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Neuralstem Inc. (NRLS.OB)

Wall Street Analyst Forum

May 22, 2007 10:30 am ET

Executives

Richard Garr - President and CEO

Presentation

Richard Garr

Let me just bring up the required forward-looking statement. We are publicly-traded company. NRLS is our current symbol on the Bulletin Board. We have made an application to the AMEX.

I want to start with a brief, and I promise it will be brief overview of the science. And give you a slight feel for what's a little bit different about our technology, and why those differences are important. Then, I am going to talk a little bit about the bigger picture where Neuralstem fits into stem cell research in general. And then, sort of, where our company is and where we are headed.

So, our cells are neural stem cells, these are cells that make up your brain during normal development. The main cells are neurons astrocytes and we will get into slides where neurons actually do all the hard work.

These cells were discovered by my partner Dr. Karl Johe an NIH in the NINDS lab in the late 90s. And it's kind of important just in terms of context to understand that at the time people thought that the existing Neural Stem Cell Technology, which are (inaudible), which is a science it's practiced by another company called StemCells Inc. But that was the Human Neural Stem Cell technology. And, a lot of people still feel that way today, but the cells have never really worked, until Karl went off in a different direction and he discovered our cells.

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And so, to give you sort of the feel for what's different about them, with the pictures you are looking at here are actually all individual in groups at human neurons that we grew. And first things what you see here, these are Dopaminergic neurons.

Dopaminergic neurons are the kind of cells that Parkinson's patients selectively loose. These are spinal cord neurons, right here you can see the long processes. And these are actually hippocampal neurons. Hippocampus is where your memories are formed. And what you are seeing over here it's just, these are individual cells that we sort of collapse to show again understanding for dopamine. This is actually, you can see it really nicely here, a spinal cord nerve neuron and these are actually the spinal cord cells here (inaudible) for Gaba, which is something we'll talk about later.

But the point of showing you these slides, is that what's really different about our cells, is that they are fully functional, physiologically relevant regionally specific. We'll go through all these robust reproducible human neurons and we can do it all in vitro. And I am going to take just a minute to explain that, because all of those things actually are very important, and of course, patented.

Everything that I will talk about today is a subjected issue patents in US. Actually, one of them is now been issued in Europe and they have been filed all around the world.

So, what we mean, when we say it's fully functional physiologically relevant, is that, we don't have one cell, there isn't one Human Neural Stem Cell, like there is poor but no risk to your technology and then theoretically, it turns into all the different kinds of cells, that it suppose to turn into. We get our cells by growing in from different regions of the brain. So, for instance, in the adult human, you only find dopaminergic neurons, in the ventral midbrain, in one part of the brain, and it's actually a very rare cell, it's about 1% of the cells in the ventral midbrain, and we find, that we can only grow dopaminergic neurons, when we grow our stem cells, if we take the tissue from that region.

The same is true for spinal cord cells, hippocampal cells, so that's a huge difference. And one of the reasons that it's important that's we mean by regionally specific and the in vitro product, it means that we can grow them in tissues, and this is also incredibly important, because the other technologies, when they talk about turning cells into brain cells, basically, what they are relying on is either a cocktail of growth factors, which they can prove on the cell and push it to a certain state, or some actual unknown growth factors which happen inside in vivo either in the animal or in the person. Our cells have all the information in them.

Turning to what they turn into constituent syndrome. All right, and that's what you mean by physiologically relevant. If you take a neurosphere or some other cells and you bedded in a huge cocktail of chemicals and it turns into say a GABAergic neuron in expressive GABA. All you know is that, that cell some how has the potential to express GABA. But that cocktail of things you put on it doesn't happen inside a person's head, right. When we say physiologically relevant, what we mean is that the cells don't require any additional outside effort from us and so one of the things that does, the fact that we can do that in vitro is it, it allows us to actually quantify.

So, for instance, when we go for our first human trial from the Paraplegic cells, we were transplanting actually here GABAergic spinal cord neuron. We know that 50% of the cells always turn into neurons, 50% turn into glia and we can do that over-and-over again in dishes and so, we can actually quantify for the FDA what's happening with the cells, what it is we're putting into people.

The other part is that we know that the cells actually do what we say they do, right. So, we are not relying on some black box inside a person's head, some unknown growth factor, something from what they call the micro environment to trigger the reaction in the cell. Okay, and again, this is all issued patterns in the US. So, that's kind of the core technology and if you think of it basically as the ability to grow on limited numbers, nearly workable human neurons, all the different types then you pretty much have the right idea.

Now, Neuralstem and their business are creating cures and I use the word business because we are in business. We took the science out of NIH, because we felt that it was ready to be commercialized. We are what you really should think of this as second generation stem cell company, we are not so much interested in doing research anymore as in taking our discovery of human neural stem cells into the clinic and into patients.

These are the indications right here that we currently have active programs on. Depression has an asterisk by it because I'll explain a little later, that's actually we used our cells to discover a drug, which is in animals right now to treat depression. But basically, we are looking, I would say, exclusively unmet medical needs and the way we work, I will take a minute to tell you. We are not a virtual company, but we use a very outsourced structure. And one of the reasons is because the expertise to do all the research here once you have the cells you need exists in a very diverse way, so for instance our Paraplegia studies are being done at the University of California, San Diego, and also at the Czech Republic Institute of Science.

Parkinson's is being done at the University of Cincinnati. ALS is being worked on Johns Hopkins and soon to be at University of Michigan, and so forth. So, we are doing things because the expertise, this allows you to really bring in the best people in the world, in any one particular program.

And the other thing that from a business point of view, we like about this model is, that it allows you to push one forward in sort of a component manner, when the science point you there.

So, for instance, in the next couple of weeks the study is going to come out in neural science and I can say it's coming out, but I can't talk about the data, and which is compelling proof of principle data that we've cured the Paraplegia in these rats that you see San Diego. And when we have that data and we knew that, that was real, then we were able to go ahead and actually produce the GMP cells to move this on to a product line and move the production up I am going to do that.

So, right now, I would say ALS is probably the next from behind that, although, you don't know. So, wherever, the science pushes you in both of these parts that's when you are able to then move into commercialization level and I think that's a much better use of resources then trying to do everything once in-house.

Of all the slides, you'll see this is actually the most important. If you don't remember anything else about Neuralstem, this is what I would ask you to remember. So, the main thing is that our technology actually solves the problems that are being holding to you back.

Now, I'll take just a minute and again from sort of bigger picture view, what's being holding the stem cell field back. You are always reading about stem cells of various kinds in the paper and you are hearing about all these breakthroughs, there is no cure to patients. What's holding the field back? Well, one the big problems that's holding the field back is reproducibility. The cell lines, the ones at NIH which you read about, things like that are notoriously difficult to reproduce. And two years later, when you grow them up you don't get the same thing.

All right. Our cells are remarkably robust and reproducible. And in fact, we have already created a GMP and the GMP is the super clone, while manufacturing you have to do for the FDA. We've already created 400 clinical-like doses. And then GMP tissue being capable of creating a million doses of our spinal cord cells. So, we've actually taken the entire issue of reproducibility and scale-up out of the risk equation, if you will. All right because it's already done. We know we can do it.

Another big thing that's holding the field back is controlled differentiation. And what this means is, you may read about a study where someone took fat cells or broad cells or whatever it was and they said they turn into neurons, right and they turned into liver cells or they turned into heart cells.

The problem is that even if some of those cells do, all the cells don't. And they don't know exactly how to control with embryonic stem cells for instance that differentiation. And of course, that can create a safety problem, if you put cells in someone's brain that turn into burn cell, you have a serious problem.

Right, and so controlled differentiation, not just the potential to turn into what you want, but to know that every cell is always turning into exactly what you want and only what you want. Right, our technology does that, we don't have that problem. Neuralstem cells only turn into Neuralstem cells, always turn into neural cells, excuse me, they always turn into 50% neurons, 50% glia, and we can tell what the actual type of neuron is, specific type, whether its Dopaminergic or GABAergic.

Right, by where we grow from? From the region to the brain. And again, because, if we go back to the other slide, we can do this in vitro because we can do this in dishes, all right, we can do it over and over and over again and we have quantified this.

And the other part about this, which goes to reproducibility, is what they call the mitotic capacity of the cell. So, Neuralstem cells are not immortalized, they don't grow forever. But the mitotic capacity, their ability to double, is about 60 doubles. Now, 60 doublings is a billion-billion fold expansion.

Okay, that's not just 60 times, its 60 doubles. All right, so, from a practical point of view, we can grow unlimited number of cell, the cells [freezing] for our very well. So, we don't have the issue of reproducibility, we don't have the issue of control differentiation. Another thing that sort of been holding the field back is the whole cloning issue, right. You can't clone a person from Neuralstem cells. So, we are completely outside of that whole debate, not an issue for us.

Minimizes the need for tissue, this is very important. Again, the cells are not immortal and actually we think that's the strength because we don't have to put an [ARPAgene] to immortalize, since we don't have the problems you have there. And, immortality also creates sort of a presumption of [geogenecity]. Right, the cells grow and grow and grow forever, and when they will stop, then you have to really sort of prove to the FDA, that your cells (inaudible), but if they keep going for some reasons that's not a bad thing.

On the other hand, it completely minimizes the need from tissues. I said, we have created already a GMP tissue bank for our spinal cord cells with enough cells in it to treat 1 million patients, and all that came from a single donated tissue. So, tremendous reproducibility minimizes the need for tissue.

And, finally, all of those things combined, provide for the ability to do exhausted testing. Again, when we go into the FDA, and we say well, this is what the cells do and this is what they do under these situations and under these situations, we have the ability to just constantly make as many cells as we need and they are always the same, so that the data is very good and that's what we mean by exhausted testing.

So, if you look at that as a group, those are really the main things that have been holding the field back from going forward and treating patients.

So, I want to talk a little bit about our anticipated first human trial. And it will be for Paraplegia, and as I said, the compelling efficacy proof of principle data was done at UCSD, which will be published in. The GMP Manufacturing, Charles River Labs, has a fabulous reputation with the FDA has already been done, Quintiles, which is the largest CRO in the world, I believe, is doing our regulatory work. We've already identified the clinical center and the surgeon that is going to do the first surgeries, we'll be filing the IND this year, and we'd anticipate the first trial, would hopefully also start this year, but it could possibly be early next year.

This is for those of you, who have been following us, a little bit different in that. Originally, we were focused on as very particular type of Paraplegia, called the ischemic spastic paraplegia, but it has become clear to us now, when we made the decision that we should expand the first trial to include ischemic paraplegic patients, as well as some traumatic paraplegic patients.

So, the first trial, actually be for paraplegia and we will figure that this will probably be somewhere between 10 to 12 patients and it takes about six months once you start the trial to transplant all the patients. And then, whether you may actually follow them for a very long time in terms of the trial itself, you probably follow each of them for about a year, from when you are transplanted in terms of getting the data. So, you are looking at about an 18 month window probably for this trial.

Now, I want to take just a minute to talk about the business side of this, because people are sort of, for some reason, don't like to talk about the business side, the specific business. And economics of transplantation with respect to ourselves and our product are actually fairly compelling. We've already done the manufacturing, so we know what the cost of the manufacturing is.

We don't know yet what the final patient cost will be, but if you look at comparable gene therapies and things like that, they range anywhere from $50,000 actually to $180,000 per year for some of the more expensive gene therapies. Our guess is right now, we are looking at somewhere between $50,000 to $100,000 per patient and I think that again, when the time comes, we will see what that is, but the main point here is that the margins are very good. This isn't like the transplantation stem cell products like mesenchymal stem cells, we have to take it out of the person, do something to it and then put it back in. All right, so the margins here come from the economies of scale you get from an actual product. That is the ability to take one tissue, make a tissue bank with a million doses in it from that single tissue.

And so, the other part here is production, proving scale about manufacturing and a universal cell product for all patients. We talked about the proving scales of manufacturing, 80% of the risk in most biotech discoveries that is contained in the scale up, right, going from the lab scale with the bench to the manufacturing scale. We've already done that, so again we've taken that risk out of this.

What we mean by universal cell product for all patients is, there is no blood typing or immunology and things like that that, you have to do here. These cells actually have very low immunohistochemical markers on them and your immune system basically circulates through your body and your blood, and the brain is protected by something called the blood-brain barrier, the blood never actually sees the brain cell. And so, we don't worry about the kind of rejection issues you have when you transplanting organs. And so, we don't need to create different labs or anything like that to match up, so it actually is a universal cell product which we work for all patients.

And finally delivery, this is basically an injection of the cells by neurosurgeons. So, there are lot of issues, which have to be worked out in terms of other health issues that patients have when you do any kind of surgeries. When talking about injecting the cells into the spinal cord, into the brain, there is nothing exotic, there aren't going to be any to be discovered exotic machines, basically this will be able to be delivered by neurosurgeons anywhere where they do neurosurgery.

Whenever, you talk about stem cells, people talk about regulatory issues. Because it's always sort of on the front page and I think basically the right way to think about regulatory issues are these three areas.

Tissue acquisition, we believe we have established what we are calling the goal standard for tissue acquisitions, and we've acquired no further tissue for clinical trial or for commercialization, Paraplegia or actually any of the other indications that will acquire the spinal cord cells and legal bars. There are currently no legal bars to our technology in the US. The existing bars that you hear about one are focused on embryonic stem cells. And secondly, they mostly actually go to the use of Federal money for research, and not the actual use of an FDA approved product.

And then finally cloning, there are bills floating around Congress which are eventually going to get passed and one was actually passed last year which out-rolled the cloning of human beings. And again, the problem here that you worry about is that the way they worded even if you are not involved in cloning at any of your steps or the same steps that are used in the cloning process. You could run into a problem. Our cells cannot be used to clone none of our steps are in that pathway. So, we don't worry about being involved with regulatory point of view, in that side.

Now, I am going to take a minute to talk about neurogenic compound. So, again, if you think about what we have our fully functional and physiologically relevant human neurons in unlimited numbers in dishes.

And even though the company is focused 99% on getting those cells into humans to prove that they are safe and efficacious. One of the unique things you can do with these cells is you can screen drugs against them.

And in fact, we had a $2.5 million grant from Darpo which is the part of the Defense Department to prove that you could do that. And we did it against our hippocampal neurons for a program that they were doing. And in fact, what we found were neurogenic and neuroprotective compound.

So, the Darpo program was trying to discover one thing but it needed the hippocampus, we are the only people who can grow hippocampus neuron. So, we got the contract.

Now, neurogenic and neuroprotective what that refers to basically it is that the consensus now is that there are adult Neuralstem cells, that is there are Neuralstem cells in the adult human brains, probably just in hippocampus. It makes a little sense, if you think about it because that's were you are forming memories and so your ability to form memories throughout life may be a function of your ability to create new circuits and you need new cells to do that.

And so, we have compounds which protect those endogenous human neural stem cells against all kinds of toxic in cells that's what we mean by neuroprotective. And neurogenic means, we actually help them grow. So, if there is only two there and we put our compounds on it, then we can get four later on.

And, one of the reasons that's important is that, we now have a $500,000 grant to look at these compounds to treat depression. And, one of the current theories that all the big pharmas are chasing these days, is that in fact that's what's going on in depression, is that whatever is causing in stress genes or whatever they think it is, it is killing the endogenous neural stem cells in the hippocampus. And they all have some data now that they are serotonin uptake inhibitors and all those other drugs.

Basically, a little bit neurogenic and a little bit neuroprotective. All right, we have very potent neurogenic and neuroprotective compound. And so, we have the grant from a range, we are looking at that. We do this on what we call a cash mutual basis. We don't have internal resources dedicated to it.

These compounds we are looking at actually to be cognitive and memory enhancing, a wide range of indications they are in animals now, and we are a year away from where we are having important data. And again, from a business point of view, the company is not going to become a small molecule drug development company. However, as a proof of principle that you can use our cells and dishes to discover drugs, I think this is incredibly powerful. And when these compounds go into humans for their phase 1, I think we will have unveiled a tremendously powerful, completely new platform for discovering small molecule drugs and this will be our proof of principle, from the Defense Department grant, through to the first human trial.

So, the take home message here, this is unique, important, patented human biology, and that really maybe the most valuable asset that you can have in a life science company today. We are a therapeutics company. We're addressing large unmet medical needs, most important, this is technology that brings answers, not questions. This isn't 10 years from now, this isn't 5 years from now, it's today.

We have diversified product lines, we have spinal cord cells, which we will be looking at for paraplegia, for stroke, for MS, for ALS. We are looking at ventral midbrain cells for Parkinson's, we have a platform where you can use the cells to discover drugs, this is really a platform technology, the term that sort of lost its use for a while, but this actually is one.

And, finally. We have a very clear path for the clinic and commercialization, there is no little black boxes on our lines, which say to be discovered or unknown, right, we are moving directly into the clinic for Paraplegia, all the pieces are in place and you should able to judge this by the same milestone you would judge, any other development stage company. Thank you.

Question-and-Answer Session

Unidentified Audience Member

Take a question?

Richard Garr

That's up to her. Yeah, we affirm it.

Unidentified Audience Member

I think we have five more. Richard, two questions. First is, explain to the audience a little bit about our financial model, the deal that you did in February to raise additional funding, cash [operating] and et cetera. The other question is, could you give us an update on your patent situation with stem with the loss you filed, and the counter claims and where we are now with that?

Richard Garr

All right. So, I think I will illuminate on the financials to what was in the quarterly report and is public. And I am probably sure we had about $8 million in cash. I think we have about 35 million shares issued and outstanding. The company's burn rate because we have this outsource model is very low to about $250,000 a month, exclusive of the actual project related cost for getting into the clinic and that runs another on an average or a year about a $150,000 a month.

Well, also you refer us to the infringement law suite was filed last August by StemCells, Inc. and obviously we are not infringing their patents. But it actually hasn't gone anywhere. At this point, the patent office has ruled that all of the patents they accused us of infringing are invalid. In fact, they have little bit, it's preliminary because they get to fight it out, but the preliminary ruling was that all the claims in all the patents, they are not valid. So, I think for a couple of years nothing will happen until and unless they make it out of the patent office even in those patents, intact. Yeah.

Unidentified Audience Member

Can you discuss with me the harvesting process of the StemCells?

Richard Garr

I don't know that harvest is the right word. So, these cells are donated tissue. It comes from an aborted fetus, a single aborted fetus very, very early and as I said when you get a billion-billion fold expansion and if you start with very small amount of tissue, which we do from the single donated tissue, you can create a cell bank that has enough tissue, and have to treat a million patients, which is what we have done. And it's basically just cell culture. It's the mitotic capacity of the cells their ability to expand in our patented process, without having to add oncogenes, or anything like that. So, it's very, very simple GMT cell culture.

Unidentified Audience Member

Richard, can you talk (inaudible)?

Richard Garr

Well, technically the FDA considers this a first in human feasibility study, and their only interest is safety. Our interest is also return a function, we believe, we will be looking that or technically be secondary end point.

But the only thing about cell therapy is it's different from a traditional human clinical trial for a drug for instance there is no healthy volunteers, and in typical Phase I you have healthy volunteers and you are looking at safety, we are looking at safety, but we are looking out in the real patients, we are getting to real dosage.

They will probably be, the worst off patients if you look at the scale of how sick they are, and what they are and that's the FDA's way to sort of pushing it toward something that's more pure safety but we will be looking very seriously at efficacy and we expect to see some return of function in the trial. That was it, okay.

Unidentified Audience Member

Richard, with respect to the kind of patients you might getting out for study, obviously there product issue will be formed and all your animal studies and other companies that researchers trying to show there could be an obstacle to forming synapses. Is there anything and our studies that indicated thus far that the product issue will be less of an issue, while particular kind of cells.

Richard Garr

We don't know probably the way that's been dealt with is in the inclusion/exclusion criteria. So, right now even though we have that's not final yet, my guess is that the inclusion/exclusion criteria there probably will be anybody in the trial who has been paralysis for more than five years, or two years whatever the number is. And I think you have to get out pretty much beyond five years before trying taking a real impact. So, we probably won't be able to give an answer on that issue from the first trial. I don't think of any long-term patients in there, but I don't know that yet. All right, thank you.

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