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StemCells Is Restructuring To Save Cash, But What's That Mean For Investors?

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December 24, 2015 9:34 am
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  • StemCells Inc (NASDAQ: STEM) shares are down 55 percent year-to-date.
  • Chardan Capital Markets’ Keay Nakae maintained a Buy rating for the company, while reducing the price target to $1.
  • The announced restructuring appears pragmatic, but there is concern around the potential future revenue from AMD, Nakae stated.

StemCells announced its plans to restructure its operations in order to preserve cash. Analyst Keay Nakae mentioned that the most significant component of this decision would be to suspend its Radiant Study, which is Phase 2 clinical trial for evaluating the use of its HuCNS-SC cells as a treatment for patients with dry AMD.

The planned restructuring would also result in a headcount reduction at the company by about 25 percent. Management projected that these initiatives would lead to a reduction of planned cash burn of about $20 MM over the next 2 years.

The focus would now solely be on cervical spine injury, Nakae noted. He added that the PATHWAY study is the company's Phase 2 clinical trial evaluating its HuCNS-SC cells as a treatment for patients with cervical spine injuries. Additional interim clinical data is expected to be reported in from the Phase 2 PATHWAY cervical spine study.

The GAAP EPS estimate for 2016 has been raised by $0.05 to ($0.27) to reflect a reduction in operating expense of $7.3MM.

Nakae wrote, “We agree that this decision to conserve capital is pragmatic, even at the cost of pushing out the AMD opportunity, as we view the nearer term data from the PATHWAY study, if positive, as more leveragable. Our 12-month price target is reduced to $1.00 to reflect the negative impact of the delay in potential future revenue from AMD.”

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