EXHIBIT 99.1
      CAUTIONARY FACTORS RELEVANT TO FORWARD-LOOKING INFORMATION

    YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION REGARDING STEMCELLS, INC. WE MAY FACE OTHER RISKS NOT
DESCRIBED BELOW THAT WE DO NOT PRESENTLY KNOW ABOUT OR THAT WE CURRENTLY DEEM
IMMATERIAL.

    Our business, financial condition or results of operations could be
materially adversely affected by any of these risks. Consequentially, the
trading price of our common stock could decline, resulting in the loss of all
or part of your investment.

    OUR TECHNOLOGY IS AT AN EARLY STAGE OF DISCOVERY AND DEVELOPMENT AND WE
MAY FAIL TO DEVELOP ANY PRODUCTS.

    Our stem cell technology is at the early pre-lcinical stage for the brain
stem cell and at the discovery phase for the liver and pancreas stem cells
and has not yet led to the development of any proposed product. We may fail
to discover the stem cells we are seeking, to develop any products, to obtain
regulatory approvals, to enter clinical trials, or to commercialize any
products. Any product using stem cell technology may fail to (i) survive and
persist in the desired location, (ii) provide the intended therapeutic
benefits, (iii) properly integrate into existing tissue in the desired
manner, or (iv) achieve benefits therapeutically equal to or better than the
standard of treatment at the time of testing. In addition, any such product
may cause undesirable side effects. Results of early pre-clinical research
may not be indicative of the results that will be obtained in later stages of
preclinical or clinical research. If the appropriate regulatory authorities
do not approve our products, or if we fail to maintain regulatory compliance,
we would have limited ability to commercialize our products, and our business
and results of operations would be harmed. Furthermore, since stem cells are
a new form of therapy, the marketplace may not accept any products we may
develop.

    If we do succeed in developing products, we will face many potential
obstacles such as the need to obtain regulatory approvals, and to develop or
obtain manufacturing, marketing and distribution capabilities. In addition,
we will face substantial additional risks such as product liability.

    WE HAVE LIMITED LIQUIDITY AND CAPITAL RESOURCES AND MAY NOT OBTAIN THE
SIGNIFICANT CAPITAL RESOURCES WE WILL NEED TO SUSTAIN OUR RESEARCH AND
DEVELOPMENT EFFORTS.

    We have limited liquidity and capital resources and must obtain
substantial additional capital to support our research and development
programs, for acquisition of technology and intellectual property rights,
and, to the extent we decide to undertake these activities ourselves, for
pre-clinical and clinical testing of our anticipated products, pursuit of
regulatory approvals, establishment of production capabilities, establishment
of marketing and sales capabilities and distribution channels, and general
administrative expenses.

    Even though we owned 103,577 shares of Modex Therapeutics Ltd., stock
with an estimated fair market value on March 27, 2001 of $8,732,797 based on
the per share price of approximately $84.31, which we converted from a market
price of 145.00 Swiss francs on that date, we are restricted from selling
these shares until April 12, 2001. The performance of Modex stock since
Modex's initial public offering does not predict its future value and the
value of our holdings is subject to change and could decrease significantly.
If we decide to sell our Modex shares, due to the relatively small trading
volume in Modex shares and the relatively large size of our holding, or other
factors, we may not be able to sell our Modex shares at their market value or
at all, and we may have to sell these shares at a significant discount to the
market price. In addition, fluctuations in currency exchange rates could
decrease the proceeds we might realize on a potential sale of Modex shares.

    We intend to pursue our needed capital resources through equity and debt
financings, corporate alliances, grants and collaborative research
arrangements. Our ability to complete any such



arrangements successfully will depend upon market conditions and, more
specifically, on continued progress in our research and development efforts.
We may fail to obtain the necessary capital resources from any such sources
when needed or on terms acceptable to us. If we do not obtain the necessary
capital resources, we may have to delay, reduce or eliminate some or all of
our research and development programs or license our technology or any
potential products to third parties rather than commercializing them
ourselves.

    WE HAVE PAYMENT OBLIGATIONS RESULTING FROM REAL PROPERTY OWNED OR LEASED
BY US IN RHODE ISLAND, WHICH ADVERSELY AFFECT OUR ABILITY TO FUND OUR STEM
CELL RESEARCH AND DEVELOPMENT.

    Prior to our reorganization in 1999 and the resulting consolidation of
all functions in California, we carried out our former encapsulated cell
therapy programs at facilities in Lincoln, Rhode Island, where we also had
our administrative offices. Although we have vacated these facilities, we
have continuing obligations for lease payments and operating costs of
approximately $1,200,000 per year for our former science and administrative
facility, which we have leased through June 30, 2013, and debt service
payments and operating costs of approximately $1,000,000 per year for our
former encapsulated cell therapy pilot manufacturing facility. We are
currently seeking to sublease the science and administrative facility and to
sell the pilot manufacturing facility, but may not be able to do so. These
continuing costs significantly reduce our cash resources and adversely affect
our ability to fund further development of our stem cell technology. The
lease for the science and administrative facility contains a provision
requiring occupancy of the premises and we currently are in violation of this
provision. The landlord agreed not to take any action as a result of this
violation until November 19, 2000. We cannot give any assurance that the
landlord will extend any additional forebearance. If the landlord decides to
pursue its rights after any period of forebearance, we may be required to pay
the landlord the entire amount due for the rest of the lease period. In
March, 2001, the Landlord approved a sublease of part of the premises.

    WE MAY NEED BUT FAIL TO OBTAIN PARTNERS TO SUPPORT OUR STEM CELL
DEVELOPMENT EFFORTS AND TO COMMERCIALIZE OUR TECHNOLOGY.

    Equity and debt financings alone may not be sufficient to fund the cost
of developing our stem cell technologies and we may need to rely on our
ability to reach partnering arrangements to provide financial support for our
stem cell discovery and development efforts. In addition, in order to
successfully develop and commercialize our technology, we may need to enter
into a wide variety of arrangements with corporate sponsors, pharmaceutical
companies, universities, research groups and others. While we have engaged,
and expect to continue to engage, in discussions regarding such arrangements,
we have not reached any agreement regarding any such arrangement and we may
fail to obtain any such agreement on terms acceptable to us, if at all. Even
if we enter into these arrangements, we may not be able to satisfy our
obligations under them or renew or replace them after their original terms.
Furthermore, these arrangements may require us to grant certain rights to
third parties, including exclusive marketing rights to one or more products,
or may have other terms that are burdensome to us, and may involve the
acquisition of our securities. If any of our collaborators terminates its
relationship with us or fails to perform its obligations in a timely manner,
the development or commercialization of our technology and potential products
may be adversely affected.

    We entered into a Sponsored Research Agreement with the Scripps Research
Institute under which we funded certain research in return for licenses or
options to license the inventions resulting from the research. This agreement
expired on November 14, 2000 and we are negotiating with Scripps to extend
the term of this agreement or to enter into a new agreement. As of the date
of this prospectus, we have not yet completed our negotiations with Scripps
and we cannot give any assurance that our negotiations will be successful. If
we are unable to extend the term of this agreement or enter into a new
agreement, we will have to find a replacement to perform this research or we
will have to




perform this research ourselves. In either case, we may experience delay and
additional expense in connection with this research effort.

    WE HAVE A HISTORY OF OPERATING LOSSES AND WE MAY FAIL TO OBTAIN REVENUES
OR BECOME PROFITABLE.

    We have an accumulated deficit of $130,498,187 at December 31, 2000, and
expect to continue to incur substantial operating losses in the future in
order to conduct our research and development activities, and if those
activities are successful, to fund clinical trials and other expenses. These
expenses include the cost of acquiring technology, product testing, acquiring
regulatory approvals, establishing production, marketing, sales and
distribution programs, and administrative expenses. We have not earned any
revenues from sales of any product. All of our past revenues have been
derived from, and any revenues we may obtain for the foreseeable future are
expected to be derived from, cooperative agreements, research grants,
investments and interest on invested capital. We have no cooperative
agreements and we have received only two research grants for our stem cell
technology, and we may not obtain any such agreements or additional grants in
the future, or receive any revenues from them.

    WE DO NOT ANTICIPATE RECEIVING FUTURE REVENUES FROM THE SALE OF OUR
ENCAPSULATED CELL TECHNOLOGY.

    In December 1999, we sold our encapsulated cell therapy technology to
Neurotech S.A. While under the terms of the sale we may receive royalty and
other payments from Neurotech under certain circumstances, we do not
anticipate receiving any material payments from Neurotech in the near future,
if at all.

    WE DEPEND ON PATENTS AND PROPRIETARY RIGHTS TO PROTECT OUR INTELLECTUAL
PROPERTY FROM INFRINGEMENT. NEVERTHELESS, SUCH PROTECTION IS UNCERTAIN AND,
IF GAINED, MAY OFFER ONLY LIMITED PROTECTION. IF WE ARE UNABLE TO PROTECT OUR
PATENTS AND PROPRIETARY RIGHTS, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS WILL BE HARMED.

    We own or license a number of patents or pending patent applications
covering human nerve stem cell cultures, central nervous system stem cell
cultures, neuroblast cultures, peripheral nervous system stem cell cultures,
and an animal model for liver failure. Patent protection for products such as
those we propose to develop is highly uncertain and involves complex and
continually evolving factual and legal questions. The governmental
authorities that consider patent applications can deny or significantly
reduce the patent coverage requested in an application before or after
issuing the patent. Consequently, we do not know whether any of our pending
applications will result in the issuance of patents, or if any existing or
future patents will provide sufficient protection or significant commercial
advantage or if others will circumvent these patents. Since patent
applications are secret until patents are issued in the United States or
until the applications are published in foreign countries, and since
publication of discoveries in the scientific or patent literature often lags
behind actual discoveries, we cannot be certain that we were the first to
make the inventions covered by each of our pending patent applications or
that we were the first to file patent applications for such inventions. Our
patents may not issue from our pending or future patent applications or, if
issued, may not be of commercial benefit to us, or may not afford us adequate
protection from competing products. In addition, third parties may challenge
our patents or governmental authorities may declare them invalid. In the
event that a third party has also filed a patent application relating to
inventions claimed in our patent applications, we may have to participate in
proceedings to determine priority of invention. This could result in
substantial uncertainties and cost for us, even if the eventual outcome is
favorable to us, and the outcome might not be favorable to us. Even if a
patent issues, a court could decide that the patent was issued invalidly.

    IF OTHERS ARE FIRST TO DISCOVER AND PATENT ANY STEM CELLS WE ARE SEEKING
TO DISCOVER, WE COULD BE BLOCKED FROM FURTHER WORK ON THAT STEM CELL, AND OUR
BUSINESS WOULD BE HARMED.

    Because the first person or entity to discover and obtain a valid patent
to a particular stem or progenitor cell may effectively block all others, it
will be important to our development efforts for us or




our collaborators to be the first to discover any stem cell that we are
seeking. Failure to be the first could prevent us from commercializing all of
our research and development related to such stem cell and have a material
adverse effect on us.

    WE MAY NEED TO OBTAIN LICENSES TO THIRD PARTY PATENTS, AND MAY NOT BE
ABLE TO GET THEM.

    A number of pharmaceutical, biotechnology and other companies,
universities and research institutions have filed patent applications or have
received patents relating to cell therapy, stem cells and other technologies
potentially relevant to or necessary for our expected products. We cannot
predict which, if any, of the applications will issue as patents. We are also
aware of a number of patent applications and patents claiming use of
genetically modified cells to treat disease, disorder or injury. We are aware
of three patents issued to two competitors claiming certain methods for
enriching central nervous system stem cells through gene modification of in
vitro cultured cells. These patents were issued or licensed to NeuralStem and
Layton Bioscience. It is possible that NeuralStem or Layton Bioscience will
be able to produce commercially available stem cell products before we can.
These genetically modified cells may be effective in treating defective,
diseased or damaged central nervous system tissue.

    If third party patents or patent applications contain claims infringed by
our technology and these claims are valid, we may be unable to obtain
licenses to these patents at a reasonable cost, if at all, and may also be
unable to develop or obtain alternative technology. If we are unable to
obtain such licenses at a reasonable cost, our business could be
significantly harmed. We may have to to defend ourselves in court against
allegations of infringement of third party patents. Patent litigation is very
expensive and could consume substantial resources and create significant
uncertainties. An adverse outcome in such a suit could subject us to
significant liabilities to third parties, require disputed rights to be
licensed from third parties, or require us to cease using such technology.

    Proprietary trade secrets and unpatented know-how are also important to
our research and development activities. We cannot be certain that others
will not independently develop the same or similar technologies on their own
or gain access to our trade secrets or disclose such technology, or that we
will be able to meaningfully protect our trade secrets and unpatented
know[cad 220]how and keep them secret.

    We require our employees, consultants, and significant scientific
collaborators and sponsored researchers to execute confidentiality agreements
upon the commencement of an employment or consulting relationship with us.
These agreements may, however, fail to provide meaningful protection or
adequate remedies for us in the event of unauthorized use, transfer or
disclosure of such information or inventions.

    We have obtained rights from universities and research institutions to
technologies, processes and compounds that we believe may be important to the
development of our products. Licensors may cancel our licenses or convert
them to non-exclusive licenses if we fail to use the relevant technology or
otherwise breach these agreements. Loss of such licenses could expose us to
the risks of third party patents and[ib]/or technology. We can give no
assurance that any of these licenses will provide effective protection
against our competitors.

    WE COMPETE WITH COMPANIES THAT HAVE SIGNIFICANT ADVANTAGES OVER US.

    The market for therapeutic products that address degenerative diseases is
large and competition is intense. We expect competition to increase. We
believe that our most significant competitors will be fully integrated
pharmaceutical companies and more established biotechnology companies, such
as Biogen, Inc. and Genzyme, an Elan Corporation. These companies already
produce or are developing treatments for degenerative diseases that are not
stem-cell based, and they have significantly greater capital resources and
expertise in research and development, manufacturing, testing, obtaining
regulatory approvals and marketing than we do. Many of these potential
competitors have significant




products approved or in development that could be competitive with our
potential products, and also operate large, well[cad 220]funded research and
development programs. In addition, we expect to compete with smaller
companies such as NeuralStem and Layton Bioscience and with universities and
other research institutions who are developing treatments for degenerative
diseases that are stem[cad 220]cell based.

    Our competitors may succeed in developing technologies and products that
are more effective than those being developed by us, or that would render our
technology obsolete or non[cad 220]competitive.

    The relative speed with which we and our competitors can develop
products, complete the clinical testing and approval processes, and supply
commercial quantities of a product to market will affect our ability to
gather market acceptance and market share. With respect to clinical testing,
competition may delay progress by limiting the number of clinical
investigators and patients available to test our potential products.

    DEVELOPMENT OF OUR TECHNOLOGY WILL BE SUBJECT TO EXTENSIVE GOVERNMENT
REGULATION.

    Our research and development efforts, as well as any future clinical
trials, and the manufacturing and marketing of any products we may develop,
will be subject to extensive regulation by governmental authorities in the
United States and other countries. The process of obtaining U.S. Food and
Drug Administration and other necessary regulatory approvals is lengthy,
expensive and uncertain. We or our collaborators may fail to obtain the
necessary approvals to commence or continue clinical testing or to
manufacture or market our potential products in reasonable time frames, if at
all. In addition, the United States Congress and other legislative bodies may
enact regulatory reforms or restrictions on the development of new therapies
that could adversely affect the regulatory environment in which we operate or
the development of any products we may develop.

    We base our research and development on the use of human stem and
progenitor cells obtained from fetal tissue. The federal and state
governments and other jurisdictions impose restrictions on the use of fetal
tissue. These restrictions change from time to time and may become more
onerous. Additionally, we may not be able to identify or develop reliable
sources for the cells necessary for our potential products-that is, sources
that follow all state and federal guidelines for cell procurement. Further,
we may not be able to obtain such cells in the quantity or quality sufficient
to satisfy the commercial requirements of our potential products. As a
result, we may be unable to develop or produce our products in a profitable
manner.

    We may apply for status under the Orphan Drug Act for certain of our
therapies, in order to gain a seven year period of marketing exclusivity for
those therapies. The U.S. Congress in the past considered, and in the future
again may consider, legislation that would restrict the extent and duration
of the market exclusivity of an orphan drug. If enacted, such legislation
could prevent us from obtaining some or all of the benefits of the existing
statute even if we were to apply for and be granted orphan drug status with
respect to a potential product.

    WE DEPEND ON A LIMITED NUMBER OF KEY PERSONNEL.

    We are highly dependent on the principal members of our management and
scientific staff and certain of our outside consultants, including the
members of our scientific advisory board, our chief executive officer, each
of our vice presidents and the directors of our neural stem cell and liver
stem cell programs. Although we have entered into employment agreements with
some of these individuals, they may terminate their agreements at any time.
We currently have outside consultants and interim personnel in key management
and scientific positions who are not permanent employees. Loss of services of
any of these individuals could have a material adverse effect on our
operations, because these individuals possess management experience or
specialized scientific skills which we do not otherwise have and which we may
not be able to replace. In addition, our operations are dependent upon our
ability to attract and retain additional qualified scientific and management
personnel. More generally, we may not be able to attract and retain the
personnel we need on acceptable terms given




the competition for experienced personnel among pharmaceutical, biotechnology
and health care companies, universities and research institutions. If we lose
the services of these key personnel or are unable to attract and retain
additional qualified personnel, we may have to delay, reduce or eliminate
some or all of our research and development programs.

    HEALTHCARE INSURERS AND OTHER ORGANIZATIONS MAY NOT PAY FOR OUR PRODUCTS
OR MAY IMPOSE LIMITS ON REIMBURSEMENTS.

    In both domestic and foreign markets, sales of potential products are
likely to depend in part upon the availability and amounts of reimbursement
from third party health care payor organizations, including government
agencies, private health care insurers and other health care payors such as
health maintenance organizations and self-insured employee plans. There is
considerable pressure to reduce the cost of therapeutic products, and
government and other third party payors are increasingly attempting to
contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products, and by refusing, in some cases,
to provide any coverage for uses of approved products for disease indications
for which the Food and Drug Administration has not granted marketing
approval. Significant uncertainty exists as to the reimbursement status of
newly approved health care products. We can give no assurance that
reimbursement will be provided by such payors at all or without substantial
delay, or, if such reimbursement is provided, that the approved reimbursement
amounts will be sufficient to enable us to sell products we develop on a
profitable basis. Changes in reimbursement policy could also adversely affect
the willingness of pharmaceutical companies to collaborate with us on the
development of our stem cell technology.

    In certain foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to government control. We expect that there will
continue to be a number of Federal and state proposals to implement
government control over health care costs. Efforts at healthcare reform are
likely to continue in future legislative sessions. We do not know what
legislative proposals Federal or state governments will adopt or what actions
Federal, state or private payers for healthcare goods and services may take
in response to healthcare reform proposals or legislation. We cannot predict
the effect government control and other healthcare reforms may have on our
business.

    OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.

    Our operating results have varied, and may in the future continue to
vary, significantly from quarter to quarter due to a variety of factors.
These factors include the receipt of one-time license or milestone payments
under collaborative agreements, costs associated with the wind-down of our
encapsulated cell therapy programs, variation in the level of expenses
related to our research and development efforts, receipt of grants or other
support for our research and development efforts, and other factors.
Quarterly comparisons of our financial results are not necessarily meaningful
and you should not rely upon them as an indication of future performance.

    OUR STOCK PRICE MAY BE VOLATILE AND THIS VOLATILITY COULD RESULT IN
LAWSUITS OR MAKE IT DIFFICULT TO RAISE CAPITAL.

    Our stock price may be volatile and this volatility could result in
lawsuits or make it difficult to raise capital. The market price for our
common stock has been volatile and could decline below the offering price for
the shares. We believe that the market price for our common stock could
fluctuate substantially due to some or all of the risk factors enumerated
above.

    The stock market has recently experienced extreme price and volume
fluctuations. These fluctuations have especially affected the market price of
the stock of many high technology and health care-related companies. Such
fluctuations have often been unrelated to the operating performance of these
companies. Nonetheless, these broad market fluctuations may negatively affect
the market price of our common stock. In the past, companies that have
experienced volatility in the market price of their stock have been the
objects of securities class action litigation. If we were the object of
securities




class action litigation, we could incur material costs and suffer a diversion
of our management's attention and resources. In addition, volatility in our
stock price may make it difficult for us to obtain additional capital
resources through financings on terms acceptable to us.

    EVENTS WITH RESPECT TO OUR SHARE CAPITAL COULD CAUSE THE PRICE OF OUR
COMMON STOCK TO DECLINE.

    Sales of substantial amounts of our common stock on the open market, or
the availability of such shares for sale, could adversely affect the price of
our common stock. In particular, as of December 31, 2000, we had outstanding
stock options to purchase approximately 2,716,966 shares of common stock, at
an average exercise price of approximately $4.325 per share, subject to
adjustment in certain circumstances. Of this total, options covering
approximately 731,523 shares are currently exercisable at an average exercise
price of approximately $4.015 per share.