By Jason Napodano, CFA
Biotech investors love catalysts, and everyone loves cash! Catalysts and cash, along with charisma, are the "three C's" of biotech investing. Neuralstem, Inc. (NYSEMKT:CUR) currently has all three, and that should make the stock a good play over the next few months.
Short-term, the company has plenty of high-profile catalysts and no risk of dilution. Over the long-run, the company is developing novel cellular and small-molecule therapeutics for significant unmet medical needs. The preclinical and Phase I data on neural cell therapy, NSI-566, looks very good; and next year should be packed with updates on both the ALS and SCI programs. As for small molecule NSI-189, management's goal is to report data in December and then partner the drug for upfront cash in early 2014.
Cash, catalysts, and charisma are the three things that drive biotech stocks higher, and Neuralstem has all three right now. With the catalysts and charisma we outline below, supported by the strong cash balance, we think the stock is worth $3.50 per share.
Below, we list the near-term catalysts for Neuralstem:
- Full results from the company's Phase I ALS trial are expected to be published in the Annals of Neurology, the Journal of the American Neurological Association (ANA), in November 2013.
- Initial top-line data from the first and second cohorts of the Phase II ALS trial in the first quarter 2014.
- Complete patient enrollment and procedures in the Phase II ALS trial by the end of the first quarter 2014.
- File IND to begin Phase II ALS trial in Mexico before year-end 2013.
- Enroll the first patient in the Phase I SCI trial in early 2014.
- File IND to begin Phase I acute SCI trial in South Korea before year-end 2013.
- Phase Ib data from small molecule NSI-189 mid-December 2013.
- Potential partnership on NSI-189 during the first half of 2014.
What is charisma? Quite simply, in healthcare investing terms, charisma is developing a device or therapeutic agent to treat a serious unmet medical need via a new mechanism of action. Let's start with realizing what charisma is not. Charisma is not developing a fish oil pill for high triglycerides or reformulating chemotherapy agent just so you can charge ten-times the price. Charisma has to be something that no other company has done in the past, and it has to be targeting a undeniably huge and under-served market.
Neuralstem has some of the best charisma in biotech. The company's human neural stem cell product, NSI-566, fits all the criteria of a seriously charismatic product. NSI-566 is being studied in three potential blockbuster indications - amyotrophic lateral sclerosis (ALS), spinal cord injury (SCI), and ischemic stroke.
Let's start with ALS. Analysis of Neuralstem's Phase I trial from all 15 patients and 18 procedures has been completed. Principal investigator Dr. Eva Feldman has been very active over the past year presenting the data at various medical conferences. The full data was presented at the American Association of Neurological Surgeons Annual Meeting in April 2013. The data show the method of intraspinal cell delivery was found to be safe, well-tolerated, and promising for other spinal cord conditions. Additionally, although the Phase I trial was not powered to demonstrate efficacy, there were clear signs of disease stabilization in the ambulatory subgroup of patients, along with long-term NSI-566 cell survival in patients through DNA fingerprinting technology.
Neuralstem has now progressed into a phase two trial. This Phase II dose-escalation and safety trial began in September 2013, with the first patient treated at Emory University Hospital in Atlanta, Georgia. This is where the Phase I study noted above was conducted. In October 2013, the Phase II trial expanded to ALS Clinic at the University of Michigan Health System, in Ann Arbor, Michigan. We expect a third site, at the Massachusetts General Hospital in Boston, to come online shortly.
The trial is designed to enroll 12 ambulatory patients, in five different dosing cohorts, with a total of 15 procedures. All 12 patients will receive injections in the cervical region of the spinal cord, where Neuralstem's human neural stem cells could help preserve breathing function. Patients 10, 11, and 12 (the fourth cohort) will also receive injections into the lumbar region of the cord as the fifth cohort.
In the Phase I study, all patients received 10-15 total injections of 100,000 cells per injection, for a dosing range of up to 1.5 million cells. Most injections took place in the lumbar region of the spine, although the last cohort did also receive cervical injections. For example, Patient #11, Ted Harada, received 10 bilateral lumbar and 5 bilateral cervical spine injections at around 100,000 cells per injection. Ted's amazing recovery has been well-documented over the past year.
The design of the Phase II study calls for increasing both the number of injections and concentration of cells per injection. Neuralstem believes it can increase the concentration of the injection to 200,000 or 400,000 cells. Under this escalating scenario, the final patients (cohort five) might receive 20 cervical injections followed by 20 lumbar injections, with each injection at 400,000 cells. If one patient (Ted Harada) can show dramatic improvement in motor and lung function after only 1.5 million cells, management is clearly excited about seeing what 16 million cells can do.
We expect all procedures to be completed by the end of the first quarter 2014. We note that Emory University has secured a $3.0 million grant from the National Institutes of Health (NIH) for this study. Neuralstem believes this grant will cover the majority of the cost for the program. The primary endpoint of the study is assessment at 6 months post-surgery. As of early of November, the trial has proceeded to the second cohort. We expect top-line clinical data from the first and second cohort in early 2014, with full top-line data by the third quarter 2014.
In SCI, we are currently waiting for management to announce the initiation of the Phase I trial. This study is expected to take place primarily at the University of California, San Diego, with potentially other centers in Miami or Philadelphia. Management is currently working with IRB's to gain approval to start the trial. Besides injections of NSI-566, all patients will also receive physical therapy post-surgery, as well as immuno-suppressive therapy, which will be for three months, as tolerated. The trial study period will end 6 months post-surgery for each patient, with a stated goal of trial completion within a one-year time frame. If positive, we suspect that Neuralstem will seek to reproduce the results in chronic spinal cord injury patients with cervical injuries in 2015.
Neuralstem is also seeking to study NSI-566 is patients with acute spinal cord injury . The company is working with CJ CheilJedang to begin a Phase I study at four sites in South Korea. The trial will be similar in design to the chronic spinal cord injury trial noted above, only enrolling 8-10 patients with acute injury hours after the traumatic event. We expect the IND for the trial before the end of the year.
In ischemic stroke, a Phase I trial recently began. We remind investors that in September 2012, Neuralstem announced it has been approved to commence a clinical trial to treat motor deficits due to ischemic stroke with NSI-566 at BaYi Brain Hospital, in Beijing, China, through its subsidiary, Neuralstem China.
The trial will be a combined Phase I/II design, with a goal of enrolling up to 118 patients who have suffered an ischemic stroke with chronic residual motor disorder 4-24 months post-stroke. NSI-566 will be injected directly into the brain (intracerebral injections) and patients will be assessed in two parts. Part one will be an open-label study seeking to enroll up to 18 patients in three cohorts. Each of these will receive ascending doses of NSI-566 to define the maximal safe dose. Patient recruitment for this part of the study has begun.
Besides NSI-566, Neuralstem is currently wrapping up a Phase I study with a novel small-molecule candidate, NSI-189. Most investors know Neuralstem as a leader in cell therapy and regenerative medicine. But what is far less known about Neuralstem is how the company's efforts to create stable neural stem cell lines has led to innovative new novel small molecule candidates for the treatment of central nervous system (NYSE:CNS) disorders potentially arising from problems in the hippocampus. In fact, preclinical research on NSI-189 shows the molecule was among the best screened by company scientists for promoting neurogenesis in preclinical animal (mice) studies.
Based on encouraging preclinical data with NSI-189, Neuralstem filed an investigation new drug (IND) application with the U.S. FDA in November 2010. The FDA approved the application in December 2010, allowing the commencement of a Phase Ia study. The Phase Ia study (NCT01310881) began in February 2011 and completed in October 2011. Because the Phase Ia study tested only healthy volunteers, the only data that were released noted all doses to be well-tolerated with no drug-related serious adverse events.
In December 2011, the FDA allowed Neuralstem to advance into a Phase Ib trial (NCT01520649). The trial is a randomized, double-blind, placebo-controlled, multiple-dose escalating trial evaluating the safety, tolerability, pharmacokinetics and pharmacodynamic effect of three escalating doses of NSI-189 over 28 days per dose in the treatment of MDD. The trial initiated in December 2011. The three NSI-189 dosing cohorts are: 40mg QD (once-daily), 40mg BID (twice-daily), and 40mg TID (three-times-daily). Patients will receive an MRI at baseline, during the trial, at completion of the trial (28 days), and 1 month post-trial. Neuralstem will be looking for signs of stabilization or growth in the hippocampus. This has potential therapeutic implications in major depressive disorder, Alzheimer's disease, traumatic brain injury, and chronic traumatic encephalopathy.
Dosing in the second cohort commenced in October 2012. Dosing in the third cohort commenced in April 2013. According to management, the trial has completed and they are analyzing the data. We note the efficacy endpoints are all blinded until the conclusion of the trial, but management has noted the safety and tolerability of the compound, through the increased dosage in the cohorts, remains excellent. We find it highly encouraging that management has been able to proceed so smoothly between the dosing cohorts with no hold up from the FDA's data safety monitoring board.
If successful, we think the outcome of this Phase Ib study will be highly intriguing to larger pharmaceutical partners that have previously funneled billions of dollars in research and development of drugs to treat depression and mood disorders. It's been decades since we have seen a true new mechanism of action to treat depression. New novel CNS candidates to treat tricky diseases like depression and schizophrenia are highly coveted assets in the pharmaceutical industry. Take for example the massive revaluation in shares of Acadia Pharmaceuticals (NASDAQ:ACAD) based on the success of its novel phase 3 candidate for psychosis, pimavanserin.
Neuralstem should file its Form 10Q with the U.S. SEC next week. However, based on our financial model, we can provide investors with a pretty good idea of the company's current cash position today. Based on the company's last Form 10Q filing, Neuralstem exited the second quarter ended June 30, 2013 with $11.2 million in cash and investments. However, since that time, a number of things have taken place to adjust this number higher.
Neuralstem burned around $6.0 million in cash during the first six months of 2013 (around $1 million per quarter). If we assume nothing else took place in the third quarter, cash should be around $8.2 million. However, on September 4, 2013, the company raised approximately $4.2 million in cash (net) through a registered direct offering. That should bring cash back up to $12.6 million.
But keeping mind, during the third quarter Neuralstem's stock increased from $1.46 per share to $2.23 per share - a gain of 53%. Based on the last Form 10Q filing, there are 18.6 million warrants outstanding with an average strike price of $1.79 per share. This equates to potentially $33 million in cash that could come into the company through warrant exercises!
In the schedule of the Form 10Q, we see 9.2 million warrants outstanding alone with strike prices at $1.25 per share or less. We would not be surprised to see significant new cash generated through warrant exercises during the third quarter. This could put cash in the range of $15 to $18 million when the company reports results next week. That would be an estimated 6 to 7 quarters of cash on the books.
In conclusion, Neuralstem is loaded with charisma, and has several near-term catalysts to keep investors happy. They also have plenty of cash and the stock is under-valued. Neuralstem is one of our favorite names heading into 2014.