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StemCells to Acquire UK's Stem Cell Sciences for Up to $4.85M to Build Drug-Discovery Play

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StemCells plans to acquire certain assets of UK-based Stem Cell Sciences for as much as $4.85 million, the companies said this week.

As part of the deal, Palo Alto, Calif.-based StemCells plans to provide SCS with 2.65 million of its shares and approximately $715,000 in waived loan payments.

Expected to close within two months, the deal will see StemCells acquire SCS' R&D operations in Cambridge, UK, and a facility near Melbourne, Australia.

SCS CEO Alastair Riddell told CBA News that, "indeed, StemCells has advised me that they plan to build and invest in the operational facilities, particularly here in Cambridge, to provide cell-based assay services to the pharmaceutical and drug discovery industry."

StemCells will also acquire: proprietary cell technologies relating to embryonic stem cells, induced pluripotent stem cells, and tissue-derived stem cells; expertise and infrastructure for providing cell-based assays for drug discovery and screening, including automated robotic production and manipulation of stem and progenitor cells; and patented gene-insertion technology with applications in drug screening and cell and gene therapy.

Also on the table are SCS' SC Proven media-formulation and reagent business, including the iSTEM, 2i, 3i, Passaid, HEScGRO, and EScGRO media; a portfolio of more than 20 patent families covering a range of technologies relevant to cell processing, reprogramming, and manipulation, and gene targeting; and existing business and license relationships relevant to SCS technologies entered into by several "major" life-science companies, including Merck and Millipore.

Riddell said this week that as part of the deal, which has been unanimously approved by the board of directors of both companies but is still subject to the approval of SCS shareholders, StemCells is expected to retain most of SCS' approximately 20 full-time employees, including all of its scientists; repay the company's creditors; and give an undisclosed return to SCS shareholders.

The actual number of shares delivered to SCS on completion of the transaction will depend on the acquired subsidiaries having at least a predetermined target amount of working capital, the companies said.

A portion of the consideration shares — 530,000 shares, or 20 percent of outstanding shares — will be held in escrow for 12 months, subject to any claims for indemnification StemCells may make under the terms of the agreement, according to both companies.

StemCells declined to comment on the acquisition prior to its closing.

Stem Sells

SCS sells stem cell technologies for drug discovery and regenerative medicine research applications. By comparison, StemCells develops tissue-derived cellular products for therapeutic applications.

According to StemCells' website, the firm's platform relies on a library of monoclonal antibodies to human proteins and cell-sorting capabilities. For that end, the company harvests cells from the human brain, liver, and pancreas.

Using a library of known and proprietary monoclonal antibodies, StemCells identifies, purifies, and characterizes the human stem cell of interest. The stem cells are then sorted and tested in in vitro or in vivo models. Purified populations of stem cells are then expanded, banked, and retested in in vivo models to demonstrate that the expanded cells maintain the original stem-cell properties.

StemCells' patent portfolio covers multiple aspects of this discovery process.

"StemCells has established itself as a world leader in tissue-derived stem and progenitor cells for therapeutic uses, while Stem Cell Sciences has focused on non-therapeutic applications for embryonic and tissue-derived stem cells, such as cell-based assays for drug discovery and screening," StemCells CEO Martin McGlynn said in a statement.

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"This proposed acquisition will combine three distinct stem cell platforms — adult, embryonic, and iPS cells — for both therapeutic and drug-discovery applications, and will position StemCells to diversify and pursue near-term commercialization opportunities, while continuing to develop our cell-based therapeutic products," he added.

StemCells' held $16.2 million in cash and equivalents of as of Sept. 30, 2008, according to the company's most-recent Securities and Exchange Commission filing.

StemCells' revenues for the three-month period ended Sept. 30, 2008, were $12,380, a decrease of 6 percent from the year-ago period. All of the company's revenues are from licensing agreements, according to the report.

For full-year 2007, the last full year for which numbers are available, StemCells accrued revenues of $57,000 from licensing agreements and grants, a decrease of 39 percent over full-year 2006.

R&D expenses for Q3 were $4.2 million, a decrease of 26 percent from the year-ago period, while R&D spending for all of 2007 increased 47 percent to $20 million over full-year 2006.

Net loss for the third quarter was $5.7 million, a decrease of approximately $1.2 million from the year-ago period. Net loss was $25 million for full-year 2007, an increase of $6 million over full-year 2006.

According to the company's website, it has 63 full-time employees.

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