Seeking Alpha
Long only, momentum, deep value
Profile| Send Message| ()  

Only a few weeks in and 2014 is off to an interesting start! We weren't planning on another Neuralstem (CUR) related article so soon but media headlines have been flying fast and furiously within the regenerative medicine sector. Just two weeks ago, we covered what we like about Neuralstem's on-going Phase 2 trial of NSI-566 for the treatment of ALS. Signs seem positive to date, and this author believes positive trial data in the next few months might send this stock much higher. The price per share has steadily climbed recently as well. Neuralstem traded at $2.97 when shares started trading on 1/6/14, and shares reached as high as $3.75 per share prior to a stunning drop (about 13%) at market open on Friday, 1/10/14. Shares fought back and recovered to close down only 5.61% for the day. Currently, as of 1/23/14, shares are trading at $3.31 per share. In addition, Neuralstem was trading at two to three times the usual volume at the start of the year due to investor excitement about the company's pipeline.

Many believe that regenerative medicine may be the next booming frontier like Internet stocks once were and perhaps similar to how solar energy stocks performed during 2013. Neuralstem, StemCells, Inc., and Athersys are fiercely competing for investor attention in this sector, and each needs to assure funding is available to continue their trials. A number of events in the media including Twitter, Seeking Alpha, and Crane's New York/Cleveland Business may have contributed to volatility in shares of all three companies including the sharp drop in Neuralstem shares on 1/10/14. Before highlighting some of the key headlines in 2014, let's see how each stock has performed:

Regenerative Medicine Sector - Hot!

Company

Price - 1/1/14

Price - 1/23/14

Market Cap 1/23/14

Neuralstem (CUR)

$2.91

$3.31

$281 Million

StemCells, Inc. (STEM)

$1.23

$1.57

$86 Million

Athersys, Inc. (ATHX)

$2.50

$4.18

$252 Million

Next let's cover some of the big headlines that have made waves so far this year.

StemCells, Inc.

On 1/6/14, the CEO of StemCells, Inc. issued a letter to shareholders to engage them about the company's prospects. Further, an article appeared on Seeking Alpha later that week to remind investors that StemCells, Inc. has pending litigation (for quite some time) against Neuralstem. The article stated the following:

Although the patents are broad, StemCells has the potential to keep its future dominance in the stem cell market and possibly see royalties from competitors along the way. After acquiring the patents, StemCells sued rival Neuralstem Inc. for infringement on six of the patents. Neuralstem fought to have four of the six removed by the USPTO, but was denied. The denial by the USPTO likely means StemCells has a strong case and could see damages or potential royalties on any approved Neuralstem treatments. While this isn't the main reason to invest in StemCells, it certainly is worth watching in the future.

On 1/10/14, word came that StemCells, Inc. had expanded its Phase 1/2 spinal cord injury trial to North America perhaps resulting in an acceleration of the trial.

StemCells, Inc. surged from $1.34 per share on 1/6/14 to $1.56 per share on 1/10/14 for an increase of 16% that week.

Athersys, Inc.

Athersys, Inc. is having a wonderful 2014. Athersys has been tied to stem cell legislation in Japan which could prove extremely promising for the biotech. Japan passed legislation which would allow cell therapies to get to market after only being proven safe. In other words, the usual additional trials and testing, often costing millions and taking years, to prove efficacy would not apply. Athersys is in prime position to take advantage of this and their treatment for stroke would have a huge market in Japan. Further, Athersys recently announced it had been granted patents in Japan related to stem cell medicine, including one for the treatment of brain injuries such as stroke and traumatic brain injury.

On 1/10/14, Athersys, Inc. announced it would be offering 5 million shares of common stock along with warrants to purchase an addition 1.5 million shares. Gross proceed are expected to be around $20 million.

Neuralstem, Inc.

Neuralstem also had its share of news. This author's very own article (see link in opening) helped to jump start 2014 by highlighting positive signs mentioned in a blog of an ALS patient who participates in Neuralstem's Phase 2 ALS trials for NSI-566. Neuralstem may have a treatment for a billion dollar market, and that is reason to be excited because the market cap for Neuralstem should start to appreciate as initial Phase 2 results show up in 2 months or so. Perhaps if not for some of the media highlights below, shares would've kept their early momentum!

Neuralstem also launched an international trial! Its Phase 1/2 trial to treat motor deficits from ischemic stroke using NSI-566 was started in China.

On 1/3/14, it was announced that Neuralstem was working with TR Winston & Company, LLC to issue over 6.5 million shares to generate gross proceeds of $19.65 million. Neuralstem came under fire, as discussed later, when they sent a tweet out on 1/6/14, while the stock offering was underway, which mentioned a patient's blog:

Neuralstem Ph II #ALS patient @aprilals shares an update via her blog, we thank her for her continued strength http://bit.ly/1f96BT8 $CUR

Adam Feuerstein and The Street

One of the first shots of 2014 came from Adam Feuerstein of The Street via his Twitter account on 1/5/14, and it continued following the release of our article on 1/6/14. The comments were aimed directly at Neuralstem CEO Richard Garr as well as T.R Winston which assisted Neuralstem with its recent offering of shares.

$CUR employs a boiler room to raise money. Fact. That's not relevant?

Following T.R Winston-led $ raise, @Neuralstem $CUR tweets about ALS patient blog. She's in their clinical trial! https://twitter.com/Neuralstem_Inc/status/420297795002576897 …

Many CEOs thankful for patients in clinical trials but don't exploit them to promote stock post $ raise like $CUR CEO.

We've excluded some names as to whom the tweets were directed at, but the messages are quite clear. Adam appears to suggest Neuralstem attempted to exploit patients to promote the stock and that Neuralstem was working with a "boiler room" to issue shares.

Crain's New York Business

Then, there is Red Bull's favorite of the group... an article by Aaron Elstein of Crain's New York Business which posted on 1/12/14. Mr. Elstein drafted a Neuralstem article that highlighted the tweet sent by Neuralstem, mentioned above by Adam Feuerstein, as well as the article by us posted on 1/6/14, to suggest that Neuralstem may have engaged in a violation of rules associated with raising cash. Mr. Elstein wrote the following:

In Neuralstem's eagerness to draw attention to its ALS treatment by tweeting about Ms. Moundzouris' blog, securities lawyers say it violated the rule that says companies can't release important news when they're in the process of raising cash unless they update their prospectus.

Mr. Garr also disavowed any knowledge of the article that appeared seven minutes after the tweet on Seeking Alpha, a market news and analysis site that attracts 3.2 million unique visitors a month, ranging from Wall Street pros to interested amateurs. The article, headlined "Positive Signs From Neuralstem's Phase 2 ALS Trial," said investors should welcome the company's $20 million stock sale because "those funds can help Neuralstem position itself as the only significant player in a very large ALS market and further develop one of the most exciting pipelines in the biotech sector."

The author, who used the pseudonym "Red Bull," said he's an auditor in the telecommunications industry in College Park, Md., has no affiliation with Neuralstem or its investment bank, and isn't compensated by either. He declined to give his name.

"The only thing I know about Red Bull is my son drinks it," Mr. Garr said.

Further in this article, Mr. Elstein went on to quote Jason Kolbert of the securities firm Maxim Group.

Mr. Kolbert of Maxim Group doubts that Neuralstem will ever be a significant player in biotech. He said the company has lost its leadership position in potential ALS treatments and lacks adequate resources, and that its research is "flawed science."

Red Bull's Thoughts

It's hard to pick a place to begin. First, one can decide whether to accept the timing of these events as coincidence. We give no opinion on that. We do, however, wish to address several of the statements in the Crane's article which are relevant.

Red Bull's Connections

We do want to first highlight that Mr. Garr has no association with Red Bull here at Seeking Alpha. We have never met, spoke, or e-mailed one another. We have never stepped foot in Neuralstem's headquarters. We have never received any compensation from Mr. Garr or T.R Winston. To put it simply, there is absolutely no evidence of a connection other than the fact that we are located within the same state (Maryland) as Neuralstem. The Washington D.C. metro area is a large place, encompassing northern Virginia, southern Maryland, and D.C., with well over a million people, thus this isn't something that should convince readers of a connection.

The Maxim Group

What should be even more interesting to Neuralstem shareholders is that when Mr. Elstein was looking for quotes for the article, Jason Kolbert of Maxim Group seemed to be available. It just so happens that Jason Kolbert has been negative on Neuralstem in the past. In an article dated just over a year ago, he stated the following:

Richard Garr, CEO, is an avid promoter of the story and works through many back channels to maintain a high level of awareness. The company works with an aggressive stock promoters who drives a lot of publicity and keeps the promotion levels high to a mainly retail audience. Why do they only show links on their web site to positive research (from analysts that have banked the company) and not show negative ones? I thought that companies are supposed to have an obligation to provide all outside research or none, not selectively disseminate only the positive research. This company in my opinion is taking too many short cuts and this is an example of over-promotion.

Do these words sound a bit familiar? Mr. Kolbert's stock picks include the following statement from the same article highlighted above:

We rate CUR shares a "sell" and have a $0.25 price target.

And this...

We rate STEM shares a "buy" and have a $2.5 price target.

As of 1/23/14, shares of Neuralstem trade for $3.31 per share, and shares of StemCells, Inc. trade for $1.57.

One final thought on this source - the Maxim Group, of which Kolbert is a managing director for, co-managed at least one stock offering for Neuralstem's rival, StemCells, Inc. Additionally, if you review the Athersys, Inc. article linked above, you'll see that Maxim is the lead placement agent for this month's offering. On the very same day (1/12/14) that the Crain's New York article regarding Neuralstem appeared, an article from Crain's Cleveland also appeared. The Crain's Cleveland article, appearing just a few days after the announcement of the Athersys stock offering, also contained quotes from Kolbert along with positive comments regarding Athersys:

Stock analyst Jason Kolbert of Maxim Group, a financial services firm based in New York, doesn't argue with that point. In the race to develop a stem cell therapy for stroke patients, Athersys is ahead of the competition, being the only company running a Phase II trial treating stroke patients, said Mr. Kolbert, whose firm deals in Athersys stock and was paid by the company to help it issue $20 million in new shares last November.

Regarding Neuralstem's CEO and Twitter

A few thoughts regarding the Neuralstem and Twitter discussion are due here. Neuralstem's Twitter account did send out a link to April's blog. They have acknowledged her as a patient as early as December, and, at that time, Neuralstem's CEO encouraged readers to use caution when reading the blog. He did not appear to use the blog to promote the company or the trial in any way. Mr. Garr stated the following:

People are also surprised to find out, that the information in these patient blogs is as new to me as it is to them. April has not had (as of her last blog) her official quarterly check up and measurements. Getting a kind of minute by minute, day by day accounting is indeed a gift. We do not know how April's story will end; the Phase I trial has left us hopeful, but this is still very much a "trial," not yet a treatment.

Further, the tweet in question only noted there was an update to the blog, it did not reference any sort of positive news. Neuralstem unlikely has anything to do with a patient's decision to share her story with others let alone the wording posted, and, as Garr mentioned, the information is often new to him too. There should be a clear distinction between going after a CEO who says "Results will be excellent" vs. going after a CEO who says "There was a blog update."

Conclusion

As you can see, it's been a busy 2014 for Neuralstem, StemCells, and Athersys! Two of the three companies have raised significant funding and experienced success with their stock price at the same time. Investors should always approach media stories and Twitter with caution (even this article!) and consider all sources of information when making investment decisions, especially as some investors have commented that it looks as if there is a "PR War" being launched. These companies are not only competing, they are competing across continents now!

We actually like two of the three companies listed in this article and believe regenerative medicine (as a whole) is in for an incredible year! Both Neuralstem and Athersys could be billion dollar companies - Athersys in stroke in Japan and Neuralstem in ALS in the United States - if trials stay positive as the year progresses. In fact, their market caps may grow a lot sooner than a year. Neuralstem should see some feedback on the Phase 2 trial as soon as April, and we're feeling good about the results as spring approaches.

We definitely encourage investors to consider the regenerative medicine sector when selecting an investment for 2014, even if that investment is not Neuralstem. 2014 may very well be the "Year of the Stem Cell!"

Source: Neuralstem, StemCells, Inc., And Athersys, Inc. - Making Early Headlines In 2014

Additional disclosure: This article is only for informational purposes. Investors should use the sources provided within this article, along with conducting additional research, as they consider whether an investment is right for them.