West Coast Editor

Still riding high on California Gov. Arnold Schwarzenegger's endorsement of a measure to boost stem cell research, Stem Cells Inc. entered agreements with institutional investors for a placement of 7.5 million shares of stock at $3 per share, raising gross proceeds of about $22.5 million.

News of the sale, expected to close in the next few days, might not have terminated the Palo Alto, Calif.-based firm's recent stock run-up but did slow the pace considerably. Shares (NASDAQ:STEM) closed Tuesday at $3.17, down 92 cents, or 22.5 percent. Company officials could not be reached.

Stem Cells' stock Monday jumped 51 percent to close at $4.09, a week-long trend due to Schwarzenegger's backing of the state's Proposition 71, which would provide $3 billion worth of stem cell research over the next decade (an average of $295 million a year). It's the biggest initiative in the U.S. this year, but still faces funding issues should it pass in November. (See BioWorld Today, Oct. 12, 2004.)

Stem Cells Inc. works with adult stem cells, but might be in line for funds from Proposition 71. Another firm benefiting from the attention is Menlo Park, Calif.-based Geron Corp., which works with human embryonic stem cells. The firm's stock jumped 16 percent Monday, closing at $7.75. Geron shares (NASDAQ:GERN) also dipped Tuesday to end at $7.25, down 50 cents.

In its third-quarter earnings report, Stem Cells reported a loss of about $4.3 million, or 8 cents per share, compared with a loss before deemed dividends of about $2.4 million, or 7 cents per share, for the same period last year. The company had cash and cash equivalents of about $23.1 million.

The net-loss increase was due to activities related to the company's planned investigational new drug application regarding its human neural stem cell program, as well as a change of the estimated reserve for the exit cost obligation related to the former corporate headquarters in Rhode Island. There also was a hike in costs associated with new Sarbanes-Oxley compliance.

Isolating and using neural stem cells could help in the fight against neurodegenerative diseases such as Parkinson's disease and Alzheimer's disease, the company said, along with genetic disorders that damage the brain such as Batten's, Gaucher's and Tay Sach's diseases. Mini-strokes and spinal cord injuries also might benefit. There's also a belief that glial cells derived from the stem cells could help remyelinate neurons in multiple sclerosis patients.