Gregory Schiffman - CFO Martin McGlynn - CEO Joel Naor - VP of Clinical Development for Ophthalmology Ian Massey - President and COO.

Keay Nakae - Chardan Markets Jason Kolbert - Maxim Group Ed Woo - Ascendiant Capital Caroline Corner - Cantor Fitzgerald.

Good day, ladies and gentlemen, and welcome to the StemCells, Inc. Q2 2015 Earnings Conference Call. [Operator Instructions]. Do note today's program is being recorded for webcast. I would like to now introduce our host for today's program, Mr. Greg Schiffman, Chief Financial Officer. Sir, please begin..

Welcome, everyone, and thank you for joining us. With me today are Martin McGlynn, our Chief Executive Officer, Dr. Ian Massey, our President and Chief Operating Officer, and Dr. Joel Naor, Vice President of Clinical Development for Ophthalmology.

Before we proceed, I would like to remind everyone that during today's call, we will be making some forward-looking statements, which reflect our current views and are based upon certain assumptions that may or may not ultimately prove valid.

We assume no obligation to update these forward-looking statements anytime in the future and our actual results may differ materially from anything projected during today's call due to risks and uncertainties to which we are subject.

These risks and uncertainties are described in our public filings with the Securities and Exchange Commission and at the end of our earnings release, which you are encouraged to consult. Let me quickly review our financial results for Q2 2015, following which, I'll turn the call over to Martin.

Operating expenses for Q2 2015 were up from Q2 2014 by approximately 17% or about $1.3 million. Almost all of which was associated with R&D. Approximately $900,000 or 60% of this increase is related to non-cash stock compensation. The remaining approximately $400,000 are primarily related to increased clinical trial activity.

General and administrative costs have remained consistent year-over-year. Our loss in continuing operations decreased by approximately 30% or approximately $3.7 million year-over-year.

The delta between our growth and operating expenses of approximately $1.3 million and the decrease in loss from continuing operations of approximately $3.7 million was primarily due to a non-cash change in the fair value of our outstanding warrants.

We are reporting a non-GAAP loss adjusting for the major non-cash charges including stock based compensation, depreciation and amortization, impairment of intangible assets and changes in the fair value of our warrant liability because we believe that this metric provides useful information to investors.

We have included a reconciliation table for these adjustments in our press release issued earlier today. For Q2 2015 the company had a non-GAAP net loss of approximately $7.8 million compared to a non-GAAP net loss for Q2 2014 of approximately $7.6 million. Our cash usage for Q2 2015 was approximately $9.2 million.

And our cash balance at the end of Q2 was approximately $29.9 million. For the first half of the year we have used approximately $16.5 million net cash to fund our operating activities which includes all operating expenses, capital purchases and working capital. We would expect to see spending in the second half of the year fairly consistent.

As you are aware the company received the notification from NASDAQ on May 14th that the closing bid price for the company's common stock had been below $1 per share for the previous 30 consecutive business days. And therefore the company was no longer in compliance with the requirements for continued listing on the exchange.

The company was given 180 calendar days or until November 10th to regain compliance with this minimum bid requirement. However if the share price does not exceed $1 by November 10th the company will submit a plan to NASDAQ to regain compliance.

After this we would expect to have at least another 180 days to discuss the specifics of our plan with NASDAQ. So there is impending likelihood of being delisted. We will provide details of the plan once we have reached the agreement with the exchange.

Before I turn the call over to our CEO if you are not already on the webcast link I would encourage you to sign on now as we will be showing some additional data related to the top line results from our Phase 12A and B trail later in this webcast. With that let me introduce Martin McGlynn..

Thanks, Greg. If you followed Stemcells Inc. over the last decade you know that I'm always excited to report on our [tentacle] achievements which has been both numerous and steady since we safely perform the first ever transplant of our patented Eurostemcells into a patient in 2006.

I'm proud to report that in the second quarter of 2015 we continue to make solid progress with Phase 2 clinical trials in two major indications in the central nervous system, spinal cord injury and [Indiscernible] degeneration.

Both of these debilitating conditions have large patient populations with significant unmet medical needs and no effect of treatments available today. In May, we present the top-line results from our Phase I/II clinical trials in thoracic spinal cord injury at the joint meeting ISCoS and Asia.

Marking the one year post transplant anniversary for the 12 patients who participated in the study.

In addition to the safety and tolerability reported for ourselves and for the transplantation procedure, analysis of the 12 month data also showed sustained improvements involving multiple sensory pathways in seven patients which persisted through the end of the study.

And most unexpectedly two of the patients progressed from the most severe classification known as AIS A to the lateral degree of injury known as AIS B. With the commencement of our Phase II pathway study in cervical spinal cord injury, StemCells, Inc. has once again made medical history.

Not only is this the first clinical trial to evaluate human neural stem cells as a potential therapy for cervical spinal cord injury, we have now successfully transplanted more neural stem cells into the human spinal cord than has ever been done before.

In April, we completed the transplantation of the studies first cohort, which was designed to confirm the dose to be used for the remainder of the study. In June, we advanced to enrollment and transplantation of the second of the studies three plant cohorts, which is a randomized controlled single blind study comprising 40 subjects.

Half of the patients will receive the cells, the other half will serve as a control. Eight sites literally [spanning] the U.S. from coast-to-coast are actively enrolling patients and we’re working diligently to initiate additional sites.

In Q2 of this year, we also received approval from Health Canada to extend this study to Canadian sites, which we believe will further expedite enrollment. The cervical region of the spinal cord is responsible for transmitting neural signals to and from the brain to control motor function of the hands, arms, wrist and elbows.

This clinical proof-of-concept study is design to show a clinically meaningful improvement in upper extremity motor score as measured by an objective and quantitative scale. The definitive data will emerge from the second cohort which should be powered with the sufficient number of patients to afford a statistically significant outcome.

Our goal is to complete enrollment in this cohort sometime next year with top-line final study results available in 2017. But as soon as June 4 of this year we will have interim six-month post-transplant results for the first cohort.

For patients with cervical injury, even a modest change in arm, wrist or hand strength would translate into better quality of life and greater independence. Our other elite clinical program targeting geographic atrophy, the most advanced form of dry AMD has also progressed to a Phase II trial which we are calling the radiant study.

Last month we enrolled our first Phase II patient in this randomize proof-of-concept trial, which is designed as the fellow eye controlled study. We are actively working to get a number of sites up and running, expecting to reach approximately 20 sites in the U.S. And we are seeing strong interest in this study from the medical community.

All patients enrolled in the study most exhibit geographic atrophy in both eyes. They will receive sub -- transplantation of cells into one eye, with the untreated eye serving as a control. Patients will be followed for one year post transplant. We plan to complete enrollment in 2016 with top-line final study results available in 2017.

The objective of the trial is to show that ourselves slow the rate of disease progression and as such recollecting several clinical -- clinically meaningful metrics which may determine the best design for a follow-on Phase III study. Success would represent both a major medical breakthrough and a sizeable commercial opportunity for StemCells, Inc.

A year has passed since we completed the first ever transplant of neural stem cells into the human eye on our Phase I/II clinical trial in geographic atrophy of age-related macular degeneration. On June 26th, topline outcomes of this study were reported at the ISSCR annual meeting in Stockholm.

The data overall showed a positive safety profile, as well as favorable preliminary data related to visual acuity, contrast sensitivity and an atomic assessment of the retina. In a few minutes we will be sharing further insights into the results from this study.

As you can see we continue to make remarkable progress in the clinical development of our proprietary human neural stem cell platform. So I have never been more excited about the Company's potential to realize our promise of delivering breakthrough medicine.

We completed four Phase I/II studies covering all three components of the central nervous system, two in the brain, one in the spine, and one in the eye. We have strong evidence that our cells and grafts self-replicate, migrate and survive long-term without the need for ongoing regimen of immunosuppression.

We've demonstrated the safety for our cells and for the transplantation procedures and we've even seen early signs of clinical efficacy in each of the components of the central nervous system. We have two controlled Phase II clinical trials underway and these are the most advanced studies been executed using human neural stem cells.

In 2017, we plan to have definitive results on the capacities of this platform into two indications with large unmet medical needs. Yes, despite all of these achievements and the success they pertained, StemCells Inc. is trading at valuation lower than the Company has seen in years. So I now like to share some of my thoughts regarding this disconnect.

Clearly three announcements in the second quarter have negatively impacted our stock value and I'll quickly sum up my reflection on each of these. First, the opinion of the judge in our pattern infringement suit against neural stem precluded our proceeding to trail and the case was dismissed.

I would like to reiterate the key points we communicated in our detailed press release. This case was primarily about the dependence ability to pursue their own agenda the decision doesn't affect StemCells Inc.'s intellectual property portfolio beyond the Weiss and Reynolds family patents.

Our cells and platform technology are protected by multiple patent families as well as by the Company proprietary expertise. Most importantly, the court's decision in no way affects our ability to execute our business plan. Secondly, we disclosed the financing that brought $25 million into work offers to strengthen our balance sheet.

We fully recognize the markets frustration with dilutive financing; however, it is critical to be able to fund the clinical programs and there are times when you have no other options.

However, as we have now successfully advanced the Phase II testing, we're actively seeking non-dilutive sources of capital to reduce our alliance on the capital markets as the primary resource to fund our clinical activities.

Thirdly, we reported that we were investigating disparities between two independent analyses of lesion progression associated with geographic atrophy in our Phase I/II GA-AMD study.

I think it's important to point out that the primary objective of any Phase I study which is required in order to progress into a Phase II study is to demonstrate the safety of the treatment regimen.

When the regimen is being used in a particular patient population for the very first time enrollment criteria typically encompasses very severe and/or advanced cases thereby minimizing the risk of further exacerbating the condition that we're targeting.

The prospective analysis of all 15 patients from the Company's Phase I/II study in AMD showed geographic atrophy growth rates in the study eyes that were lower overall and those seem in the controlled eyes. However an independent post-op analysis did not indicate any trend in the data either in favor of the study eye or the controlled eye.

We have found that these differences were most due to the challenges inherent in measuring the very large and complex lesions presented by 10 of the 15 patients in the study. Notably these 10 patients would not have met the criteria for enrollment in our Phase II study where the focus which is to efficacy.

When we studied results from the 5 subjects with lesion characteristics that would meet enrollment criteria for our Phase II Radiant study, we found the data from both analyses supports our Phase II trial design. In my view these Phase I/II results strongly suggests that we're on the right tract.

We have carefully defined the characteristics of the GA lesion types that are appropriate for enrolment into our Radiant study and we're proceeding confidently with this Phase II proof of concept trial. So I would now like to turn the call over to Dr. Naor to review our AMD data including this new information from our Phase I/II study in AMD..

Thank you, Martin. We are very pleased with the emerging safety profile of our cellular platform as a potential treatment for dry A and B. The function of assessments reported for the majority of the patients in our Phase I/II study including best productive visual acuity and contrast sensitivity either improved or remain stable in the treated eye.

One of the anatomic measures optical coherence tomography or OCT shows increases in central subfield thickness and in macular volume in the treated eye relative to the untreated eye. These changes could be reflective of refinery integrity.

We are intrigued by these findings and will be closely monitoring measurements in the ongoing Phase II region study. We also analyze the anatomic outcome of the area of geographic atrophy 12 months post-transplant via two independent analysis. We have now completed a detailed comparative review of these prospective and post cost analysis.

As Martin had already stated this review reveals that 10 of the 15 patients in the Phase I/II trial has lesions that were outside the size range to qualify for entry into the current phase II trial.

This is because the Phase I/II study was designed primarily to test for safety and are such the enrollments criteria permitted a wide range of atrophy lesions.

Because the Phase II study is designed primarily to test for efficacy the enrollment criteria specifies lesion sizes within a tighter range, which is consistent with industry practice for an efficacy study. I am now showing a graph that clocks the change in geographic atrophy growth in the study eye versus the fellow eye.

For the five Phase I/II subjects who would meet the eligibility criteria for our Phase II study. This class is consistent with the way we have previously presented the geographic atrophy area growth. We have included the data point from both analysis so that you can see the differences.

The horizontal axis shows the change in lesion size for the untreated eye and the vertical axis indicates the change in lesion size for the treated eye. The unit for these axis are square millimeters. We have drawn a line that drawn at a 45 degrees angle. Point [indiscernible] on this slide would represent equal growth of GAs in both eye.

A data point above the diagonal line represents greater vision growth in the treated eye compared to the untreated eye, which will indicate an unfavorable clinical outcome; a data point below the diagonal line represents greater lesion growth in the untreated eye compared to the treated eye such as a favorable clinical outcome.

The graph shows two data points for each patient one data on the prospective analysis and one data on the post [indiscernible] analysis. As you can see in general there is good agreement between the two data points for each patient in the sub group.

You will also notice that the majority of points from both the prospective analysis and the post [indiscernible] analysis fall in the region of the graph that corresponds to a lower change in the geographic atrophy in the treated versus the non-treated eye representing a favorable clinical outcome.

While this is a small dataset we're encouraged by these results especially when you include the other clinical metrics we discussed earlier. Our Phase II trial targets the same patient population fees in the Phase I/II subset that we just discussed.

We strongly believe that our Phase II study design will allow us to effectively assess the impact of sales on the rate of the disease progression in geography atrophy. And with that key takeaway I'd like to hand the call back over to Martin..

Thank you, Joel. The bottom line is this; we are committed to advancing this extraordinary technology through the clinical process.

If even one of these current clinical programs prove successful we'll have validate and approach to treating CNS disorders using our proprietary platform and we'll be well on our way to bringing a truly disruptive new platform technology to market.

With the potential to not only dramatically improve quality of life for patients with CNS disorders but also to generate meaningful returns for our shareholders. In the interim we'll be seeing the first indications as to whether these sales may improve motor function in individuals with cervical spinal cord injury in just a few months.

Now let me now turn the call over to the operator for questions..

Thank you. Ladies and gentlemen [Operator Instructions] Our first question comes from the line of Keay Nakae with Chardan Markets. Your line is now open. Your question please..

Martin with respect to the analysis you had of the Phase I/II dry AMD, was there also a correlation, positive correlation which the other measurements best visual acuity correction and contrast sensitivity with the five patients who showed consistent benefit in the treated eye?.

Quite frankly we’ve been focused on the geographic atrophy metric because that’s where we observed the disparity. I don’t think we’ve evaluated specifically to address that question. But it's an interesting question and one that we’ll be taking a look at..

As it pertains to the first six patients in the cervical study, can you tell us how you're going to present that data in Q4, would that simply be a press release or you're looking to perhaps target that forward a presentation at a conference if there is one that’s appropriate?.

We definitely want to get the information out in a timely fashion, optimally you would see that there is a conference or other means to be able to line it, I do not know if there will be, if not, it will be a press release and potentially a call. We’ll see sort of depending upon the data..

And just doing this simple math from the last patient enrolment would suggest November is the window there is that about what we should expect?.

That’s probably the likely timeframe. I mean we will get data theoretically October, but it takes a while to be able to compile and analysis. So I think November is a reasonable timeframe to assume that we would be able to release information..

And just one final question, with respect to the two Phase II studies, I know you’ve enrolled the first patient in the second quarter cohort and spine in the first patient and dry AMD have there been others that have been enrolled?.

Yes, I don’t think we want to keep it rolling totally, but yes, we have continue to enroll others in the studies and they are moving along. And I think in the case of AMD the goal there is as we’ve indicated bringing additional sites on for spinal cord we have quite a few sites already enrolling..

How many sites are currently evaluating patients in dry AMD?.

We have -- the site that we brought onboard, we’re actively bringing others out, but there is the first site that’s started and had treated the first, dose the first subject.

And so we have one site active with AMD, quite a few that we’re actively working with and in spinal cord we indicated we got eight sites up and enrolling and though have several others including a couple up in Canada that we had worked with previously in the Phase I/II study..

Our next question comes from the line of Jason Kolbert with Maxim Group. Your line is now open. Your question please..

It's actually Jason McCarthy for Jason Kolbert, just a couple of questions and starting just on the spinal cord injury side, really when you think about how important is benchmarking in the amount of tissue based scarring that occurs in each individual patient, is it independent of the actual injury? And also this indication, do you believe there could be an advantage to multi-dosing, an [indiscernible] invasive procedure, but do you think that multi-dosing can [indiscernible] damage little bit more than single dose, initiatively you just think that it would, but I just wanted to hear your…..

So I’ll say on the multi-dosing that was actually a topic that the Analyst Day that we hosted last year in December was raised by several individuals with a couple of the PIs there and I think what we could -- processes that sort of been put out with if you’ve been able to actually make improvements we’re putting self and now where you’ve actually got more intact of the [indiscernible] sort of boost to give a benefit.

And the answer there would be a very interesting scientific question that there is no data that we have one way or the other. So I think it's one that we couldn’t answer, but clearly the POSITION thought it was an interesting idea, Martin out of PI you have any other comments there..

Jason, one of the characteristics and one of the benefits with our particular cell is that it not only in-graphs and migrates, but it also replicates and we’ve seen this in all of the animal models and we’ve seen evidence in the human data base as well.

So all of the work that we have done and all of our projection in terms of the clinical pathway we’re planning that this will be a one-time intervention and essentially building off the characteristics of the [indiscernible] type of the cell.

As to your question on base line, base line measurement of clear scar, I am not quite too sure we understand the question.

So could you perhaps ask it in a different way?.

I guess it's kind of -- is there a way or do you consider measuring tissue if [indiscernible] actual spinal cord injury, tissue scaring that occurring around the injury does that preclude the integration of neural stem cells, could that be a fact that'd be a factor I guess that's my question when you're selecting patient that you're enrolling the trial?.

So, this Ian Massey, and as part of the entry criteria and screening of patients, we're conducting MRI to look at the actual lesion and there are various attributes of that lesion which were evaluated to enable a patient in the enrollment study. If there is extensive scarring then that is certainly taken into consideration.

Unfortunately our expert Stephen Huhn is not here today and I am sure he would be able to give you a much more detail into response your question..

But the only thing I would add to that is when we looked at the results from the first study and I won't specifically glial scar but severity of injury based on the MRI we did see a correlation in terms of benefit of those individuals they have less severe injuries did see a greater benefit..

Thank you. Our next question comes from the line of Ed Woo with Ascendiant Capital. Your line is now open.

Your question please?.

When do you think we may get interim results for the dry AMD study?.

This study, this 63-patient study is a shadow eye control study blinded and we have no plans to produce interim results from that study..

Great then I had a question I guess the clarification, you've mentioned obviously you did a capital raise, you have much more cash in the balance sheet, how long do you think that should last and also you've mentioned about non-dilutive financing, could you clarify that a little bit?.

Sure so in terms of cash balance sheet, we had approximately $30 million cash in our balance sheet. To look last year I think cash from operations we used a little over $30 million the first half of the year it was around $16 million, cash used to fund operations.

So we clearly have a cash balance that it will allow us and enable us to continue funding our clinical activities for quite a while..

And I think, Martin, on the second component?.

Well, remind me of the second components of the question Ed?.

Sure I know you've mentioned that in the three item point of thoughts top 3 negative impacting you stock.

I think you've mentioned weakened the cash and then you said that, I think you said, you're possibly like [indiscernible] other non-dilutive financing opportunities, is that did I hear that correct?.

Yes, you did..

Okay, is there any more details on that or is there something that we can get that won't be a concern now because you have strong balance sheet right now?.

Well, I think the message here is that we're not at a stage where we have a building human clinical data base from rent Phase II trials, so there are opportunities for us to explore I mean we're actively exploring ways and means that we can reduce our reliance on capital markets.

As I said, capital markets reactive negatively to the dilutive financing and that's the case systematically, we have over the years in a very early stage or now we have human clinical data and so we think this will help us in our endeavors to reduce our reliance on the capital markets..

Thank you. Our next question comes from the line of Caroline Corner with Cantor Fitzgerald. Your line is now open.

Your question please?.

I have a couple of questions. I have been hoping to get in call, so apology if some of them have been answered already.

Did hear your make the commentary around AMD data, have you been parsing this data and looking at the patients from the Phase I/II and specifically those five patients that would have qualified for the Radiant Phase II trial, is this helping you with getting sites on board, are you relating this information to them that those five patients would have potentially shown in efficacy results and was that not a difficult process anyway as part getting sites to be engaged?.

So this is Ian Massey again, certainly we've had lot of enthusiasm from the sites that we have been talking and a lot of enthusiasm from patients. The data that Dr. Nair [ph] showed today has recently become available, but we will be discussing it with site team with the investigators as we got forward.

Caroline, I do think that this data will be reassuring not just for the investigators but also to the patients who would complement enrolling into study certainly very reassuring for us..

And then the other question I have on and apology that you already addressed again, but the patent infringement case with neural stem has been dismissed clearly the shares reacted because negatively around that but can you just discuss how this affect your company day-to-day when you're marking forward projections for your marked up opportunity, is there anything that we should be aware of or is this just something that now you set this kind of wait lift did in and you don’t have to concentrate on that [Indiscernible].

Well as I said Karen you made have missed my remarks on that subject this has never been a part of our ability to execute our business plan.

This business has been about what we believe was indictment of our intellectual property and was about the ability or otherwise of another party to execute their business going so nothing in that lost route and nothing in that decision in any way she performed crimps our ability to execute our business. .

Right. Thanks a lot that's all I have right now. Thanks very much guys..

You are welcome..

Thank you. And we have a question from the line of [Indiscernible]. Your line is now open.

Your question please?.

Hi. Thank you for taking my call. Just have couple of questions.

Question about the GA lesion is there a [indiscernible] that some line drawn that this is too large and this is the size that we want to accept, also have you done the study on the patients that you accepted that you know definitively in that line you’ve drawn that you can measure all these lesions in the future and just as one more question when you rerelease the data on the 10 patients step had lesions that were too large so we can understand what happened?.

So in time we will make the full study results available in time, with regards to the lesion size for this study we have an independent gatekeeper if you will who will be very carefully evaluating the lesion characteristics and lesion size and that same center will also be doing the blinded valuation of the images. I will let Dr.

Naor address the question of specificity regarding region sizes..

Yes. Thank you, Martin.

So in this study we are prospectively employing a process of pre-eligibility determination meaning that patients will be enrolled in the study only if they meet certain criteria and importantly some of this criteria relates to the lesion characteristics and lesion size so this almost ensures that all the patients who are going to be enrolled in the Phase II study will be within the range that we want them to be in terms of lesion size.

.

Thank you. I'm showing no additional questions at this time. I'd like to turn the program back over Martin McGlynn for any concluding remarks..

Well. Thank you very much and again thank you everybody for joining us. I look forward to continuing to update you on our clinical progress as the year progresses, we're obviously all focused on looking forward to being able to discuss the six months results on the patients and the first cohort of the pathway study.

So once again, thank you all for joining us..

Ladies and gentlemen. Thank you very much for your participation. This does conclude the program. You may now disconnect. Everyone have a great day..