National Editor

StemCells Inc.'s decision almost two years ago to cut back on research and advance its discoveries has paid off, with the company entering a deal with investors for a private placement worth $20 million.

Institutional and other accredited investors have agreed to buy about 13.2 million shares for $1.52 each. The deal is expected to finish in the next few days, StemCells said Thursday. A spokesperson for Martin McGlynn, president and CEO, said he declined further comment.

StemCell's stock (NASDAQ:STEM) closed Thursday at $1.58, down 31 cents.

The company plans to file its first investigational new drug application by the end of the first quarter in 2005 for a drug to treat Batten disease, a rare and fatal neurodegenerative disorder. The company said the financing gives it enough operating capital to continue into 2006.

In the fall of 2002, StemCells said it would lay off a quarter of its work force, cutting back the staff to about 30 employees, in order to conserve cash and focus more on development of its cells treating neural and liver diseases. (See BioWorld Today, Sept. 24, 2002.)

The company's technology isolates, purifies and expands stem or progenitor cells found in human tissue that are committed to become the mature cells of the organ from which they were derived. Those cells can then be used to repair or repopulate tissue damaged or lost due to disease or injury, StemCells said.

In May of last year at the annual conference of the American Society for Neural Transplantation and Repair in Florida, the firm offered data from a preclinical study that showed mice injected with its human neural stem cell technology improved motor function in tests measuring recovery from complete hind-limb paralysis to normal walking. The company's stock jumped 127 percent in trading that day.

In November at the Society for Neuroscience meeting in New Orleans, preclinical data pointed to the ability of the stem cells to regenerate myelin, the nerve fiber insulator often lost or damaged in spinal cord injury as well as multiple sclerosis and certain genetic disorders. Study findings showed extensive myelination of nerve axons in a shiverer mouse that could not produce myelin because it lacked a functional copy of the basic myelin protein gene. That news boosted StemCells' shares by 36 percent.

C.E. Unterberg, Towbin LLC, of Denver, acted as placement agent for the financing.

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