stage programs
do not result in commercially viable products, our results of operations could be materially
adversely affected.
Significant Events
In November 2009, we raised gross proceeds of $12,500,000 through the sale to certain
institutional investors of 10,000,000 shares of common stock and warrants to purchase 4,000,000
shares of common stock. The common stock and warrants were sold in units, with each unit consisting
of (i) one share of common stock and (ii) a warrant to purchase 0.4 of a share of common stock at
an exercise price of $1.50 per share, and the purchase price was $1.25 per unit. The warrants will
generally be exercisable for a period of five years beginning six months after the date of
issuance. The shares and warrants were offered as a registered direct offering under our effective
shelf registration statement previously filed with the SEC. We received total proceeds,
net of offering expenses and placement agency fees, of approximately $11,900,000. The net proceeds
of the financing will be used for general corporate purposes, including working capital, product
development and capital expenditures, as well as for other strategic purposes.
In October 2009, we announced new preclinical data showing that our human neural stem cells
protect cone photoreceptors (cones) in the eye from progressive degeneration and preserve visual
function long term. Cones are light sensing cells that are highly concentrated within the macula of
the human eye, and the ability to protect these cells suggests a promising approach to treating
age-related macular degeneration (AMD), the leading cause of vision loss and blindness in people
over the age of 55. These findings were presented at the Society for Neuroscience 2009 Annual
Meeting.
In September 2009, we announced the publication of preclinical data demonstrating for the
first time that transplantation of our proprietary, purified human neural stem cells delays the
loss of motor function in a mouse model of infantile neuronal ceroid lipofuscinosis (NCL). NCL,
commonly referred to as Batten disease, is a fatal neurodegenerative disorder in children. This
paper, Neuroprotection of Host Cells by Human Central Nervous System Stem Cells in a Mouse Model
of Infantile Neuronal Ceroid Lipofuscinosis, was featured in the September 2009 edition of the
peer-reviewed journal Cell Stem Cell.
In September 2009, we announced that we plan to initiate with the University of California,
San Francisco (UCSF) Childrens Hospital a Phase I clinical trial to evaluate the therapeutic
potential of our proprietary HuCNS-SC® product candidate (purified human neural stem cells) to
treat Pelizaeus-Merzbacher Disease (PMD), a myelination disorder that primarily affects infants and
young children. In this trial, patients with a fatal form of PMD will be transplanted with our
HuCNS-SC cells to evaluate safety and to explore the ability of the cells to myelinate the
patients nerve axons.
Critical Accounting Policies and the Use of Estimates
The accompanying discussion and analysis of our financial condition and results of operations
are based on our condensed consolidated financial statements and the related disclosures, which
have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated
financial statements requires management to make estimates, assumptions, and judgments that affect
the reported amounts in our condensed consolidated financial statements and accompanying notes.
These estimates form the basis for making judgments about the carrying values of assets and
liabilities. We base our estimates and judgments on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, and we have established
internal controls related to the preparation of these estimates. Actual results and the timing of
the results could differ materially from these estimates.
19
Stock-Based Compensation
U.S. GAAP requires us to recognize expense related to the fair value of our stock-based
payment awards, including employee stock options. Under the provisions of U.S. GAAP, employee
stock-based payment is estimated at the date of grant based on the awards fair value using the
Black-Scholes-Merton (Black-Scholes) option-pricing model and is recognized as expense ratably over
the requisite service period. The Black-Scholes option-pricing model requires the use of certain
assumptions, the most significant of which are our estimates of the expected volatility of the
market price of our stock and the expected term of the award. Our estimate of the expected
volatility is based on historical volatility. The expected term represents the period during which
our stock-based awards are expected to be outstanding. We estimate the expected term based on
historical experience of similar awards, giving consideration to the contractual terms of the
awards, vesting requirements, and expectation of future employee behavior, including post-vesting
terminations.
We review our valuation assumptions at each grant date and, as a result, our assumptions in
future periods may change. As of September 30, 2009, total compensation cost related to unvested
stock-based awards not yet recognized was approximately $6,200,000, which is expected to be
recognized as expense over a weighted-average period of 2.5 years. See also Note 4, Stock-Based
Compensation, in the notes to condensed consolidated financial statements of Part I, Item 1 of
this Form 10-Q for further information.
Wind-down expenses Rhode Island
In connection with exiting our research and manufacturing operations in Lincoln, Rhode Island,
and the relocation of our corporate headquarters and remaining research laboratories to California
in October 1999, we provided a reserve for our estimate of the exit cost obligation. The reserve
reflects estimates of the ongoing costs of our former scientific and administrative facility in
Lincoln, which we hold on a lease that terminates on June 30, 2013. We are seeking to sublease,
assign, sell, or otherwise divest ourselves of our interest in the facility at the earliest
possible time, but we cannot determine with certainty a fixed date by which such events will occur,
if at all.
In determining the facility exit cost reserve amount, we are required to consider our lease
payments through to the end of the lease term and estimate other relevant factors such as facility
operating expenses, real estate market conditions in Rhode Island for similar facilities, occupancy
rates, and sublease rental rates projected over the course of the leasehold. We re-evaluate the
estimate each quarter, taking account of changes, if any, in each underlying factor. The process is
inherently subjective because it involves projections over time from the date of the estimate
through the end of the lease and it is not possible to determine any of the factors, except the
lease payments, with certainty over that period.
Management forms its best estimate on a quarterly basis, after considering actual sublease
activity, reports from our broker/realtor about current and predicted real estate market conditions
in Rhode Island, the likelihood of new subleases in the foreseeable future for the specific
facility and significant changes in the actual or projected operating expenses of the property. We
discount the projected net outflow over the term of the leasehold to arrive at the present value,
and adjust the reserve to that figure. The estimated vacancy rate for the facility is an important
assumption in determining the reserve because changes in this assumption have the greatest effect
on estimated sublease income. In addition, the vacancy rate estimate is the variable most subject
to change, while at the same time it involves the greatest judgment and uncertainty due to the
absence of highly predictive information concerning the future of the local economy and future
demand for specialized laboratory and office space in that area. The average vacancy rate of the
facility over the last six years (2003 through 2008) was approximately 74%, varying from 66% to
89%. As of September 30, 2009, based on current information available to management, the vacancy
rate is projected to be approximately 77% for 2009, approximately 73% for 2010 and approximately
70% from 2011 through the end of the lease. These estimates are based on actual occupancy as of
September 30, 2009, predicted lead time for acquiring new subtenants, historical vacancy rates for
the area, and assessments by our broker/realtor of future real estate market conditions. If the
assumed vacancy rate from 2010 to the end of the lease had been 5% higher or lower at September 30,
2009, then the reserve would have increased or decreased by approximately $146,000. Similarly, a 5%
increase or decrease in the operating expenses for the facility from 2010 on would have increased
or decreased the reserve by approximately $93,000, and a 5% increase or decrease in the assumed
average rental charge per square foot would have increased or decreased the reserve by
approximately $43,000. Management does not wait for specific events to change its estimate, but
instead uses its best efforts to anticipate them on a quarterly basis. See Note 5 Wind-down
expenses, in the notes to condensed consolidated financial statements of Part I, Item 1 of this
Form 10-Q for further information.
20
Wind-down expenses Australia
On April 1, 2009, as part of our acquisition of the SCS operations, we acquired operations
near Melbourne, Australia. In order to reduce operating complexity and expenses, we made the
decision to close our site in Australia and consolidate personnel and programs to our Cambridge,
U.K. and Palo Alto, California sites. U.S. GAAP requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred. In accordance with
U.S. GAAP requirements, at June 30, 2009, we established a short-term reserve of approximately
$310,000 for the estimated costs to close down and exit our Australia operations. The reserve
reflects the estimated cost for an early termination of our facility lease in Australia (with an
original termination date of December 31, 2010), employee termination benefits and other
liabilities associated with the wind-down and relocation of our operations in Australia.
Business Combinations
The operating results of acquired companies or operations are included in our consolidated
financial statements starting on the date of acquisition. Goodwill is recorded at the time of an
acquisition and is calculated as the difference between the aggregate consideration paid for an
acquisition and the fair value of the net tangible and intangible assets acquired. Accounting for
acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase
price to the fair value of the net tangible and intangible assets acquired, including in-process
research and development (IPR&D). Goodwill and intangible assets deemed to have indefinite lives
are not amortized but are subject to annual impairment tests. If the assumptions and estimates used
to allocate the purchase price are not correct, or if business conditions change, purchase price
adjustments or future asset impairment charges could be required. We test goodwill for impairment
on an annual basis or more frequently if we believe indicators of impairment exist. Impairment
evaluations involve management estimates of asset useful lives and future cash flows. Significant
management judgment is required in the forecasts of future operating results that are used in the
evaluations. It is possible, however, that the plans and estimates used may be incorrect. If our
actual results, or the plans and estimates used in future impairment analysis, are lower than the
original estimates used to assess the recoverability of these assets, we could incur additional
impairment charges in a future period.
Results of Operations
Our results of operations have varied significantly from year to year and quarter to quarter
and may vary significantly in the future due to the occurrence of material recurring and
nonrecurring events, including without limitation the receipt and payment of recurring and
nonrecurring licensing payments, the initiation or termination of clinical studies, research
collaborations and development programs for both cell-based therapeutic products and research
tools, unpredictable or unanticipated manufacturing and supply costs, unanticipated capital
expenditures necessary to support our business, expenses arising out of the integration of the
acquired SCS operations, developments in on-going patent protection and litigation, the on-going
expenses to lease and maintain our Rhode Island facilities, and the increasing costs associated
with operating our California and Cambridge, U.K. facilities.
Revenue and Cost of Product Sales
Revenue for the three and nine month periods ended September 30, 2009, as compared with the
same periods in 2008, is summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended, |
|
|
|
|
|
|
|
|
|
|
Nine months ended, |
|
|
|
|
|
|
September 30 |
|
|
Change in 2009 versus 2008 |
|
|
September 30 |
|
|
Change in 2009 versus 2008 |
|
|
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing agreements and grants |
|
$ |
98,806 |
|
|
$ |
12,379 |
|
|
$ |
86,427 |
|
|
|
698 |
% |
|
$ |
300,260 |
|
|
$ |
59,561 |
|
|
$ |
240,699 |
|
|
|
404 |
% |
Product sales |
|
|
154,362 |
|
|
|
|
|
|
|
154,362 |
|
|
|
* |
|
|
|
274,961 |
|
|
|
|
|
|
|
274,961 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
253,168 |
|
|
|
12,379 |
|
|
|
240,789 |
|
|
|
1,945 |
% |
|
|
575,221 |
|
|
|
59,561 |
|
|
|
515,660 |
|
|
|
866 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales |
|
|
(141,453 |
) |
|
|
|
|
|
|
(141,453 |
) |
|
|
* |
|
|
|
(200,979 |
) |
|
|
|
|
|
|
(200,979 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
$ |
111,715 |
|
|
$ |
12,379 |
|
|
$ |
99,336 |
|
|
|
802 |
% |
|
$ |
374,242 |
|
|
$ |
59,561 |
|
|
$ |
314,681 |
|
|
|
528 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Calculation is not meaningful |
Total revenue in the third quarter of 2009 was approximately $253,000, which was 698% higher
than total revenue in the third quarter of 2008. The increase in 2009 compared to 2008 was
primarily attributable to consolidation of revenues from the acquired SCS operations in the third
quarter of 2009, which were not part of our operations in the same period in 2008.
Third quarter ended September 30, 2009 versus third quarter ended September 30, 2008.
Licensing and grant revenue for the third quarter of 2009 were approximately $86,000, or 698%,
higher as compared to the same period in 2008. This increase was primarily attributable to
approximately $44,000 in grant and licensing
revenue recognized and consolidated as part of our acquisition of the SCS operations, revenue
of approximately $37,000 from an existing grant which we were awarded in October 2008 from the
National Institute of Diabetes and Digestive and Kidney Diseases to research and develop a
potential cell-based therapeutic for liver disease, and an increase of approximately $5,000 in
licensing revenue from existing licensing agreements. In the third quarter of 2009, we
21
recognized approximately $154,000 and $141,000 as revenue from product sales and cost of
product sales, respectively, in connection with our acquisition of the SCS operations, compared to
none in the same period of 2008.
Nine-month period ended September 30, 2009 versus nine-month period ended September 30, 2008.
Licensing and grant revenue for the nine-month period ended September 30, 2009 were approximately
$241,000, or 404%, higher as compared to the same period in 2008. This increase was primarily
attributable to approximately $136,000 in grant and licensing revenue recognized and consolidated
as part of our acquisition of the SCS operations, Revenue of approximately $89,000 from an existing
grant which we were awarded in October 2008 from the National Institute of Diabetes and Digestive
and Kidney Diseases to research and develop a potential cell-based therapeutic for liver disease,
and an increase of approximately $16,000 in licensing revenue from existing licensing agreements.
For the nine months ended September 30, 2009, we recognized and consolidated approximately $275,000
and $201,000 as revenue from product sales and cost of product sales, respectively, in connection
with of our acquisition of the SCS operations, compared to none in the same period of 2008.
Operating Expenses
Operating expenses for the three and nine month periods ended September 30, 2009, as compared
with the same periods in 2008, are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended, |
|
|
Change in 2009 versus |
|
|
Nine months ended, |
|
|
Change in 2009 versus |
|
|
|
September 30 |
|
|
2008 |
|
|
September 30 |
|
|
2008 |
|
|
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & development |
|
$ |
4,988,569 |
|
|
$ |
4,171,799 |
|
|
$ |
816,770 |
|
|
|
20 |
% |
|
$ |
14,278,958 |
|
|
$ |
13,087,165 |
|
|
$ |
1,191,793 |
|
|
|
9 |
% |
Selling, general &
administrative |
|
|
2,111,838 |
|
|
|
1,631,580 |
|
|
|
480,258 |
|
|
|
29 |
% |
|
|
6,852,724 |
|
|
|
6,231,629 |
|
|
|
621,095 |
|
|
|
10 |
% |
Wind-down expenses |
|
|
(5,679 |
) |
|
|
53,636 |
|
|
|
(59,315 |
) |
|
|
(111 |
)% |
|
|
539,821 |
|
|
|
381,136 |
|
|
|
158,685 |
|
|
|
42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
7,094,728 |
|
|
$ |
5,857,015 |
|
|
$ |
1,237,713 |
|
|
|
21 |
% |
|
$ |
21,671,503 |
|
|
$ |
19.699,930 |
|
|
$ |
1,971,573 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses
Our R&D expenses consist primarily of salaries and related personnel expenses, costs
associated with clinical trials and regulatory submissions; costs associated with preclinical
activities such as toxicology studies; costs associated with cell processing and process
development; certain patent-related costs such as licensing; facilities related costs such as
depreciation; lab equipment and supplies. Clinical trial expenses include payments to vendors such
as clinical research organizations, contract manufacturers, clinical trial sites, laboratories for
testing clinical samples and consultants. Cumulative R&D costs incurred since we refocused our
activities on developing cell-based therapeutics (fiscal years 2000 through the nine months ended
September 30, 2009) were approximately $106 million. Over this period, the majority of these
cumulative costs were related to: (i) characterization of our proprietary HuCNS-SC cell, (ii)
expenditures for toxicology and other preclinical studies, preparation and submission of
applications to regulatory agencies to conduct clinical trials and obtaining regulatory clearance
to initiate such trials, all with respect to our HuCNS-SC cells, (iii) preclinical studies and
development of our human liver engrafting cells; and (iv) costs associated with cell processing and
process development.
We use and manage our R&D resources, including our employees and facilities, across various
projects rather than on a project-by-project basis for the following reasons. The allocations of
time and resources change as the needs and priorities of individual projects and programs change,
and many of our researchers are assigned to more than one project at any given time. Furthermore,
we are exploring multiple possible uses for each of our proprietary cell types, so much of our R&D
effort is complementary to and supportive of each of these projects. Lastly, much of our R&D effort
is focused on manufacturing processes, which can result in process improvements useful across cell
types. We also use external service providers to assist in the conduct of our clinical trials, to
manufacture certain of our product candidates and to provide various other R&D related products and
services. Many of these costs and expenses are complementary to and supportive of each of our
programs. Because we do not have a development collaborator for any of our product programs, we are
currently responsible for all costs incurred with respect to our product candidates.
22
R&D expenses totaled approximately $4,989,000 in the third quarter of 2009 compared with
$4,172,000 in the third quarter of 2008, and $14,279,000 for the nine-month period ended September
30, 2009 compared with $13,087,000 for the nine-month period ended September 30, 2008.
Third quarter ended September 30, 2009 versus third quarter ended September 30, 2008. R&D
expense totaled approximately $4,989,000 in the third quarter of 2009, as compared to $4,172,000
for the same period in 2008. The increase of approximately $817,000, or 20%, from 2008 to 2009 was
primarily attributable to (i) increased R&D operations of approximately $471,000 from our
acquisition of the SCS operations; R&D activity associated with the SCS operations is primarily
focused on developing cell technologies for non-therapeutic applications, such as use in cell-based
assays for drug discovery, (ii) an increase in personnel expenses of approximately $237,000
resulting from an increased head count at our California site to support expanded operations in our
cell processing and product development programs; at our California site, we had 50 full time
employees in research and development and laboratory support services at September 30, 2009, as
compared to 43 at September 30, 2008, and (iii) an increase in consultant expenses of approximately
$142,000. These increased expenses were partially offset by a decrease of approximately $33,000 in
other expenses primarily attributable to supplies.
Nine-month period ended September 30, 2009 versus nine-month period ended September 30, 2008.
R&D expense totaled approximately $14,279,000 in the nine-month period ended September 30, 2009, as
compared to $13,087,000 for the same period in 2008. The increase of approximately $1,192,000, or
9%, from 2008 to 2009 was primarily attributable to (i) increased R&D operations of approximately
$1,118,000 from our acquisition of the SCS operations; R&D activity associated with the SCS
operations is primarily focused on developing cell technologies for non-therapeutic applications,
such as use in cell-based assays for drug discovery, (ii) an increase in personnel expenses of
approximately $461,000 resulting from an increased head count in our California site to support
expanded operations in our cell processing and product development programs; at our California
site, we had 50 full time employees in research and development and laboratory support services at
September 30, 2009, as compared to 43 at September 30, 2008, and (iii) an increase in consultant
expenses of approximately $197,000. These increased expenses were partially offset by a decrease of
approximately $584,000 in the other expenses primarily attributable to external services and
supplies related to manufacturing and testing of our cells and for our six-patient Phase I clinical
trial for NCL, which was completed in January 2009.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses are primarily comprised of salaries,
benefits and other staff related costs associated with sales and marketing, finance, legal, human
resources, information technology, and other administrative personnel, facilities and overhead
costs, external legal and other external general and administrative services.
SG&A expenses totaled approximately $2,112,000 in the third quarter of 2009 compared with
$1,632,000 in the third quarter of 2008, and $6,853,000 for the nine-month period ended September
30, 2009 compared with $6,232,000 for the nine-month period ended September 30, 2008.
Third quarter ended September 30, 2009 versus third quarter ended September 30, 2008. SG&A
expenses totaled approximately $2,112,000 in the third quarter of 2009, compared with $1,632,000
for the same period in 2008. The increase of approximately $480,000, or 29%, from 2008 to 2009 was
primarily attributable to (i) increased SG&A expenses of approximately $278,000 at our acquired SCS
operations, (ii) an increase in external services of approximately $169,000 mainly due to an
increase in consultant and investor relations expenses, and (iii) an increase of approximately
$33,000 in other expenses.
Nine-month period ended September 30, 2009 versus nine-month period ended September 30, 2008.
SG&A expenses totaled approximately $6,853,000 in the nine-month period ended September 30, 2009,
compared with $6,232,000 for the same period in 2008. The increase of approximately $621,000, or
10%, from 2008 to 2009 was primarily attributable to
(i) increased SG&A expenses of approximately
$437,000 at our acquired SCS operations, (ii) approximately $692,000 of acquisition expenses
related to the acquisition of SCS operations, (iii) an increase in personnel expenses of $250,000
primarily related to stock based compensation, and (iv) an increase in other expenses mainly
related to investor relations of approximately $101,000. These increased expenses were partially
offset by a decrease in external services of approximately $859,000 primarily attributable to a
decrease in legal fees.
23
Wind-down Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended, |
|
|
Nine months ended, |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Rhode Island |
|
$ |
(5,679 |
) |
|
$ |
53,636 |
|
|
$ |
229,552 |
|
|
$ |
381,136 |
|
Australia |
|
|
|
|
|
|
|
|
|
|
310,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wind-down expenses |
|
$ |
(5,679 |
) |
|
$ |
53,636 |
|
|
$ |
539,821 |
|
|
$ |
381,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode Island
In 1999, in connection with exiting our former research facility in Rhode Island, we created a
reserve for the estimated lease payments and operating expenses related to it. The reserve has been
re-evaluated and adjusted based on assumptions relevant to real estate market conditions and the
estimated time until we could either fully sublease, assign or sell our remaining interests in the
property. The reserve was approximately $5,513,000 at December 31, 2008. Payments net of subtenant
income of approximately $286,000 for the third quarter and $910,000 for the nine months ended
September 30, 2009 were recorded against this reserve. At September 30, 2009, we re-evaluated the
estimate and adjusted the reserve to approximately $4,679,000 by recording in aggregate, a
reduction in wind-down expenses of approximately $6,000 in the third quarter of 2009, for a total
of approximately $230,000 for the nine months ended September 30, 2009. Payments recorded against
the reserve were approximately $316,000 in the third quarter and $935,000 for the nine months ended
September 30, 2008 and additional expenses recorded to adjust the reserve were approximately
$54,000 in the third quarter and $381,000 for the nine months ended September 30, 2008. Expenses
for this facility will fluctuate based on changes in tenant occupancy rates and other operating
expenses related to the lease. Even though it is our intent to sublease, assign, sell, or otherwise
divest ourselves of our interests in the facility at the earliest possible time, we cannot
determine with certainty a fixed date by which such events will occur. In light of this
uncertainty, based on estimates, we will periodically re-evaluate and adjust the reserve, as
necessary. See Note 5 Wind-down expenses, in the notes to condensed consolidated financial
statements of Part I, Item 1 of this Form 10-Q for further information.
Australia
On April 1, 2009, as part of our acquisition of the SCS operations, we acquired operations
near Melbourne, Australia. In order to reduce operating complexity and expenses, we made the
decision to close our site in Australia and consolidate personnel and programs to our Cambridge,
U.K. and Palo Alto, California sites. U.S. GAAP requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred. In accordance with
U.S. GAAP requirements, at June 30, 2009, we established a short-term reserve of approximately
$310,000 for the estimated costs to close down and exit our Australia operations. The reserve
reflects the estimated cost to terminate our facility lease in Australia (with an original
termination date of December 31, 2010), employee termination benefits and other liabilities
associated with the wind-down and relocation of our operations in Australia. Payments of
approximately $232,000 for the third quarter ended September 30, 2009 were recorded against this
reserve. No further adjustments were made to the reserve balance of approximately $78,000 at
September 30, 2009.
Other Income (Expense)
Other income totaled approximately $1,838,000 in the second quarter of 2009 compared with
$101,000 in the same period of 2008, and other expense of $495,000 for the nine months ended
September 30, 2009 compared with other income of $636,000 for the nine months ended September 30,
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended, |
|
|
Change in 2009 versus |
|
|
Nine months ended, |
|
|
Change in 2009 versus |
|
|
|
September 30 |
|
|
2008 |
|
|
September 30 |
|
|
2008 |
|
|
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
Other income
(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of
marketable
securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
397,866 |
|
|
$ |
|
|
|
$ |
397,866 |
|
|
|
* |
|
Change in fair
value of warrant
liability |
|
|
1,830,414 |
|
|
|
|
|
|
|
1,830,414 |
|
|
|
* |
|
|
|
(822,517 |
) |
|
|
|
|
|
|
(822,517 |
) |
|
|
* |
|
Interest income |
|
|
5,531 |
|
|
|
138,332 |
|
|
|
(132,801 |
) |
|
|
(96 |
)% |
|
|
55,816 |
|
|
|
738,107 |
|
|
|
(682,291 |
) |
|
|
(92 |
)% |
Interest expense |
|
|
(27,613 |
) |
|
|
(26,849 |
) |
|
|
(764 |
) |
|
|
3 |
% |
|
|
(84,863 |
) |
|
|
(84,010 |
) |
|
|
(853 |
) |
|
|
1 |
% |
Other income
(expense), net |
|
|
29,940 |
|
|
|
(10,800 |
) |
|
|
40,740 |
|
|
|
(377 |
)% |
|
|
(41,694 |
) |
|
|
(18,145 |
) |
|
|
(23,549 |
) |
|
|
130 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense), net |
|
$ |
1,838,272 |
|
|
$ |
100,683 |
|
|
$ |
1,737,589 |
|
|
|
1,726 |
% |
|
$ |
(495,392 |
) |
|
$ |
635,952 |
|
|
$ |
(1,131,344 |
) |
|
|
(178 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Calculation is not meaningful. |
24
Gain on Sale of Marketable Equity Securities
In the first quarter of 2009, we sold in aggregate 2,900,000 shares of ReNeuron and received
proceeds of approximately $510,000. We recognized a realized gain of approximately $398,000 for
that quarter. We did not sell any ReNeuron shares in the second and third quarters of 2009. We
owned 1,921,924 ordinary shares of ReNeuron at September 30, 2009.
Change in fair value of warrant liability
In connection with our financing in November 2008, we issued warrants to purchase in aggregate
10,344,828 shares of common stock at an exercise price of $2.30 per share and recorded the fair
value of these warrants as a liability. The fair value of the warrant liability is revalued at the
end of each reporting period, with the change in fair value of the warrant liability recorded as a
gain or loss in our Consolidated Statements of Operations. We used the Black-Scholes option pricing
model to estimate the fair value of these warrants and in using this model, we make certain
assumptions about risk-free interest rates, dividend yields, volatility and expected term of the
warrants. See Note 7 Warrant Liability in the Notes to condensed consolidated financial
statements of Part I, Item 1 of this Form 10-Q for further information.
25
|
|
|
|
|
Fair value of warrant liability at December 31, 2008 |
|
$ |
8,439,931 |
|
Change in fair value for the quarter ended March 31, 2009 |
|
|
2,755,448 |
|
|
|
|
|
Fair value of warrant liability at March 31, 2009 |
|
|
11,195,379 |
|
Change in fair value for the quarter ended June 30, 2009 |
|
|
(102,517 |
) |
|
|
|
|
Fair value of warrant liability at June 30, 2009 |
|
|
11,092,862 |
|
Change in fair value for the quarter ended September 30, 2009 |
|
|
(1,830,414 |
) |
|
|
|
|
Fair value of warrant liability at September 30, 2009 |
|
$ |
9,262,448 |
|
Interest Income
Interest income for the three months ended September 30, 2009 decreased by approximately
$133,000, or 96%, compared to the same period in 2008. For the nine months ended September 30,
2009, interest income decreased by approximately $682,000, or 92%, compared to the same period in
2008. The decreases in 2009 were primarily due to a lower average yield. See Cash Used in
Investing Activities, in Liquidity and Capital Resources below for further information.
Interest Expense
Interest expense for the three and nine months ended September 30, 2009, was relatively flat
when compared to similar periods in 2008. Interest expense is primarily for outstanding debt and
capital lease balances. See Note 6 Commitment and Contingencies, in the notes to condensed
consolidated financial statements of Part I, Item 1 of this Form 10-Q for further information.
Liquidity and Capital Resources
Since our inception, we have financed our operations through the sale of common and preferred
stock, the issuance of long-term debt and capitalized lease obligations, revenue from collaborative
agreements, research grants, license fees, and interest income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
Change |
|
|
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
Cash, cash equivalents and marketable debt securities |
|
$ |
33,206,323 |
|
|
$ |
34,037,775 |
|
|
$ |
(831,452 |
) |
|
(2)% |
|
In summary, our cash flows were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
Nine months ended September 30, |
|
Versus 2008 |
|
|
2009 |
|
2008 |
|
$ |
|
% |
Net cash used in operating activities |
|
$ |
(18,491,364 |
) |
|
$ |
(17,165,645 |
) |
|
$ |
(1,325,719 |
) |
|
|
8 |
% |
Net cash provided by(used in) investing activities |
|
$ |
(1,048,348 |
) |
|
$ |
23,372,726 |
|
|
$ |
(24,421,074 |
) |
|
|
(104 |
)% |
Net cash provided by financing activities |
|
$ |
17,936,157 |
|
|
$ |
204,276 |
|
|
$ |
17,731,881 |
|
|
|
8,680 |
% |
Net Cash Used in Operating Activities
Net cash used in operating activities in the first nine months of 2009 increased by
approximately $1,326,000 or 8% when compared to the same period of 2008. Cash used in operating
activities is primarily driven by our net loss but operating cash flows differ from net loss due to
non-cash charges or differences in the timing of cash flows.
Net Cash Provided by (Used in) Investing Activities
The decrease of approximately $24,421,000 or 104% from 2008 to 2009 for net cash provided by
(used in) investing activities, was primarily attributable to a higher number of marketable debt
securities maturing in the first nine months of 2008 as compared to the similar period in 2009.
Net Cash Provided by Financing Activities
The increase from 2008 to 2009 of approximately $17,732,000 for net cash provided by financing
activities was primarily attributable to gross proceeds of approximately $18,454,000 from the sale
of 9,817,400 shares of common stock at an average price of
26
$1.88 per share in the nine months ended September 30, 2009. These shares were sold under
sales agreements with Cantor Fitzgerald & Co. (Cantor).
Listed below are key financing transactions entered into by us in the last three years:
|
|
|
In November 2009, we raised gross proceeds of $12,500,000 through the sale to certain
institutional investors of 10,000,000 shares of common stock and warrants to purchase
4,000,000 shares of common stock. The common stock and warrants were sold in units, with
each unit consisting of (i) one share of common stock and (ii) a warrant to purchase 0.4 of
a share of common stock at an exercise price of $1.50 per share, and the purchase price was
$1.25 per unit. The warrants will generally be exercisable for a period of five years
beginning six months after the date of issuance. The shares and warrants were offered as a
registered direct offering under our effective shelf registration statement previously filed
with the SEC. We received total proceeds, net of offering expenses and placement
agency fees, of approximately $11,900,000. The net proceeds of the financing will be used
for general corporate purposes, including working capital, product development and capital
expenditures, as well as for other strategic purposes. |
|
|
|
|
In June 2009 and July 2009, we sold a total of 1,830,000 shares of common stock under a
sales agreement with Cantor, which we entered into and filed a Prospectus Supplement to
announce, in June 2009. These shares were sold at an average price of approximately $1.80
per share for gross proceeds of approximately $3,291,000. Under the terms of the agreement,
up to $30,000,000 worth of shares may be sold from time to time under a shelf registration
statement and Cantor is paid compensation equal to 3.0% of the gross proceeds of such sales. |
|
|
|
|
From January 2007 through June 2009, we sold a total of 10,000,000 shares of common stock
under a separate sales agreement with Cantor, which we entered into and filed a Prospectus
Supplement to announce, in December 2006. These shares were sold at an average price of
$2.06 per share for gross proceeds of approximately $20,555,000. Under the terms of this
agreement, up to 10,000,000 shares could be sold from time to time under a shelf
registration statement and Cantor was paid compensation equal to 5.0% of the gross proceeds. |
|
|
|
|
In November 2008, we sold 13,793,104 units to institutional investors at a price of $1.45
per unit, for gross proceeds of $20,000,000. The units, each of which consisted of one share
of common stock and a warrant to purchase 0.75 shares of common stock at an exercise price
of $2.30 per share, were offered as a registered direct offering under an effective shelf
registration statement previously filed with and declared effective by the SEC. We received
total proceeds net of offering expenses and placement agency fees of approximately
$18,637,000. |
|
|
|
|
In April 2006, we sold 11,750,820 shares of our common stock to institutional investors
at a price of $3.05 per share, for gross proceeds of approximately $35,840,000. The shares
were offered as a registered direct offering under an effective shelf registration statement
previously filed with and declared effective by the SEC. We received total proceeds, net of
offering expenses and placement agency fees, of approximately $33,422,000. No warrants were
issued as part of this financing transaction. |
We have incurred significant operating losses and negative cash flows since inception. We have
not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain
profitability in the future. We do not expect to be profitable in the next several years, but
rather expect to incur additional operating losses. We have limited liquidity and capital resources
and must obtain significant additional capital resources in order to sustain our product
development efforts, for acquisition of technologies and intellectual property rights, for
preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals,
acquisition of capital equipment, laboratory and office facilities, establishment of production
capabilities, for selling, general and administrative expenses and other working capital
requirements. We rely on cash balances and proceeds from equity and debt offerings, proceeds from
the transfer or sale of our intellectual property rights, equipment, facilities or investments, and
government grants and funding from collaborative arrangements, if obtainable, to fund our
operations.
We intend to pursue opportunities to obtain additional financing in the future through equity
and debt financings, grants and collaborative research arrangements. On June 25, 2008 we filed with
the SEC a universal shelf registration statement, declared effective July 18, 2008, which permits
us to issue up to $100 million worth of registered debt and equity securities. Under this effective
shelf registration, we have the flexibility to issue registered securities, from time to time, in
one or more separate offerings or other transactions with the size, price and terms to be
determined at the time of issuance. Registered securities issued using this shelf may be used to
raise additional capital to fund our working capital and other corporate needs, for future
acquisitions of assets, programs or businesses, and for other corporate purposes. As of November 2,
2009, we had approximately $48 million under our universal shelf registration statement available for issuing debt or equity securities;
approximately $30 million of this $48 million has been reserved for the potential exercise of the
warrants issued in connection with our November 2008 and November 2009 financings.
27
The source, timing and availability of any future financing will depend principally upon
market conditions, interest rates and, more specifically, on our progress in our exploratory,
preclinical and future clinical development programs. Funding may not be available when needed
at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things,
to delay, scale back or eliminate some or all of our research and product development programs,
planned clinical trials, and/or our capital expenditures or to license our potential products or
technologies to third parties. In addition, the decline in economic activity, together with the
deterioration of the credit and capital markets, could have an adverse impact on potential sources
of future financing.
Commitments
See Note 6, Commitments and Contingencies in the notes to condensed consolidated financial
statements of Part I, Item 1 of this Form 10-Q for further information.
Off-Balance Sheet Arrangements
We have certain contractual arrangements that create potential risk for us and are not
recognized in our Consolidated Balance Sheets. Discussed below are those off-balance sheet
arrangements that have or are reasonably likely to have a material current or future effect on our
financial condition, changes in financial condition, revenue or expenses, results of operations,
liquidity, capital expenditures or capital resources.
Operating Leases
We lease various real properties under operating leases that generally require us to pay
taxes, insurance, maintenance, and minimum lease payments. Some of our leases have options to
renew.
Operating Leases California
We entered into and amended a lease agreement for an approximately 68,000 square foot facility
located at the Stanford Research Park in Palo Alto, California. At September 30, 2009, we had a
space-sharing agreement covering approximately 10,451 square feet of this facility. We receive base
payments plus a proportionate share of the operating expenses based on square footage over the term
of the agreement. We expect to receive, in aggregate, approximately $152,000 as part of the
space-sharing agreement for the remainder of 2009. As a result of the above transactions, our
estimated net cash outlay for rent and operating expenses will be approximately $800,000 for the
remainder of 2009.
Operating Leases Rhode Island
We continue to have outstanding obligations in regard to our former facilities in Lincoln,
Rhode Island. In 1997, we had entered into a fifteen-year lease for a scientific and administrative
facility in a sale and leaseback arrangement. The lease includes escalating rent payments. We
expect to pay approximately $293,000 in operating lease payments and estimated operating expenses
of approximately $150,000, before receipt of sub-tenant income, for the remainder of 2009. We
expect to receive, in aggregate, approximately $94,000 in sub-tenant rent and operating expense for
the remainder of 2009. As a result of the above transactions, our estimated cash outlay net of
sub-tenant rent for the facility will be approximately $349,000 for the remainder of 2009.
Operating Leases United Kingdom
On April 1, 2009, as part of our acquisition of the operations of SCS, we acquired operations
in Cambridge, U.K.. Our wholly-owned subsidiary, Stem Cell Sciences UK Ltd, has two lease
agreements with Babraham Bioscience Technologies Ltd., for in aggregate space of approximately
3,900 square feet of office and lab space in Cambridge, U.K.. The lease term for one ends on
February 28, 2010 and the other on March 26, 2011. For these two leases, at September 30, 2009, we
expect to pay approximately 27,500 U.K. pounds (GBP) as rental payments for the remainder of 2009.
Operating Leases Australia
On April 1, 2009, as part of our acquisition of the operations of SCS, we acquired operations
near Melbourne, Australia. Our wholly-owned subsidiary, Stem Cell Sciences (Australia) Pty Ltd, is
in a lease agreement with Monash University for approximately 1,938 square feet of office and lab
space in Victoria, Australia. The lease term ends on December 31, 2010. In order to reduce
operating complexity and expenses, we made the decision to close our site in Australia and
consolidate personnel and programs to our Cambridge, U.K. and Palo Alto, California sites. We
signed an agreement with the landlord to terminate our obligations under the lease and paid
approximately $86,000 in consideration. See Note 5 Wind-down expenses, in the notes to condensed
consolidated financial statements of Part I, Item 1 of this Form 10-Q for further information.
28
With the exception of leases discussed above, we have not entered into any off balance sheet
financial arrangements and have not established any special purpose entities. We have not
guaranteed any debts or commitments of other entities or entered into any options on non-financial
assets.
Contractual Obligations
During the first nine months of 2009, we believe that there have been no significant changes
in our payments due under contractual obligations, as disclosed in our Annual Report on Form 10-K
for the year ended December 31, 2008.
Recent Accounting Pronouncements
In August 2009, the FASB issued an Accounting Standard Update (ASU) under the topic Fair
Value Measurements and Disclosures Measuring Liabilities at
Fair Value. This ASU provides
amendments for fair value measurements of liabilities. It provides clarification that under
circumstances in which, a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or more techniques
prescribed in this update. This ASU also clarifies that when estimating a fair value of a
liability, a reporting entity is not required to include a separate input or adjustment to other
inputs relating to the existence of a restriction that prevents the transfer of the liability.
This ASU is effective for the first reporting period (including interim periods) beginning after
issuance or fourth quarter 2009. The Company is assessing the impact, if any, of this ASU on our
financial condition, results of operations, and disclosures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks at September 30, 2009 have not changed materially from those discussed in
Item 7A of our Form 10-K for the year ended December 31, 2008 on file with the U.S. Securities and
Exchange Commission.
See also Note 2, Financial Assets, in the notes to condensed consolidated financial
statements in Part I, Item 1 of this Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
In response to the requirement of the Sarbanes-Oxley Act of 2002, as of the end of the period
covered by this report, our chief executive officer and chief financial officer, along with other
members of management, reviewed the effectiveness of the design and operation of our disclosure
controls and procedures. Such controls and procedures are designed to ensure that information
required to be disclosed in the Companys Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms, and that such
information is accumulated and communicated to management, including the chief executive officer
and the chief financial officer, as appropriate, to allow timely decisions regarding required
disclosure. Based on this evaluation, the chief executive officer and chief financial officer have
concluded that the Companys disclosure controls and procedures are effective.
During the most recent quarter, there were no changes in internal controls over financial
reporting that occurred during the period covered by this report that have materially affected, or
are reasonably likely to materially affect, these controls of the Company.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 2006, we filed suit against Neuralstem, Inc. in the Federal District Court for the
District of Maryland, alleging that Neuralstems activities violate claims in four of the patents
we exclusively licensed from NeuroSpheres. In December 2006, Neuralstem petitioned the U.S. Patent
and Trademark Office (PTO) to reexamine two of the patents in our infringement action against
Neuralstem, namely U.S. Patent No. 6,294,346 (claiming the use of human neural stem cells for drug
screening) and U.S. Patent No. 7,101,709 (claiming the use of human neural stem cells for screening
biological agents). In April 2007, Neuralstem petitioned the PTO to reexamine the remaining two
patents in the suit, namely U.S. Patent No. 5,851,832 (claiming methods for proliferating human
neural stem cells) and U.S. Patent No. 6,497,872 (claiming methods for transplanting human neural
stem cells). These requests were granted by the PTO and, in June 2007, the parties voluntarily
agreed to stay the pending litigation while the PTO considered these
29
reexamination requests. In April 2008, the PTO upheld the 832 and 872 patents, as amended,
and issued Notices of Intent to Issue an Ex Parte Reexamination Certificate for both. In May 2009,
the PTO upheld the 346 and 709 patents, as amended, and issued Notices of Intent to Issue an Ex
Parte Reexamination Certificate for both.
In May 2008, we filed a second patent infringement suit against Neuralstem and its two
founders, Karl Johe and Richard Garr. In this suit, which we filed in the Federal District Court
for the Northern District of California, we allege that Neuralstems activities infringe claims in
two patents we exclusively license from NeuroSpheres, specifically U.S. Patent No. 7,361,505
(claiming composition of matter of human neural stem cells derived from any source material) and
U.S. Patent No. 7,115,418 (claiming methods for proliferating human neural stem cells). In
addition, we allege various state law causes of action against Neuralstem arising out of its
repeated derogatory statements to the public about our patent portfolio. Also in May 2008,
Neuralstem filed suit against us and NeuroSpheres in the Federal District Court for the District of
Maryland seeking a declaratory judgment that the 505 and 418 patents are either invalid or are
not infringed by Neuralstem and that Neuralstem has not violated California state law. In August
2008, the California court transferred our lawsuit against Neuralstem to Maryland for resolution on
the merits. In July 2009, the Maryland District Court granted our motion to consolidate these two
cases with the litigation we initiated against Neuralstem in 2006. In August 2009, the Maryland
District Court approved a scheduling order submitted by the parties for discovery and trial.
In addition to the actions described above, in April 2008, we filed an opposition to
Neuralstems European Patent No. 0 915 968 (methods of isolating, propagating and differentiating
CNS stem cells), because the claimed invention is believed by us to be unpatentable over prior art,
including the patents exclusively licensed by us from NeuroSpheres. Neuralstem has responded to
this opposition and the parties are currently awaiting a hearing, expected for 2010. In September
2009, we also filed a request with the PTO to reexamine Neuralstems U.S. Patent No. 5,753,506
(methods of isolating, propagating and differentiating CNS stem cells), which is the U.S.
counterpart of Neuralstems 968 patent in Europe. The PTO granted this reexamination request in
October 2009.
ITEM 1A. RISK FACTORS
There have been no material change from the risk factors disclosed in Part I, Item 1A, of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and Part II, Item 1A, of our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit 10.1 Amendment to lease, dated October 12, 2009, between the Board of Trustees
of the Leland Stanford Junior University and the Registrant
Exhibit 31.1 Certification of Martin McGlynn under Section 302 of the Sarbanes-Oxley Act of 2002
30
Exhibit 31.2 Certification of Rodney K. B. Young under Section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 32.1 Certification of Martin McGlynn Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Rodney K. B. Young Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
STEMCELLS, INC.
(name of Registrant)
|
|
November 4, 2009 |
|
/s/ Rodney K. B. Young
|
|
|
|
Rodney K. B. Young |
|
|
|
Chief Financial Officer |
|
32
Exhibit Index
Exhibit 10.1 Amendment to lease, dated October 12, 2009, between the Board of Trustees
of the Leland Stanford Junior University and the Registrant
Exhibit 31.1 Certification of Martin McGlynn under Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Rodney K. B. Young under Section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 32.1 Certification of Martin McGlynn Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Rodney K. B. Young Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
33
exv10w1
Exhibit 10.1
THIRD AMENDMENT TO LEASE
This
Third Amendment to Lease (the Amendment) is made and entered into as of October 12, 2009
(the Effective Date), by and between THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR
UNIVERSITY, a body having corporate powers under the laws of the
State of California (Landlord),
and STEMCELLS, INC., a Delaware corporation
(Tenant).
A. Landlord and Tenant entered into that certain Restated and Amended Lease
dated as of December 19, 2002 as amended by that certain Lease Amendment dated as of
August 1, 2003 and that certain Second Amendment to Lease dated April 1, 2005 (as amended,
the Lease), pursuant to which Landlord has leased to Tenant 68,162 rentable square feet in
that certain property commonly known as 3155 Porter Drive, Palo Alto, California and more
particularly described in the Lease (Premises). Each capitalized term not defined in this
Amendment shall have the same meaning given to such term in the Lease.
B. Landlord and Tenant now desire extend the Term of the Lease, on the terms and
conditions more particularly set forth below.
NOW THEREFORE, Landlord and Tenant hereby agree as follows:
Section 1 Extended Term. The term of the Lease is hereby extended commencing on April 1, 2010
and expiring on August 31, 2011 (Extended Term) [Tenant shall have no further rights to renew or
extend the term of the Lease and Section 3(B) of the Second
Amendment to Lease is hereby deleted in
its entirety.]
Section 2 Base Monthly Rent. The Base Monthly Rent payable by Tenant during the Extended Term
shall be as follows:
|
|
|
|
|
|
|
|
|
Period During |
|
Base Monthly Rent per |
|
|
Extended Term |
|
rentable square foot |
|
Base Monthly Rent |
April 1,
2010 March 31, 2011 |
|
$ |
2.65 |
|
|
$ |
180,629.30 |
|
April 1,
2011 August 31, 2011 |
|
$ |
2.73 |
|
|
$ |
186,082.26 |
|
Section 3
Condition of the Premises. Tenant hereby accepts the Premises in its as-is
condition, and Landlord shall not be obligated to make any alterations, additions, repairs or
improvements or to do any work whatsoever on, to or within the Premises.
Section 4 Space Sharing Agreement. The Space Sharing Agreement and Tenants obligations
pursuant to Section 7 of the Second Amendment to Lease shall remain in full force and effect during
the Extended Term.
Section 5 Brokerage Commission. Landlord is not represented by a broker and Tenant is
represented by Cornish & Carey Commercial (Tenants Broker) with respect to this Amendment
Landlord shall pay Tenants Broker pursuant to the terms of a separate commission agreement. Tenant
and Landlord represent and warrant that they have had no other dealings with any other real estate
broker or agent in connection with this Amendment. Tenant and Landlord shall indemnify, defend and
hold the other harmless from and against all liabilities arising from any other claims of brokerage
commissions or finders fees based on
-1-
Tenants or Landlords, as applicable, dealings or contacts with brokers or agents, other than, as
to Tenant, Tenants Broker.
Section 6 Effect of Amendment. As modified by this Amendment, all of the terms and conditions
of the Lease remain unchanged and in full force and effect. In the event of any express conflict or
inconsistency between the terms of this Amendment and the terms of the Lease, the terms of this
Amendment shall control and govern.
Section 7 Counterparts. This Amendment may be executed in any number of counterparts, each of
which shall be an original, but all of which, when taken together, shall constitute one and the
same instrument.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the Effective Date.
|
|
|
|
|
|
|
|
|
|
|
LANDLORD: |
|
TENANT: |
|
|
|
|
|
|
|
|
|
|
|
THE BOARD OF TRUSTEES OF THE LELAND |
|
STEMCELLS, INC., |
STANFORD JUNIOR UNIVERSITY |
|
a Delaware corporation |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
By: |
|
|
|
|
Name:
|
|
JEAN SNIDER
|
|
|
|
Name:
|
|
Rodney Young |
|
|
Its:
|
|
MANAGING DIRECTOR, RE
|
|
|
|
Its:
|
|
CFO |
-2-
exv31w1
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT
I, Martin McGlynn, certify that:
|
(1) |
|
I have reviewed this quarterly report on Form 10-Q of StemCells, Inc.; |
|
|
(2) |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
(3) |
|
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
quarterly report; |
|
|
(4) |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared;
(b) designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and
|
(5) |
|
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants auditors
and the audit committee of the registrants board of directors (or persons performing the
equivalent functions): |
(a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and
(b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
Date:
November 4, 2009
|
|
|
|
|
|
Martin McGlynn |
|
|
President and Chief Executive Officer |
|
|
exv31w2
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT
I, Rodney K. B. Young, certify that:
|
(1) |
|
I have reviewed this quarterly report on Form 10-Q of StemCells, Inc.; |
|
|
(2) |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
(3) |
|
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
quarterly report; |
|
|
(4) |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared;
(b) designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and
|
(5) |
|
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants auditors
and the audit committee of the registrants board of directors (or persons performing the
equivalent functions): |
(a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and
(b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
Date:
November 4, 2009
|
|
|
|
|
|
Rodney K. B. Young |
|
|
Chief Financial Officer |
|
|
exv32w1
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the StemCells, Inc. (the Company) quarterly report on Form 10-Q for the period
ending September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof
(the Report), I, Martin McGlynn, President and Chief Executive Officer of the Company, certify
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge:
|
(1) |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and |
|
|
(2) |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to StemCells,
Inc. and will be retained by StemCells, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
Date:
November 4, 2009
|
|
|
|
|
|
Martin McGlynn |
|
|
President and Chief Executive Officer |
|
|
exv32w2
Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the StemCells, Inc. (the Company) quarterly report on Form 10-Q for the period
ending September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof
(the Report), I, Rodney K. B. Young, Chief Financial Officer of the Company, certify pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,
to the best of my knowledge:
|
(1) |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and |
|
|
(2) |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to StemCells,
Inc. and will be retained by StemCells, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
Date:
November 4, 2009
|
|
|
|
|
|
Rodney K. B. Young |
|
|
Chief Financial Officer |
|
|