Elevator Pitch
Unloved by some, potential remains for this stem-cell hopeful.
Company Description
Neuralstem is a dual platform regenerative medicine company. The company's technology enables the production of regionally specific, physiologically relevant neural stem cells for therapeutic use for the treatment of central nervous system diseases and has enabled the discovery of a library of patented small molecule neurogenic compounds to treat psychological and cognitive disorders.
Thesis & Catalyst For Neuralstem, Inc. (CUR)
Recently released data from a phase-2 trial in Lou Gehrig's Disease has brought on panic selling, but a patient investor may profit from impatient investors.
On Thursday, March 12th, 2015, the Maryland-based biotech company Neuralstem released topline results of a phase 2 trial for treatment of amyotrophic lateral sclerosis (ALS). The preliminary reports announced that the study had met the primary safety endpoints for maximum tolerated doses of the company's NSI-566 treatment (fetal derived neural stem cells) and that the surgeries were well tolerated.
The company also reported "encouraging" secondary efficacy endpoints that "at nine months post-surgery [indicated] a 47% response rate to the stem cell treatment, as measured by either near-zero slope of decline or positive slope of ALSFRS score in seven out of 15 patients and by either a near-zero decline, or positive strengthening, of grip strength in seven out of 15 patients." (Neuralstem Press Release)
At first glance, the results of the topline data appeared encouraging. However, upon release of the data, market sentiment turned decidedly negative. By the end of the day's trading session, Neuralstem's stock price had plummeted from the previous day's closing price of $3.74 to an intraday low of $2.35 before closing at $2.37 on the session; effectively a 36% decline from the previous session. Volume on the session exceeded 11 million shares traded; a level not seen in a one-day session since September of 2012.
Much speculation as to the cause of the dramatic sell-off in the stock was attributed to biotech writer Adam Feuerstein of The Street. Mr. Feuerstein had made no bones in the past as to his skeptical view of Neuralstem, its management, and the science behind its trials. Almost immediately, social media was abuzz with both supporters and detractors of Mr. Feuerstein's view of the results. In the end, it was evident that Mr. Feuerstein's opinions, whether right or wrong, had won the day. Mr. Feuerstein's assessments can be found here.
To begin, I do not credit Mr. Feuerstein's analysis as being solely responsible for the collapse of Neuralstem's stock (although he might appreciate the distinction). Certainly, Mr. Feuerstein is entitled to his opinion, and undoubtedly has the respect of many investors. For many investors of Neuralstem who found themselves weathering the brunt of Thursday's sell-off, he may represent the devil incarnate. While this author has found reason in the past to disagree with Mr. Feuerstein's analysis, I can objectively say that Mr. Feuerstein raises some fair questions concerning the data presentation by Neuralstem.
To better understand my point, a brief summary of the trial design should be discussed. Essentially, the phase 2 trials were open-label, dose-escalating trials treating 15 ambulatory patients, divided into 5 dosing cohorts, amongst three centers. The first four cohorts received escalating bilateral cervical injections of the spinal derived neural stems cells, while the 5th and final cohort received the maximum number of stem cells for both bilateral lumbar and cervical injections. Participants in the trial were then measured from baseline of injections to 9 months out post surgery.
As a phase 2 trial, the primary endpoint was to assure the safety of the treatment up to the maximum dosage. However, secondary efficacy endpoints were included to measure the progression of disease amongst participants as measured by their ALSFRS-r scores, hand grip, and seated vital capacity. It is predominantly these secondary endpoints that the market was most concerned with.
During Neuralstem's phase 1 trials, signals of efficacy amongst participants in the final cohort had been tantalizingly optimistic - particularly a patient named Mr. Ted Harada. Mr. Harada had exhibited a remarkable stabilization - even improvement - from his baseline ALSFRS-r scores, while 2 other participants demonstrated near stabilization of symptoms outwards of 3 years post injections. What Mr. Market may have been expecting from the phase 2 trial was another Ted Harada. The lack of an emergence of another Ted Harada, in this author's opinion, had more to do with the negative market reaction than Mr. Feuerstein's assessment.
In their release of phase 2 preliminary data, Neuralstem included slides that purportedly demonstrated a statistically significant response rate between "responders" and "non-responders" based on ALSFRS-r scores. In the graphs, one can see a distinction between the two groups, as the slope of scores for "responders" compared to "non-responders" appears to suggest a clear difference in disease progression between the two. However, it is here that Mr. Feuerstein brings up a fair point, and that is: what differentiates a "responder" from a "non-responder"?
As Mr. Feuerstein points out, Neuralstem's phase 2 trial lacks a comparative control arm. This is reasonable on Neuralstem's part, being that there are ethical implications involved with providing placebo treatments to patients suffering from ALS. Mr. Feuerstein argues, however, that a comparison between these two groups does not necessarily demonstrate a signal of efficacy. He suggests that the progression slopes should be compared against historical norms rather than against the trial population itself. He further suggests that when compared to historical ALSFRS-r scores, the signal of efficacy amongst responders compared to the historical data becomes murky.
Again, the argument has its merit. Clearly, there does not appear to be a correlation between the number of stem cells injected and near-stable/positive progression slopes, as participants in each cohort fall to either the "responder" or "non-responder" grouping. Likewise, the baseline ALSFRS-r scores at time of surgery do not seem to be a determining factor. As one blogger stated, Neuralstem's comparisons between "responder" and "non-responder" appear to offer up a "tautology." In other words, the answer to why one group responds to treatment cannot be, "because they were 'responders'" - such an explanation is circuitous in nature and does not provide any clarity.
Begrudgingly, I would grant Mr. Feuerstein and the rest of Neuralstem's detractors the win on this point. However, it is one thing to win the battle, and quite a different thing to win the war. That is to say that even though Mr. Feuerstein makes a compelling argument, it does not discount the fact that this is merely initial analysis of the topline data. There is still much data to be parsed through. Whether there is a clear MOA with Neuralstem's therapy will become clearer with time. A brief examination of historical ALSFRS-r progression scores would provide an example.
The following graph, while not definitive, illustrates how "typical" progression in ALS patients occurs (in the case of comparison with Neuralstem's phase 2 trial, one must remove the red slopes for bulbar-onset patients, as it had been predetermined in NSI-566 phase 1 trial that the therapy did not demonstrate efficacy amongst this subset). When examining the slopes for patients with spinal-onset ALS, it is evident that the negative rate of progression varies from patient to patient. Furthermore, it appears to illustrate a level of stabilization for some patients for a substantial period of time. As Mr. Feuerstein suggests, it is this sort of historical data that the NSI-566 phase 2 data should have been compared to.
While I can agree that such a comparison would be more informative, it also illustrates what I believe is lacking in Mr. Feuerstein's argument. On average, the phase 2 data presented by Neuralstem represents data collected over a 9-month observational period. One can extrapolate from Mr. Feuerstein's assessment that when compared to historical norms, the data from the trial would be found to be in-line with typical disease progression. Perhaps; but the key ingredient here is time. In time, it may be that NSI-566's principal investigators will be able to answer some of these burning questions. Until then, Mr. Feuerstein's analysis is nothing more than pure conjecture. Granted, he could say the same about the phase 2 data. At this point, the onus is on Neuralstem to deliver.
Without a doubt, the NSI-566 trials have reputable independent investigators. In good time, we will be seeing a complete data package from the trial. When it is released, we should also see additional data on the responder patients in the trial as to how they have been progressing. Furthermore, Neuralstem should at that time be able to provide the profile for ALS patients that will allow them to more accurately identify "responder" criteria. What Neuralstem must do is show investors that the "responders" from phase 2 continue to remain stable at a level above historical norms for disease progression. They must also be able to identify those "bio-markers" between the "responder" and "non-responder" groups that signify the "cut-off" for motor neuron rescue, which should hopefully improve the level of responders in future trials. Until then, the stock will most likely be perceived as more risk than reward.
For some investors, waiting on the next data set or the next trial initiation is a dead money situation. Where patience is a virtue, it should be noted that Neuralstem plans to deliver the full phase 2 data package within the first half of this year. Also, Neuralstem is quickly approaching the initiation of a phase 2 trial for their neurogenic small molecule drug NSI-189. Complete data from the Phase 1b trial is slated for release in late April, which may serve as another near-term catalyst. There will also be commencement of a trial investigating the effects of NSI-189 on cognitive deficiency in patients with schizophrenia sometime in mid 2015. The NSI-189 program has caught the attention of some analysts. You can read a short discussion from Brean Capital here and here.
Conclusion
In conclusion, the recent topline results released by Neuralstem do not provide as much clarity as one might hope for. Detractors like Mr. Feuerstein have made fair points, although a rational investor could look beyond the headlines and reason that while there may not have been a grand slam, we may only be in the early innings. With a disease like ALS, time is an unpredictable variable. It remains to be seen whether NSI-566 has given more time to patients with ALS or not, but it is certainly too soon to dismiss the potential of the treatment. And while hope is never a good investment strategy, let's hope for the sake of those suffering from the disease that within our time a treatment is discovered.
