Dr. Robin L. Smith

As you know, NeoStem has undergone positive transformations this past year. The acquisition of Progenitor Cell Therapy (PCT) and Amorcyte furthers our progress in clinical development significantly. We have updated our website to reflect this change with a wealth of information about our own cell therapeutics. We continue to seek better ways to convey information about the value of NeoStem and our family of companies.

Our site’s “Clinical Development” section, found on the top navigation bar, includes information on our intellectual property portfolio and each of our pipeline product areas: Amorcyte, Athelos, VSEL^TM Technology and our wound technology. Please read more about NeoStem’s overarching clinical philosophy here as well. The clinical development section includes extensive information on Amorcyte and our most clinically advanced product candidate, AMR-001, which has recently begun patient enrollment for a Phase II trial for the treatment of acute myocardial infarction.

We are excited about updates to our site’s investor section as well. NeoStem has an active conference schedule for 2012 and we list upcoming events where our leadership team will be speaking under the “IR Events” tab. (Conferences attended by PCT are listed at the PCT website.) Our investor portal includes a concise, downloadable corporate profile as well as our updated investor presentation. We have also expanded information on how the acquisition of PCT enables our in-house clinical development, while bringing in revenues from client services.

I look forward to keeping you updated on company news and new website content as it becomes available.

Earlier today I sent the following letter to our shareholders.

Dear NeoStem Shareholders,

We would like to take a moment to both look back at 2011 – a transformative year for NeoStem (NYSE Amex: NBS) – and to look ahead to near term catalysts that we expect to move the company forward in 2012 and beyond.

· We have closed two acquisitions – Progenitor Cell Therapy, LLC (“PCT”) and Amorcyte, LLC (“Amorcyte”).

· We believe our therapeutic product development team is very close to accomplishing its aggressive goal of getting a first patient enrolled in our AMR-001 Phase 2 clinical trial for the treatment of AMI with the clinical sites beginning to open. This brings us closer to achieving our goal of enrollment of the targeted 160 patients in the study over the next year or so with first data follow-up six months after the last patient is enrolled (roughly mid-2013).

· Our cell therapy manufacturing business is growing and client satisfaction confirms our belief and excitement that we have unique skills and people (expertise, quality and work ethic) to serve as a platform to be a global leader in the cell therapy space.

· We raised $16.5 million in gross proceeds in 2011 for working capital, including research and development of our cell therapeutic candidates.

· We received awards of over $1.7 million in Department of Defense funding for development of our VSELTM Technology to treat osteoporosis and $245,176 from the National Institutes of Health (NIH) with Excell Therapeutics to progress our T regulatory program in Lupus.

· We co-hosted a spectacular international conference in partnership with the Vatican’s Pontifical Council for Culture on Adult Stem Cells: Science and the Future of Man and Culture, moving forward the public discussion of adult stem cells and adult stem cell research.

· Our cord blood banking enrollment has more than doubled over the previous year.

· We have been marketing our ownership in Suzhou Erye Pharmaceutical Co. Ltd. subsidiary for possible sale.

· We have positioned our intellectual property portfolio to expand beyond the current indications and give us a strong position in the cell therapy arena.

· We continue to make great headway in integrating IT systems, legal, finance, and marketing for our multiple entities to achieve cost savings and maximize efficiencies.

· NeoStem gained a significant pharmaceutical partnership with Becton Dickinson through our co-ownership of Athelos, Inc. (80% NeoStem, 20% BD). We are actively pursuing additional strategic relationships with major pharmaceutical and biotechnology companies in 2012.

We look forward to keeping you updated and encourage your questions via the contact information below. I also encourage you to learn more by visiting our company websites, www.neostem.com, www.amorcyte.com, and www.progenitorcelltherapy.com, our social media outlets, and our company blog at www.thechairmansblog.com/robin-l-smith. Thank you for your continued support of NeoStem and our ongoing transformation.

Sincerely,

Dr. Robin L. Smith
Chairman and CEO

As we continue to take on a leadership role in the development of cell therapies, the commercialization of our products, whether alone or in partnership with large pharmaceutical companies, will be integral to our strategy. We are always looking out for additional leadership to join our team with relevant experience, and the recent appointment of Martyn Greenacre to NeoStem’s Board of Directors is a prime example.

Experience in European Markets
In 1973, Martyn joined SmithKline & French Pharmaceuticals where he held positions of increasing responsibility and oversaw the strategic direction and operational management of all pharmaceutical subsidiaries in Western Europe. He also oversaw the execution of the merger of SmithKline Beecham Corp. and Beecham Group p.l.c. pharmaceutical operations in Europe. We are excited to add Martyn’s experience in Europe to our Board due to the potential of the European cell therapy market. His addition supports NeoStem’s opportunity to move into this region, should we want to in the future.

Mergers and Divestitures
As we come to the end of a year that featured two strategic mergers for NeoStem, Progenitor Cell Therapy, LLC and Amorcyte, Inc, and look ahead to other strategic opportunities for the company, developing our M & A expertise continues to be critical. Another key example of Martyn’s pharmaceutical business expertise is his tenure as President and Chief Executive Officer of Zynaxis Inc, a biopharmaceutical company from 1993 to 1997.  There, he was responsible for the critical acquisition of Secretech, Inc., divesting a non-performing business, Zymmune™, and negotiating a strategic merger.

Strategic Partnerships and Financing
Martyn’s experience in developing strategic partnerships to drive product candidates forward is exemplified by his time at Delsys Pharmaceutical Corporation, a formulation and drug delivery system company. From 1997 to 2001, he served as Chief Executive Officer and Director of Delsys, helping to raise more than $50 million in equity and partnership financing and forming three development partnerships with pharmaceutical leaders; SmithKline Beecham, Warner-Lambert and Glaxo Wellcome.

Board and Management Experience
Martyn’s extensive board and management experience in the pharmaceutical industry and beyond makes him an asset to our corporate governance. Martyn has served as Chairman of the Board of BMP Sunstone Corporation, which was acquired by Sanofi-Aventis, and Chairman of Life Mist Technologies, Inc., a privately-held fire suppression equipment company. He also served as a director of Cephalon Inc., a biopharmaceutical company that was acquired by Teva Pharmaceutical Industries. He currently has the role of Chairman of the Board of Acusphere, Inc., and sits on the board of Curis, Inc.  Martyn served as President and Chief Executive Officer of Zynaxis Inc., and was Chairman, Europe, for SmithKline Beecham Pharmaceutical Company.

We here at NeoStem are extremely excited about our acquisition of Amorcyte, Inc., a cardiovascular cell therapy company originally founded by our subsidiary, Progenitor Cell Therapy (“PCT”). In our press release announcing this acquisition on October 17, we made specific mention of some of the advantages of AMR-001, Amorcyte’s lead product candidate. We believe that we stand alone among cardiovascular cell therapies in our qualifications to claim all of these advantages:

1. A confirmed mechanism of action: NeoStem seeks to develop products with highly defined biological mechanisms of action that are well established and validated by fundamental research. Amorcyte’s AMR-001 meets that criteria. Our approach to cell therapy development is similar to traditional drug development. We strive to deliver a product that not only works, but that is consistent with basic and clinical science and conforms to traditional standards of drug development.
2. Access to a cGMP (current good manufacturing practices) facility: Prior to commercialization, we need to establish an economical, safe, and FDA-approved means of manufacturing the cell product. PCT offers us just that with bicoastal cGMP facilities, more than a decade of cell manufacturing experience, and  experience manufacturing a cell therapy through all stages of clinical trials, leading to an FDA approval and commercialization (Dendreon’s Provenge).
3. An established dose that exceeds the threshold for biological activity: The Phase 1 trial for AMR-001 established safety and efficacy of the product, but also prospectively established the threshold dose (number of cells) below which there is no clinical effect, and above which there is clinical improvement. This is key knowledge as we head into Phase 2 and uncommon guiding data for a cell therapeutic developer at this stage.
4. Use of autologous cells that have no risk of rejection: The safety advantage of autologous (your own) cells over allogeneic (donor) cells is well-established, but it has also been established that autologous transplanted cells remain in the heart and potentially continue to work years later, as demonstrated in pre-clinical animal experiments.
5. Cells are not expanded, thereby eliminating potential concerns associated with expansion: We’re able to deliver a clinically significant dose with the cells we derive directly from a patient’s bone marrow. This means that the product can be delivered with what we feel is perfect timing, in the 5-11 days after an AMI occurs.
6. An issued patent with composition of matter, methods and processes claims with long remaining life. It is relatively unique to have the protection of intellectual property in all of these areas, showing that NeoStem stands to benefit commercially for many years. It is also a testament to the precision with which Amorcyte’s team has established its product.

We welcome you to visit both www.neostem.com and www.amorcyte.com to learn a great deal more about this valuable extension of our product pipeline. Check back here for more information about Amorcyte’s market opportunity.

I want to take this opportunity to share excerpts from comments I made on November 9 at the NeoStem co-sponsored Vatican Adult Stem Cell Conference – Adult Stem Cells: Science and the Future of Man and Culture:

As I stand here amongst you, I just can’t help but reflect upon this great city.  Rome is the birthplace of many of the world’s greatest ideas.  Here we can find the works of Michelangelo and Caravaggio, and some of our best poets, architects and philosophers.  It is the birthplace of some of the first public health programs and the development of aqueducts and sewage systems — innovations that have helped control the spread of dangerous disease.

I think adult stem cells are another great classical masterpiece.  But this masterpiece is not made with human hands — they are already inside of our own bodies, just waiting to be used to combat deadly disease and dangerous medical conditions.

We are making history.  NeoStem joins hands with the Vatican, STOQ International and the Stem for Life Foundation. Together we’re embarking on a multi-year journey to usher in a new era of regenerative medicine.  And at the heart of our partnership lies a very simple idea — by uniting our forces we can produce the biggest social impact.

We will be many voices joined together.  And our cause is urgent.  Right now, there are more than 12.7 million people living with some form of cancer, and 346 million living with diabetes.  And autoimmune disorders now affect over 583 million people worldwide.  These diseases, which include lupus, multiple sclerosis, leukemia, bladder cancer, cardiovascular insufficiency and many others, can be debilitating and life threatening.

While today our surgeons perform organ transplants, in the not too distant future we will be able to use adult stem cells to rebuild damaged tissue and repair organs such as the heart.  Today, technologies are being rapidly developed, such as Amorcyte’s lead product AMR-001, that will treat patients 6-10 days after an acute heart attack in order to prevent adverse remodeling and decreased cardiac function that could result in premature death.

I want to remind all of you of our mission over the next five years, which is to educate society about the therapeutic potential of adult stem cells, to advance adult stem cell therapies, to understand the impact this new medicine will have on culture, and the impact it will have on people’s faith to unite and end human suffering.  Our mission goes well beyond education.  Today we will begin creating a global network of scientists and professionals devoted and coordinated in their approach to R&D on adult stem cells.  So this is not just a day of ideas — it’s a roadmap to action.  And as we do this, we must establish a true standard of care for this emerging field.  We must bring these discoveries out of our own bodies and into the labs — and then into the clinic, so they can find their way safely to the patients who so desperately need them.

I am very pleased to launch my first Chairman’s Blog post with an update on our latest progress and significant upcoming milestones. The past few months have been marked with numerous advances for NeoStem, the most significant of which is our push forward towards clinical development. It is my hope that you will find my discussion of NeoStem’s strategy, assets, challenges, opportunities, and overall place in the cell therapy field illuminating.

I encourage you to join the conversation and post comments and questions to which I hope to respond in future posts if possible.

As a physician it has always been my goal to help patients, but, as the CEO of an emerging biotechnology company as pioneering as NeoStem, I know I can achieve even more. NeoStem has the potential to radically change the face of how diseases are treated, leading to longer and, more importantly, better quality lives. We do this by taking part in the paradigm shift we believe is underway towards cell therapy– a shift away from treating disease with drugs and towards treating disease with our own cells; a shift away from treating symptoms and towards cures for the illnesses that cause the most suffering; a shift away from artificial drug development and towards looking inside ourselves to understand and then amplify our body’s natural repair mechanisms. NeoStem is not the only company on this track (analysts estimate that the worldwide regenerative medicine market will grow from approximately $0.82 billion in 2010 to reach almost $9 billion in 2021¹), but I feel we are uniquely positioned to capture the value of this market and become a leading player. Let me explain why.

NeoStem endeavors to be an integrative force in the cell therapy industry. By vertically integrating the collection, storage and processing of cell units and the development, manufacturing, distribution, and delivery of cell therapy products, we are positioned to take advantage of growth in the cell therapy industry as a whole.

We are developing an active portfolio of product candidate assets based on a diverse array of technology platforms, including:

Amorcyte: Autologous bone marrow-derived adult stem cells targeting the substantial market of cardiovascular treatment (will be 100% NeoStem owned pending the closing of our acquisition anticipated in October 2011)

Athelos: T-cell therapeutic targeting autoimmune conditions (80% NeoStem owned)

VSEL Technology^TM: Pluripotent adult stem cells that can regenerate tissues and potentially treat conditions ranging from macular degeneration to liver regeneration to osteoporosis (exclusive worldwide license)

As many of you already know, NeoStem acquired Progenitor Cell Therapy (PCT) in an effort to bring additional cell therapy expertise in house and to develop a “one-stop-shop” global network of cell therapy. It is a significant step toward NeoStem’s goal of becoming a leader in the fast-growing cell therapy industry, generating revenues, and developing and licensing therapies to be used both in the United States and abroad.

PCT has provided services to over 100 clients in its 12-year history, and is the only contract manufacturing organization to have worked with a client’s product (Dendreon, Inc.’s Provenge) through all of the phases of clinical trials and ultimately to FDA approval. PCT offers its clients and NeoStem cell processing and development capabilities on both the East and West Coasts of the U.S. Through the addition of our Beijing, China facility, we could span two continents. PCT is built on a strong foundation of services that cater to the industry as a whole, reducing our reliance on the success of our own varied technology platforms in that we still have the opportunity to capture growing revenues from industry growth. Furthermore, PCT’s manufacturing revenues would increase significantly should a client progress through Phase I, II, and III trials and into commercialization where larger numbers of cells are needed.

We will continue to be on the lookout for valuable cell therapeutic assets through opportunities that may arise from PCT’s client pipeline where we can contribute to cGMP manufacturing and proceed through clinical trials. There are many vehicles for offering this assistance, including acquisition, licensing, and providing manufacturing and services via PCT in exchange for equity.

NeoStem has a wide range of other stem cell assets, including:

Mesenchymal stem cell candidates for wound healing and skin rejuvenation.

The NeoStem Family Stem Cell Bank: Cord blood and adult stem cell banking supported by cGMP cell processing and storage

China adult stem cell therapies through a licensed partner and a network of hospitals

Finally, our 51% ownership of Suzhou Erye Pharmaceuticals has increased in value as we have built and validated a new manufacturing facility in China for Erye to effectively double its capacity. The company’s sales have more than doubled in the time from 2007 to 2010 and our intended divestiture of Erye should provide NeoStem with a substantial cash runway that would postpone our need for additional capital fundraising.

To sum up, what are we doing in the near-term? We’re focusing on completing the acquisition of Amorcyte and moving AMR-001 into an important Phase II trial. We’re looking to move Athelos into Phase I in 2012 as well. We’re looking out for other “stranded” assets that we may be able to acquire or partner with in some way – opportunities that may well arise through PCT’s client pipeline. We’re pursuing the divestiture of Suzhou Erye to narrow our strategic focus on cell therapy and provide a runway of capital for our clinical activities in 2012.

I hope you will continue to check in with me at this exciting time to learn more about NeoStem’s latest developments and about our clinical progress.

^1. (Visiongain, Translational Regenerative Medicine: Market Prospects 2011-2021)