StemCells, Inc. Announces Filing of IND Amendment for Human Neural Stem Cell Transplant Treatment for Batten Disease.

PALO ALTO, Calif. -- StemCells, Inc. (NASDAQ: STEM) today announced the filing with the U.S. Food and Drug Administration (FDA) of an amendment to its initial IND (Investigational New Drug) application to begin a clinical trial of its human neural stem cells (HuCNS-SC) as a treatment for Batten disease. Batten disease is a rare and fatal neurodegenerative genetic condition affecting infants and children. The proposed Phase I trial has been on hold since February 2005, pending a complete response to questions and concerns presented to the Company by the FDA.

"In May of this year, we announced that we expected to file our response to the FDA in Q3, and I am pleased to say we have done so," said Martin McGlynn, President and CEO of StemCells. "Our primary focus has been the preparation of what we believe to be a complete response letter, in the form of an IND amendment, in an effort to provide the information required so that our application can be taken off of clinical hold. The Company has worked cooperatively with the FDA throughout, with a commitment to resolve all outstanding issues both thoroughly and expeditiously."

StemCells announced the filing of its first IND application on January 4, 2005. If approved by the FDA, this would mark the first-ever FDA-approved clinical trial to use a purified composition of human neural stem cells as the potential therapeutic agent.

About the Clinical Trial

The proposed Phase I trial is designed to investigate the safety and preliminary efficacy of HuCNS-SC in the treatment of infantile and late-infantile neuronal ceroid lipofuscinosis (NCL), the most severe forms of a group of disorders commonly referred to as Batten disease. In the proposed trial, HuCNS-SC will be transplanted into patients. In addition to measuring the safety of HuCNS-SC, the trial will also evaluate HuCNS-SC's ability to affect the progression of the disease. Children enrolled in the study will be evaluated with standardized measures of development, cognition, behavior and language for one year following HuCNS-SC transplantation. Potential patients will be tested for eligibility and then evaluated for baseline disease status prior to transplantation. The trial will be an open label study. The Company is committed to following the effects of this therapy long-term, so trial patients will be asked also to commit to a four-year follow-up study.

About Batten Disease

Batten disease is named after the British pediatrician who first described the juvenile form of NCL in 1903. It is also known as Spielmeyer-Vogt-Sjogren-Batten disease. The name is now commonly used to encompass all three forms of NCL. The forms of NCL are classified by age of onset (infantile, late infantile and juvenile) but are more precisely classifiable in terms of the specific enzyme causing the disease. They all have the same basic cause--lack of a lysosomal enzyme--and similar progression and outcome, but are all genetically different. Children with Batten disease suffer seizures, progressive loss of motor skills, sight and mental capacity, eventually becoming blind, bedridden and unable to communicate. Today, Batten disease is always fatal.

In two subtypes of the NCLs, infantile and late infantile NCL, the disorders are brought on by inherited genetic mutations in the CLN1 gene, which codes for palmitoyl-protein thioesterase 1 (PPT1) and in the CLN2 gene, which codes for tripeptidyl peptidase I (TPP-I). The consequence of these mutations is either defective or missing enzymes that lead to the accumulation of lipofuscin-like fluorescent inclusions in various cell types. Presumably, non-degraded lysosomal substrates accumulate to the point where they interfere with normal cellular and tissue function and lead to the pathological manifestations of the related disease. To correct the major defect in these patients, enzyme has to be provided to the brain where it can be taken up by the enzyme deficient cells.

About HuCNS-SC

StemCells' human central nervous system stem cells (HuCNS-SC) are a somatic cell therapy product consisting of neural cells prepared under controlled conditions. Neural stem cells, a rare subset of brain cells, are isolated from the human fetal brain, purified, propagated, and tested; they are then frozen in cell banks from which HuCNS-SC doses can be prepared.

A property of HuCNS-SC is that they spread throughout the brain and produce both of the lysosomal enzymes missing in both subtypes of Batten disease being studied in the proposed clinical trial. When HuCNS-SC is transplanted into the brain of a preclinical mouse model developed to mimic the human form of one of these subtypes, namely Infantile NCL, the enzyme level increases, and continues to do so over time after the transplant. Thus, placement of HuCNS-SC in appropriate places in the brain provides the prospect of long-term delivery of the missing enzyme. The production of both enzymes by HuCNS-SC provides a scientific justification for enzyme replacement and cellular rescue in these two subtypes of Batten disease.

About StemCells, Inc.

StemCells, Inc. is a development stage biotechnology company focused on the discovery, development and commercialization of stem cell-based therapies to treat diseases of the nervous system, liver and pancreas. The Company's stem cell programs seek to repair or repopulate neural or other tissue that has been damaged or lost as a result of disease or injury. StemCells is the first company to directly identify and isolate human neural stem cells from normal brain tissue. These stem cells are expandable into cell banks for therapeutic use, which demonstrates the feasibility of using normal, non-genetically modified cells as cell-based therapies. StemCells is the only publicly traded company solely focused on stem cell research and development and has more than 40 U.S. and 100 non-U.S. patents, as well as 100 patent applications pending worldwide. Further information about the Company is available on its web site at: www.stemcellsinc.com.

Apart from statements of historical facts, the text of this press release constitutes forward-looking statements regarding, among other things, the Company's beliefs regarding the completeness of its response letter to the FDA, the adequacy of the information contained in the response letter to provide the FDA with the information needed to take the Company's application off clinical hold, progress made in its discussions with the FDA, attitudes expressed by the FDA and expectations regarding FDA actions and the Company's response to these actions, the Company's ability to resolve questions raised by the FDA and to initiate clinical trials, the timing of such trials, and other future operations of the Company. The forward-looking statements speak only as of the date of this news release. StemCells does not undertake to update any of these forward-looking statements to reflect events or circumstances that occur after the date hereof. Such statements reflect management's current views and are based on certain assumptions that may or may not ultimately prove valid. The Company's actual results may vary materially from those contemplated in the forward-looking statements due to risks and uncertainties to which the Company is subject, including uncertainty as to whether the response letter will be found to be complete by the FDA and will provide the FDA with the information required to take the Company's application off clinical hold, uncertainty as to whether the FDA will remove the clinical hold on the Company's proposed initial clinical trial and permit the Company to proceed to clinical testing despite the novel and unproven nature of the Company's technology; uncertainties regarding the Company's ability to satisfy the FDA's concerns, if at all, or without conducting extensive and time consuming additional preclinical studies; uncertainty whether the FDA may at some point raise other concerns not included in its written notification to the Company of the clinical hold on the proposed trial; the risk that, even if approved, the Company's initial clinical trial could be substantially delayed beyond its expected dates; uncertainties regarding the Company's ability to obtain the capital resources needed to continue its current research and development operations and to conduct the research, preclinical development and clinical trials necessary for regulatory approvals; the uncertainty regarding the outcome of the Phase I clinical trial and any other trials the Company may conduct in the future; the uncertainty regarding the validity and enforceability of issued patents; the uncertainty whether any products that may be generated in the Company's stem cell programs will prove clinically effective and not cause tumors or other side effects; the uncertainty whether the Company will achieve revenues from product sales or become profitable; uncertainties regarding the Company's obligations in regard to its former encapsulated cell therapy facilities in Rhode Island; and other factors that are described in the Company's Annual Report on Form 10-K under the heading "Cautionary Factors Relevant to Forward-Looking Statements."