Medistem Inc. Annual Letter to Shareholders

SAN DIEGO, CA–(Marketwire -12/31/11)- Medistem Inc. (Pinksheets: MEDS.PK – News) today issues the following letter to shareholders.

Dear Fellow Shareholders,

The last year has been remarkable for Medistem: new investors, new collaborators, and an FDA approval. The FDA approval is for a 15 patient study investigating the safety and therapeutic effects of company’s universal donor stem cell product, the Endometrial Regenerative Cell (ERC) in patients with critical limb ischemia. The trial is led by Harvard-trained Dr. Michael Murphy from Indiana University, who was the first physician in the US to use stem cells for treatment of this condition. Dr. Murphy is considered the premier clinical investigator in treatment of critical limb ischemia with stem cell-based approaches. To date, he is the only clinical research to be running a pivotal Phase III registration trial in the US for marketing approval.

Medistem believes the ERC is superior to other treatments for critical limb ischemia because of the cell’s natural ability to create new blood vessels in tissues with poor circulation. The market for critical limb ischemia treatments is approximately 2.9 billion per year in the US.

The FDA approval positions Medistem as the only company to have taken a cellular product from discovery to clinical trial in 4 years, a process that usually takes 10-15 years. The rapid entry into the clinic makes the company’s composition of matter intellectual property on the ERC stem cell the youngest out of all the clinical stage stem cell companies. Additionally, this is the first time any regulator has cleared clinical trials from a stem cell source that is not bone marrow or cord blood/placenta derived.

Upon trial completion, which is anticipated to take 18 months, Medistem anticipates initiation of a Phase III pivotal trial, which if successful, will ultimately clear the way for FDA marketing approval.

Concurrent with our successes in the US, Medistem has taken an active role in accelerating commercialization in Russia. Through its Russian licensee ERCell OOO, Medistem has initiated a collaboration with Dr. Leo Bockeria, Chairman of the Backulev Center for Cardiovascular Surgery. This is the largest cardiac care facility in Russia. Through this collaboration 2 end stage congestive heart failure patients have been treated with the company’s product and a 60 patient double blind placebo controlled trial is being planned. Congestive heart failure is approximately a 30 billion dollar a year market in the US.

Other notable events of this year include: a) selling non-core intellectual property for cash; b) outlicensing veterinary use of ERC to the company RenovoCyte LLC; c) publication of 10 peer-reviewed research papers; and d) filing a patent application on a method of non-invasive stem cell administration in patients with heart failure.

We are happy to state that the Medistem Team has grown this year. We welcome Don Dickerson as CFO. Don is a senior finance executive with over 25 years of domestic and international experience in the technology and healthcare fields managing both start-up and large-scale projects and operations. Don has managed multiple global-scale projects exceeding 200 million dollars. We also welcome Dr. Hugh Taylor, Professor at Yale University, and the world expert on the biology of the endometrium to our Scientific Advisory Board.

2011 has been a seminal year for Medistem. We have re-energized the company, achieved multiple strategic milestones and enter 2012 with a clear plan and resources to achieve the full value of the ERC stem cell.

Sincerely,
Thomas E Ichim,
Chief Executive Officer
Medistem, Inc.