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All too often I see fights over microcap development stage companies on UGC financial sites that do nothing more than amuse me. Accusations of agendas are thrown, predictions are made, but at the end of the day very little substantive information is given. That's nobody's fault of course, because usually there isn't much anyway, and this is especially the case when it comes to development stage biotech companies.

The givens are these:

  1. Until any of these companies have something to sell, they will make little to no money beyond what they can raise. By definition, they are all in a struggle to survive until they either sell something, get bought out, or "cease being a going concern" as those 10-Qs say.
  2. Being that they all have virtually no income, any fluctuation in their stock price, up or down, will be driven by pure emotion with zero fundamentals and be temporary followed by a violent regression to the mean in either direction. All fluctuations should be ignored because, at the end of the day, if they fail, you lose it all. If they succeed, any temporary loss will be regained many times over. Any argument over whether a stock earning no income will go up or down is arguing over chump change and missing the point of investing in these companies.
  3. For biotech companies in specific, the only meaningful research one can do is to see how much cash is left before the clock runs out, and study the clinical trials themselves to see if they're getting anywhere. If any kind of progress is made, the clock will refresh. It doesn't much matter how money is raised as long as it's legal, doesn't come with enormous interest rates or strings attached and buys the time needed to push through those trials.

One successful case in point is Genzyme, sold to Sanofi (SNY) in 2011 for $20.1 billion. The movie Extraordinary Measures with Brendan Frazer and Harrison Ford tells the story of this private company, started by a father with two children afflicted with Pompe disease, a paralyzing muscular disorder that afflicts no more than 35 children a year in the United States. The company developed Myozyme and Lumizyme, two drugs that prevent the onset of Pompe symptoms so these 35 children can live normal lives. Though Genzyme was private when it was sold, had it been public, any fluctuation in its stock price before it was bought out by Sanofi would have been totally irrelevant, and would still be totally irrelevant had they failed and gone bust.

A Seeking Alpha sparring match is going on with Neuralstem (CUR) now about these very issues. It's high, it's low, the shares are being diluted, that's not good, it's OK, etc. The only questions should be, how much cash do they have, how much do they spend, how much can they get, and what is going on with the clinical trials?

On the cash front, Neuralstem's balance sheet shows $2.35 million in cash. Add another $7 million in a recent registered direct offering, and incorporate their monthly cash burn rate at $700,000 per month as per their 10-Q (see item 1-A Risk Factors), and the clock is set at a little over a year. They've been in operation since 1996 so it would be safe to assume they'll continue raising capital at least until one of their clinical trials has categorically failed.

As for the trials themselves, they are engaged on two fronts. The first is a phase I trial of its drug NSI-566 for amyotrophic lateral sclerosis (otherwise known as Lou Gehrig's disease), recently completed on 18 ALS patients. The trial won't be officially over for another 5 months, but one quote sums it up: "In some patients, it appears that the disease is no longer progressing, but it is too early to know if the result from that small number of patients is meaningful."

Basically, not even the doctors themselves know what's going to happen, so of course neither do the investors. If, after 5 months, those patients see improvements, or even lack of disease progression for a sickness that has only known degenerative total paralysis horror, you can be sure that Neuralstem's cash clock will be reset, and quick. One reason for hope is that Neuralstem's stem cell product has been tested successfully in paralyzed rats.

Sanofi bought out Genzyme for $20 billion for curing a disease that affects 35 kids a year. ALS affects 5,600, and it's just as deadly. How much is that worth? Of course, Myozyme and Lumizyme are prohibitively expensive ($300,000 a year) and need to be taken for a lifetime, and NSI-566 would be much cheaper. Sanofi of course had that in mind when they offered $20 billion for them.

The other front is in China, where the company has received approval for a combined Phase I/II trial for NSI-566, the same drug, for ischemic strokes. This is basically an injection of stem cells directly into the brain at the site of an ischemic stroke, which, like ALS, paralyzes you. 118 patients will be part of the trial. About 630,000 people suffer an ischemic stroke each year in the US. That's much more than 5,600, and inordinately more than 35.

So my advice is learn everything you can about these trials. Peruse journals, find the researchers and email them questions. Don't worry about the cash clock. Neuralstem has over a year of funds and the final word on the phase I for ALS treatment is due in 5 months.

One thing I have not mentioned is that Neursalstem's stem cell line technology is patented and allows them to produce commercially viable amounts of human stem cells for any part of the body. Even if they fail, they have something to market.

Source: Will The Sanofi Pompe Paradigm Play Out With Neuralstem And Lou Gehrig's Disease?