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December 2, 2010

VIA EDGAR

Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, D.C. 20549-7010

    Attention:

    Jeffrey Riedler

Frank Wyman

Lisa Vanjoske

Karen Ubell

Suzanne Hayes

Jim B. Rosenberg

    Re:

    SEC Comment Letter dated November 17, 2010

StemCells, Inc.

Form 10-K for the fiscal year ended December 31, 2009

Definitive Proxy Statement on Schedule 14A filed April 13, 2010

File No. 001-19871

Ladies and Gentlemen:

On behalf of StemCells, Inc. (the “Company”), this letter is being submitted to the Staff of the
Securities and Exchange Commission (the “Commission”) in response to the comments in the Staff’s
letters dated June 7, 2010 (the “June 7 Letter”), September 15, 2010 (the “September 15 Letter”),
and November 17, 2010 (the “November 17 Letter”) regarding the Company’s 10-K for the year ended
December 31, 2009 (the “2009 10-K”) and definitive proxy statement filed on April 13, 2010 (our
“2010 Proxy Statement”).

For reference purposes, the Staff’s comments in the November 17 Letter are reproduced in bold in
this letter, and the Company’s corresponding responses are shown below the Staff’s comments. We
also make occasional cross references to the Company’s earlier written response letters to the
Commission dated July 6, 2010 (our “July 6 Response”) and September 28, 2010 (our “September 28
Response”).

Accordingly, we supplementally advise you as follows:

Definitive Proxy Statement filed April 13, 2010

Executive Compensation, page 11

Bonus Compensation, pages 13-14

    5.

    We note your response to prior comment 5 and reissue our comment. A detailed description of
the specific corporate goals, though subjective and not linearly tied to the compensation
committee’s bonus determination, is material to understanding how you incentivize and reward
your executive officers. Such detailed description has not been provided by your previous
response on July 6, 2010. Please confirm that you will provide a detailed description on the specific corporate
goals approved by the board for 2010 corporate performance in your 2011 proxy statement. To
the extent that your goals are quantified, confirm that the description of your goals in
your proxy statement will also be quantified.

U.S. Securities and Exchange Commission

December 2, 2010

Page 2

Company Response:

We agree that a detailed description of our corporate goals, especially how they are set and how
they are used, is important to an understanding of our compensation practices and how we
incentivize our executive officers. As previously explained, achievement of one or more of each
year’s corporate goals is a factor, among many, that our Compensation Committee takes into
consideration when determining whether to award a discretionary bonus to employees in any given
year. Other factors include the Committee’s subjective assessment of general market trends, the
Company’s future prospects and resources, and the Company’s challenges and accomplishments during
the preceding year.

None of our 2009 corporate goals were tied to our financial statements and so none were
quantifiable goals like the ones used by large commercial companies to reward executives, such as
bonuses tied to earnings per share, return on equity or other common financial metrics. Should we
adopt any such quantified goals in the future, we will describe them in our future proxy statements
if doing so would not result in competitive harm, as provided by Instruction 4 to Item 402(b) of
Regulation S-K.

We refer the Staff to our responses to Comments 17 and 18 in our July 6 Response. We believe that
the additional disclosures included in those responses, together with what we have disclosed in our
public filings, disclose all material information necessary to allow investors and potential
investors in the Company to understand the significant types of measures and considerations used by
our Board to compensate our employees, including our executive officers.

While we did not fully describe our 2009 corporate goals in our July 6 Response, we refer the
Commission to our 2010 Proxy Statement, as augmented by our July 6 Response. Together the
disclosure would read:

    Bonus compensation. We view periodic bonuses, whether paid in cash or equity, as an
important element of compensation for several reasons. Bonuses help align individual employee
efforts with overall corporate strategies and objectives. Bonuses also help us manage salary
expense, while still allowing us to reward successes. By using discretionary bonuses as part of
the compensation mix, we have greater flexibility in managing the timing and amounts of
compensation.

    Over the past few years, we have awarded bonuses on an annual basis after considering, among
other things, the company’s accomplishments against stated corporate goals adopted by the Board,
the company’s financial position, the status of its development programs, clinical progress and
corporate development activities, and general economic factors. This has necessarily involved a
subjective assessment by the Compensation Committee of corporate performance and market
conditions each year.

    The process of establishing our corporate goals over the past few years has been a lengthy one.
For each fiscal year, our executive officers have presented the Compensation Committee of the
Board with approximately five to ten proposed corporate goals, each often consisting of multiple
sub-parts. Management has usually presented its recommended corporate goals to the Compensation
Committee concurrent with our proposed corporate budgets for the

U.S. Securities and Exchange Commission

December 2, 2010

Page 3

    following fiscal year. Goals have been designed to be challenging, so that one would not expect
consistent achievement of all of them. Typically these goals have included some pre-clinical and
clinical goals for our HuCNS-SC cell product candidate, financing and corporate development
goals, goals related to advancement in cell manufacturing practices, and goals related to
advancement of our Liver Program. While all these goals have been considered important, and we
have used a cross-functional and balanced approach to setting them, we have typically
prioritized our goals by assigning relative weightings to each of them, with all of them
together adding up to 100%. However, by design, no one goal has ever accounted for a majority
of the relative weightings.

    After receiving management’s recommended goals, members of the Compensation Committee would
review them with our executive officers and oftentimes provide suggestions for additional goals
or changes to the recommended goals. Typically, after our executive officers and directors have
completed this iterative process, which has often taken several weeks, the Compensation
Committee would adopt revised corporate goals consistent with the foregoing principles and
recommend the updated corporate goals to the full Board for consideration and approval.

    Thereafter, during each fiscal year, our executive officers have used the Board-approved
corporate goals as a management tool, for example to coordinate activities, motivate personnel
and help prioritize the use of Company resources. The executive officers have sometimes
referred back to the corporate goals when providing business updates to the Board, similar to
management’s reference back to an approved annual budget.

    Recently, at the end of each fiscal year, our Chief Executive Officer has presented the
Compensation Committee with his assessments of corporate performance against the Board-approved
corporate goals, together with a summary of any important factors that weighed in his
assessments, which he has provided as context. Because our corporate goals have not been
formulaic or quantitative in nature (we have not had a corporate goal tied to specific stock
price, revenues or expenses, for example), our CEO’s assessments have been largely qualitative
in nature. Along with these assessments, our CEO has provided a percentage score for each goal
reflecting the degree to which each goal was or was not, in his judgment, achieved during the
year.

    The Compensation Committee has usually considered these percentage scores as well as our Chief
Executive Officer’s commentary about corporate performance and more general assessments of the
state of our business when determining whether to award employees a company-wide corporate bonus
in any given year, and if so how much of the available bonus pool to award. However, the
Compensation Committee members have used their own judgment to determine the size of any bonus
award, if any. Therefore, there has been no direct correlation between the aggregate percentage
score given to any year’s corporate goals by our CEO and the ultimate bonus payout. In any
given year, the Board may grant more than 100% of the bonus pool for the year. The Board may
also grant less than 100% of the bonus pool even if all of the corporate goals have been
achieved. While the Compensation Committee and the Board as a whole use the corporate goals as a
measure of success, the amount of any bonus grant, as well as how and when it will be paid, is
completely within the Board’s sole discretion.

    With these various principles in mind, we recently took the following actions with respect to
corporate bonuses.

U.S. Securities and Exchange Commission

December 2, 2010

Page 4

    In January 2010, as part of its annual year-end review of performance, the Compensation
Committee (with input from the Chief Executive Officer and other Board members) considered,
among other things, significant company performance accomplishments in 2009, the company’s
successes measured against its 2009 corporate goals, the degree of difficulty in achieving these
goals, as well as other events and circumstances that affected performance. The 2009 goals, as
approved by our Board, consisted generally of the following: (i) progress in our CNS Program,
including activities aimed at initiating clinical trials of our HuCNS-SC proprietary cell-based
product in multiple therapeutic indications; (ii) progress in our Liver Program; (iii)
successful fundraising efforts; (iv) successful corporate development activities; and (v)
advancement of our scientific development programs.

    Highlights of the 2009 accomplishments taken into account by the Compensation Committee in
determining the overall company performance included:

    •

    In January 2009, we completed a Phase I clinical trial of our HuCNS-SC® product
candidate (purified human neural stem cells) in infantile and late infantile neuronal ceroid
lipofuscinosis (NCL, also often referred to as Batten disease), a fatal neurodegenerative
disorder in children.

    •

    In June 2009, we announced positive results from our NCL trial. The Phase I data demonstrated
that the HuCNS-SC cells, the transplantation procedure, and the immunosuppression regimen were
well tolerated, and that the patients’ medical, neurological and neuropsychological conditions,
following transplantation, appeared consistent with the normal course of the disease. In
addition to this favorable safety profile, we reported evidence of engraftment and long-term
survival of the HuCNS-SC cells.

    •

    In November 2009, we initiated a Phase I clinical trial designed to test the safety and
preliminary efficacy of our HuCNS-SC cells in Pelizaeus-Merzbacher Disease (PMD), a fatal
myelination disorder that primarily afflicts infants and young children.

    •

    In September 2009, we received ethics committee approval at the Université Catholique de
Louvain (UCL) in Belgium to initiate a clinical study evaluating our human liver engrafting
cells (hLEC) as a potential cellular therapy for liver-based metabolic disorders.

    •

    In May 2009, our collaborators at Oregon Health & Science University (OHSU) Casey Eye
Institute presented data showing that our human neural stem cells, when transplanted into an
animal model of retinal degeneration, engraft long term and protect the retina from progressive
degeneration.

    •

    In April 2009, we closed the acquisition of substantially all of the operating assets and
liabilities of Stem Cell Sciences plc for 2,650,000 shares of our common stock and approximately
$700,000 in cash. As a result of this transaction, we added proprietary cell technologies
relating to embryonic stem cells, induced pluripotent (iPS) stem cells, and tissue-derived
(adult) stem cells; expertise and infrastructure for providing cell-based assays for drug
discovery; a specialty cell culture products business; an intellectual property portfolio with
claims relevant to cell processing, reprogramming and manipulation, as well as to gene targeting
and insertion; and a European presence with operations in Cambridge, UK.

    •

    In November 2009, we raised $12,500,000 in gross proceeds through the sale of 10,000,000
shares of common stock and warrants to purchase 4,000,000 shares of common stock at an exercise
price of $1.50 per share. We received total proceeds, net of offering expenses and placement
agency fees, of approximately $11,985,000.

    Following this review, the Compensation Committee awarded a discretionary bonus equal to 70% of
the available bonus pool, based upon the committee members’ assessments of market conditions,
corporate risks, Company successes in 2009, employee compensation more

U.S. Securities and Exchange Commission

December 2, 2010

Page 5

    generally, and our market comparables, among other things, including the committee member’s
qualitative assessments of the Company’s performance in 2009 measured against its 2009 corporate
goals. The bonuses were calculated using each employee’s annual base salary as of January 1,
2009, and paid in January 2010.

    In Mr. McGlynn’s case, because his base salary on January 1, 2009 was $525,000 and because his
target bonus was 55%, his 2009 bonus was $202,125. In Dr. Tsukamoto’s case, because her base
salary on January 1, 2009 was $300,000 and because her target bonus was 25%, her 2009 bonus was
$52,500. In Mr. Young’s case, because his base salary on January 1, 2009 was $275,000 and
because his target bonus was 25%, his 2009 bonus was $48,125. In Dr. Craig’s case, because his
base salary on January 1, 2009 was $275,000 and his target bonus was 25%, his 2009 bonus was
$48,125. In Mr. Stratton’s case, because his base salary on January 1, 2009 was $250,000 and
because his target bonus was 20%, his 2009 bonus was $35,000.

We would anticipate providing similar disclosure in our 2011 proxy statement to describe our 2010
corporate goals because our bonus methodologies have not changed materially.

After a thorough discussion of these matters with our securities counsel, we believe the above
disclosure to be appropriate, balanced and in compliance with our obligations under item 402(b),
for the reasons given in our July 6 Response and our September 28 Response. We believe we fully
disclose all material elements underlying the Company’s policies and decisions concerning bonus
compensation, including the most important factors relevant thereto.

If the Commission should have any remaining questions or concerns, however, we would welcome an
opportunity to discuss these matters further by phone. We will also continue to assess the
adequacy of our disclosure in this regard in connection with our future proxy filings and we agree
that, in future filings, we will provide a detailed description of our corporate goals along the
lines described above.

********

Please be advised that, in connection with the Staff’s comments in the June 7 Letter, the September
15 Letter, and the November 17 Letter and the Company’s responses thereto, the Company hereby
acknowledges that (i) the Company is responsible for the adequacy and accuracy of the disclosure in
the