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The market has been speculating heavily on the stem-cell biotech company Neuralstem (CUR), which resulted in some extreme volatility for CUR in recent trading.

The huge swings in CUR started to occur back in August, after the company sold off 6 million shares in an attempt to raise capital for the clinical development of their line of stem cells (currently called NSI-566) for the treatment of Amyotrophic Lateral Sclerosis (ALS, or Lou Gehrig's Disease). Shares flirted with a break of $.50/share until August 27th, when the company issued a press release that stated that Phase I trials were complete.

CUR rallied as high as $1.96/share on the huge excitement over this development, but pulled back until the company released some more news in their third quarter earnings release.


(Click to enlarge)

As you can see, the immediate reaction to Q3 results wasn't so impressive. It was an enormous buying spree that occurred on November 13th that gave the stock enough of a kickstart to move over $1.00/share with confidence. Notice how large the trading volume spike was on that day.

Third quarter earnings contained some encouraging statements by the company, along with confirmation that the company was ready to progress to Phase II trials to test the efficacy of NSI-566 cells in ALS treatment. There was also another mention of the green light that Neuralstem received to begin their Phase I/II trial for the treatment of ischemic stroke in China at the BaYi Brain Hospital.

Neuralstem is also planning to put their stem cells into clinical development for a wide variety of other indications (like multiple sclerosis, and even Alzheimer's disease) but these ideas are still in the preclinical stage. Investors are instead focusing on NSI-566 ALS and the IS development programs, as well as the company's Phase I drug NSI-189 for major depressive disorder.

Going forward, investors should pay attention to two major trends that are common to any biotechnology company in the very early stages of clinical development - cash burn and clinical data. As of September 30th 2012, Neuralstem holds $9.87 million in cash. At a current burn rate of $2.58 million per quarter (using operational losses from Q3 2012 as a gauge), investors should realize that the company will probably dilute shares some time in 2013. It's difficult to say exactly when, but a share dilution in the first half of 2013 would make the most sense given the company's situation.

The second major thing to watch for is clinical data for NSI-566 from the IS trial in China, and Phase II data in ALS treatment once Neuralstem starts. There is also data that is expected for NSI-189, which should come in early 2013 since the Phase I trial will be completely finished by January of 2013.

Neuralstem has proven to be a very erratic performer (even for a biotech), although it does seem to have a general range of $1.00-1.50/share at this point. Ideally Neuralstem investors would want to buy CUR the bottom of that range for a longer-term trade. This is especially true since Neuralstem doesn't have an options market, which eliminates many strategies that can hedge short-term positions.

Basically, I think that if you are going long Neuralstem you should be ready to wait until we get Phase II results for NSI-566 in the treatment of ALS, or at least long enough to see Phase I/II results for IS from China. Assuming that NSI-566 provides good data, CUR will almost certainly move up enough to erase the negative effects that share dilutions will have between now and then.

Source: Investors Chase Neuralstem On Successful Phase I Trial