Good day ladies and gentleman and welcome to the StemCells’ Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder this conference call maybe recorded. I would now like to hand the conference over to Mr. Greg Schiffman, Chief Financial Officer. Sir, you may begin.

Thank you. Welcome everybody and thank you for joining us today. With me today are Martin McGlynn, our President and Chief Executive Officer and Dr. Stephen Huhn, our Vice President of Clinical Research and Chief Medical Officer. Before we proceed, I would like to remind everyone that during today’s call, 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 Securities and Exchange Commission and at the end of our earning release, which you’re encouraged to consult. Now with that, I will turn the call over to Martin.

Well thanks Greg. This has been a remarkably busy and productive quarter for our company. On the finance side, we opportunistically strengthened the balance sheet via a $20 million equity financing gross proceeds with two institutional investors. On the legal front, you may recall that StemCells has been engaged in a longstanding patent infringement suit against Neuralstem, Richard Garr, and Karl Johe. Our suit alleges infringement of six patents owned by StemCells claiming populations of human neural stem cells, their proliferation, and their use. Inventions arising from the ground breaking work of Dr. Samuel Weiss and Brent Reynolds, while at the University of Calgary. I am pleased to say that recently the judge in the case denied Neuralstem's motion for summary judgment and moved us one step closer to a final resolution in the case by scheduling the first part of the trial to begin this December. It is certainly welcome news that our case will finally have its day in court. In light of the judge's rulings, we can anticipate trial on the merits next year, and I sincerely hope a speedy and final resolution of our various patent and business tort claims against Neuralstem. Now that said, I would like to take a moment to remind you why we filed this law suit in the first place. Over the years, StemCells has made a considerable investment in its patent portfolio, which now consists of dozens of issued patents worldwide. Both the company's Reynolds and Weiss patents and its other patents whether owned or exclusively licensed by StemCells have been licensed out on a non-exclusive basis to several companies for sizeable licensing revenues in return for freedom to operate. For additional information on these, you can refer to our SEC filings which describe the patents and our licensing activities…

Thank you, Martin. As Martin indicated we executed an equity financing transaction this quarter. This transaction was executed with two institutional investors and generated approximately $18.8 million net of operating expenses and placement agent fee. This transaction was structured with a short-term warrant wearing a strike price of $2.17. Should the warrants be exercised, the company would receive approximately $20 million in additional funds by mid August next year. The funds from the initial transaction along with the funds from the warrants should they be exercised would provide sufficient capital to finance our projected 2015 operating expenditures. If the warrants are not exercised, the warrant over hang will be eliminated next year prior to the release of any data from the Phase II studies. We believe that this was a very effective financing for the company and provides us with a strong balance sheet enabling us to move our clinical programs forward. Now let me quickly go over our financial results for the quarter. Q2 2014 total revenue was down slightly to Q2 2013 total revenue, approximately $39,000. SC Proven sales were down slightly Q2 2014 compared to Q2 2013, approximately $31,000, but up for the six months ended June 30, 2014 compared to June 30, 2013 about approximately $75,000 or 16%. We see opportunities for the SC Proven business and expect to continue to see -- expect to see continued growth in their revenues. Licensing and other revenue in the second quarter of 2014 was not significant. Operating expenses for the quarter were approximately $8.3 million. This is an increase of approximately $1.8 million compared to Q2 2013. This increase primarily reflects costs associated with the increased enrollment in the ongoing Phase I, II trials and activities taking place as we prepare to initiate the two Phase II efficacy…

Thanks Greg. Well as previously stated, this is a transformational year for StemCells. We are making great strides towards achieving our goal of bringing breakthrough therapies to market based on our proprietary HuCNS-SC human neural stem cell technology. Just to remind you again this quarter we strengthened our balance sheet, strengthened our management team and our Board, made progress in our ongoing litigation and most importantly released a lot of exciting new clinical data which for investors on this call translates into better insight into the capabilities of the technology. Over the next couple of years we will have final results from our controlled Phase II proof-of-concept efficacy studies and on top of this we are working towards the goal of filing an IND for Alzheimer's in 2016. This agenda and a relatively short time horizon, underpins our excitement and our enthusiasm. So with that, I would now like to open up the call for questions. Thank you.

Thank you, sir. (Operator Instructions). And our first question comes from Christopher James from Brinson Patrick Securities. Your line is open. Please go ahead.

Hi, good afternoon and thanks for taking my questions and congratulations on our recent progress this quarter. My first question is regarding the AMD Phase II design and path to approval. In the next study, the control study, do you expect to use contralateral eye data with each patient serving as their own control or do you think you are going to have a designated control group in this study?

So, hi this is Dr. Huhn, great question. There are a number of different ways to think about the control element of a proof-of-concept study in AMD. At this point in time, we are learning a lot from our Phase I/II study, and I think that's going to inform the design and ultimately the control elements for the Phase II study that we are qualifying as a proof-of-concept. So, I think there will be more to come in terms of the structure and the design of that trial later this year.

Great, got it, and I guess as you sort of look at the data, what can you tell us about the correlation between the three different measurements you used; visual acuity, contrast sensitivity, GA rate, and are you really noticing the correlation effect on a biological level with the more functional measures?

So, if you think about the anatomic measures and the functional measures, the rate of the atrophy is an anatomic and objective measure. The contrast sensitivity is a functional measure. Best corrected visual acuity is also a functional measure. We know going into this trial that the first cohort of patients have such poor vision, those are the patients, the first A patients in Cohort 1 that there are so many confounding variables that impact our ability to look at their visual acuity, their best corrective visual acuity, and we saw the typical practice effects in other variables that makes that data difficult to interpret because they have such poor vision to begin with. What's important though is that when you look at other visual elements of functions, such as contrast sensitivity and as Martin said contrast sensitivity, you need that to drive at night, to look downstairs, to step off a curb safely. We did see changes in seven of the patients in whom we have six-month data and there were gains in contrast sensitivity. If you add to that, the fact that we now see also changes in the rate of geographic atrophy in those subjects in whom we had 12 months data on, that our sizeable reductions and meaningful we think from a clinical perspective it does start to add up. So, (technical difficulty) and the change of a gain in functional measure as the contrast sensitivity. The question about correlation in terms of additional data and more patients, I think we will gain a lot more information as we continue to assess the accruing follow-up data and the remaining subjects on the trail.

Great that's helpful. And then moving on to the cervical study, I noticed that and correct me if I am wrong, you plan to enroll patients with C5 through C7 injury levels, why those levels specifically, and what degree of motor function do you expect these patients to have at base line?

So depending upon the nature of the level of whether injury has manifested in the cord, they will have a spectrum of upper extremity motor function depending upon the individual patient. It's a long answer but in short, patients who have injuries above C5 involved sensitive areas of the cervical cord that control respiration, and we feel from a safety perspective that we don't need to transplant that region now until we gain additional safety data with patients with lower cervical injury. The reason that you don't go into patients with lower cervical injury is because from a motor standpoint they have already fairly intact upper extremity motor function and you would have a ceiling effect, in terms of your ability to detect additional gains in those patients who already are fairly intact in terms of their upper extremity functions. So, in another words they might just have weak hands or weak fingers. So we are really looking at the patients who have the mid range of injury in the cervical cord and in fact statistically that's where most of the patients with cervical injury are mostly injuries that occur between C5 and C7.

Got it, that is helpful. Thanks again and I look forward to your R&D Day.

Thanks.

Thank you. Our next question comes from Jason Kolbert from Maxim. Your line is open, please go ahead.

Congratulations on all the progress. It is exciting to approach an inflection point, can you take a little bit of time with me and just walk me through where you are at in terms of planning and really beginning the Phase II clinical trial, are you going to be contracting with CROs, how many sites, can you walk us through a little bit of the statistics of the patient enrollment plan and give us some idea of when that trial -- how long that trial might take to enroll and what the last -- after the last patient is enrolled when we could expect top line data? Thanks.

So, Jason, all great questions and we plan to address those in considerable detail in Q4. This is a very competitive space now, so please understand that as I walk my way through the various questions that you have asked. So let me start with enrolment, we expect that we will be -- the trial will be conducted in about a dozen or so clinical centers focused in North America. Secondly, we anticipate that we will probably complete enrollment in about a year from the time that we dose the first patient. In terms of planning and putting all of the moving pieces in place, we are pretty far advanced and we would anticipate that we would initiate the trial in Q3 of this year.

Well that's great news and I am excited to hear Q3. So, I mean Q3 is pretty much on top of us so you are talking about initiating sites in September your -- I guess you are very far advanced in terms of CRO selection, IRBs, how many of the existing sites will be part of the Phase II trial.

I am not -- quite honestly I don't have that data but it's something that we can get to you offline Jason.

Okay, well can you talk with me just a little bit about something that I always struggled with on the existing dataset. I understand the importance of geographic atrophy and I also understand the importance of lie detection, but visual -- how do you deal with visual acuity in the control group and the fact that these patients kind of train themselves and so it ends up with a higher placebo response than you might otherwise gathered. There are ways you can plan and adjust for that in the next trial that you can enrich the statistics on your side of getting a better result between active and control.

So, I will have Steven address that Jason, but you know you touched on a very, very important point there because others who have been engaged in studies in this field have walked right into that trap, the learning effect and perhaps have gone out prematurely with the data but I will let Steven answer your question directly.

Yeah, so you touched on a subject as Martin indicated that is very central to how you develop a clinical translation program that's trying to target dry AMD and we are not the only researchers, the only company to have this challenge and when we looked at this through a number of different lenses, if you will excuse the metaphor, the most incremental step that gives us the most objective proof-of-concept data that we have an impact on the underlying pathology of the disease is to first establish a change in geographic atrophy. And to try to marry that to a functional change that reflects quality of life for a patient and this is very much an area that the FDA and other regulatory bodies are understanding as complex, that BCVA is really not perhaps best metric in which to measure a therapeutic for something like dry AMD. So, it is very much evolving field but our strategy is one that we have based on first establishing that we can impact a feature of the underlying disease and then to move on to the complex question of how you associate that with a meaningful visual metric. And again this -- I think this is very much a work in progress not only for us but for everyone else pursuing the same goal. And I look to see progress from a regulatory standpoint and a clinical perspective about which visual metric and which objective metric, the combination of which will allow therapeutic to be approved. It is a complex question but we think we see a pathway.

Alright guys, thank you so much for the update. Congratulations on all the progress.

Thank you, our next question comes from Keay Nakae from Asciendiant. Your line is open, please go ahead.

Yeah, thank you. Marty, just wanted to have a point of clarification in your answer to Jason's first question about the timing of when you are going to start the clinical trial. When you said Q3, are you referring to the cervical spine or the AMD study?

I was referring to cervical spinal cord injury. Our plan is to initiate that study in Q3. On AMD it will be a quarter later.

Okay, and then just specifically with AMD, you know, given all the comments today, it seems like the more data you have, the better informed your trial design can be. So, do we need to wait until you get the data from the next cohort to proceed there in the most conservative way or how are you guys thinking about that?

Well, essentially its yes and no and that sounds an odd answer but as we evaluate the data and we dig deeper into the data that we already have in our possession, some of which we have reported on publicly and some of which we haven’t. We are getting a much better sense of what is viable and what is doable. What the target patient population might be, what the visual acuity targets might be, and as you know there was very, very extreme range of visual acuity in the first Phase I, II study. So -- but at the end of the day we are satisfied based on the data that we have seen to be public about our plans to initiate the Phase II study. We will announce in greater detail what the protocol design will be, what the patient enrolment criteria will be, etc. as we get closer to the fourth quarter of this year.

And I can just add to that. When you think about the design for something like dry AMD and you consider the spectrum of end points that we might incorporate, you try to balance those end points with well-known established metrics of the disease with ones that are now evolving and being viewed as a more innovative way to look at the progress or response in dry AMD so that we capture all if you will, T0he potential outcomes in the trial which ultimately will inform the final design of the pivotal study. So, we tried it very much to take account the various endpoints and options that we can consider incorporating in the Phase II.

Okay, thanks for that and then for Greg I guess, if we think about the litigation starting to increase in activity, what should we be thinking about in terms of your expense to support your systems in the study there or they quit the litigation there?

I would say for this year we provided a cash guidance that we think covers all of the expenses and from that standpoint, as this thing moves forward, give a better idea what if any impact it may have next year. But I think for this year the guidance we have provided up $30 million to $34 million net cash usage should cover any expenses including our charges associated with litigation.

Okay, that's all I have. Thanks.

Thank you and I am showing no further questions at this time gentlemen.

Well thank you and again I would just like to thank those of you who have joined us today, for taking the time to dial-in and enter the quarterly call and I look forward to updating you on our clinical progress as the year progresses. Again thank you all and thank you very much and we will see you in another quarter. Thank you.