StemCells' CEO Discusses Q2 2012 Results - Earnings Call Transcript

StemCells, Inc. (STEM)

Q2 2012 Earnings Call

August 2, 2012 4:30 PM ET

Executives

Martin McGlynn – President and CEO

Rodney Young – CFO and VP, Finance and Administration

Analysts

Stephen Dunn – LifeTech Capital

Joe Pantginis – ROTH Capital Partners

Jason Kolbert – Maxim Securities

Luca Pancratov – ROTH Capital Partners

Presentation

Operator

Welcome to the Q2 2012 StemCells, Inc. Earnings Conference Call. My name is Monica and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Martin McGlynn, President and Chief Executive Officer. You may begin.

Martin McGlynn

Thank you, Monica. Welcome everybody and thank you for joining us today. On the call with me is Rodney Young, our Chief Financial Officer and he and I will deliver some prepared remarks. Rodney’s remarks will include a discussion on the financial results for the second quarter of this year, and then I will follow up with the discussion of some of the exciting activities going on at our company. And then as usual, we will open the lines for question-and-answer period.

So to begin, I’d like to hand over to Rodney Young, our Chief Financial Officer.

Rodney Young

Thank you, Martin. Before we proceed, I would like to remind everyone again, that during the call today, 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 SEC and at the end of today’s press release and we encourage you to consult and review them.

So to the numbers, in the second quarter for 2012, we continue to make good progress in our clinical development efforts, while keeping tight control of our expenses and cash burn rate. Importantly, we have strengthened our balance sheet giving us additional capital resources to pursue our clinical development program. The highlights for the quarter include our operating expenses were down 24% year-over-year. Our revenue from our SC product, SC Proven line of business was up 14% year-over-year. Cash used in operations or our cash burn rate was $5.1 million in Q2 and $10.7 million for the first six months of the year.

We continue to anticipate our 2012 cash burn rate will be in the range of $18 million to $20 million, so we remain on track for that. Our pro forma cash balance was $18.2 million and that includes $9.2 million from the exercise of warrants and the sale of shares subsequent to the end of the quarter.

And lastly, last week, the California Institute for Regenerative Medicine approved a $20 million award to the company and our collaborators. So a little bit more detail on our financials starting with the top line, revenue from product sales increased 14% to $211,000 in the quarter compared to the quarter, second quarter of 2011.

For the six months period of 2012 product revenues are up 44% compared to the same period last year. This solid growth in our SC Proven business is primarily driven by higher unit volumes and only modestly by price increases. We expect continued growth in the SC Proven business via the combination of increased unit sales of existing products and the launch of a number of new products, which is planned for the second half of this year.

Our operating expenses declined 24% to $5.5 million in the second quarter of 2012 compared to $7.3 million in second quarter of 2011.

R&D expenses were 26% lower and SG&A expenses were 16% lower, all compared against 2011. These numbers reflect the actions we undertook last year to reduce our cash burn rate including a reduction in force and the relocation of our corporate headquarters. Overall, then our loss from operations declined 25% to $5.3 million in the quarter compared to $7.1 million in Q2 of last year.

This quarter we reported $6.2 million in other income. This is almost entirely due to a decrease in the fair value of our warrant liability. And under warrant liability accounting, deceases in the liability are passed through the statement of operations as income. So, you’ll recall that $5.3 million Series B Warrants expired unexercised on May 2 and the elimination of the Series B Warrants accounted for about $4.7 million of the $6.2 million decrease in the warrant liability. So as a result, we reported net income of $0.03 per share for the quarter or $834,000. This compares with a net loss of $0.29 per share or $4 million in the second quarter of 2011.

On a cash flow basis, cash used in operating activities was $5.1 million in Q2 and for the first six months was $10.7 million. We continue to anticipate our cash burn, will be $18 million to $20 million this year, and we remain on target for that. With respect to our cash balance, we considerably strengthened our position. Our cash balance at June 30, 2012, was $18.2 million on a pro forma basis. As I said this includes $9.2 million in net proceeds received subsequent to the end of the quarter from the exercise of warrants and from the sale of shares.

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