Expert Financial Analysis and Reporting

Purpose of Report

An encouraging update on the phase I trial of Neuralstem's (CUR) neural stem cells in ALS was just presented. I alerted investors about this potential catalyst in my recent blog.

Investment Conclusion

Before I state my conclusions let me quote the lead investigator on the study, Dr. Eva Feldman. She said "Collectively, these preliminary results suggest that intraspinal stem cell transplantation of ALS subjects, with no bulbar symptoms, early in the course of their disease, could slow disease progression and even allow for functional improvement," Dr. Feldman is Director of the A. Alfred Taubman Medical Research Institute and Director of Research of the ALS Clinic at the University of Michigan Health System and an unpaid consultant to Neuralstem. She is also the current President of the American Neurological Association. Dr. Feldman is a recognized leader in the treatment of ALS.

I discuss the update in more detail later in this report, but let me first give you my conclusions. I think that these results are an extremely encouraging signal of efficacy. I know that many investors will scoff at any attempt to draw conclusions on efficacy from results in just four patients. I understand their conservatism, but I just don't think these results can be ignored. I think that this is going to create a buzz in the ALS community and I also think it will create a buzz in the investment community.

Based on these early results, I hypothesize that the best chances for efficacy is in newly diagnosed patients with limb onset form of ALS. Advanced stage patients and bulbar onset patients may not benefit.

I also think that the results seen so far are in patients who may have been given a sub-optimal number of cells. The first three patients treated were given five injections of 100,000 cells each for a total of 500,000 cells. The most that any patient has received in the phase I trial are 1,000,000 cells injected in the lumbar region and 500,000 in the cervical region for a total of 1,500,000 cells. In the upcoming phase II trial, some patient will receive 20 injections of 400,000 cells in the lumbar region and 20 injections in the cervical region for a total of 16,000,000 cells. Animal studies suggest that the optimal dosage may be closer to 16,000,000 but we shall see.

I think that these results are truly exciting even though they were achieved in a small number of patients. In my opinion, CUR's neural stem cells clearly produce important therapeutic benefits in some patients. What we don't know is what part of the ALS population might benefit. I am much encouraged by this update and continue with my Buy recommendation.

Background

Along with most investors, I have much to learn about ALS. About the only experience we have had with drug development for this disease is that all but one of the drugs tested have failed. Rilutek is the only drug approved for ALS; it shows a very modest effect of extending life in some younger patients by two to three months while having no benefit on quality of life. I don't have much understanding of how ALS affects the body and different sub-populations of the ALS community that present with variations of the disease. I suspect that we will all get an education in coming years.

There are certain terms that I use in this report that are probably useful to define beforehand. I refer to ambulatory and non-ambulatory patients. Ambulatory patients are generally younger patients who are earlier in their disease than non-ambulatory patients.

ALS generally starts to affect neurons in the lower part of spine (lumbar region) which control movements of the feet and legs. It then spreads up the spine until it reaches the upper region of the spine (cervical region). Neurons from the cervical region control speech and eating so that as they deteriorate, quality of life drops sharply as patients can't communicate properly and may have to be assisted with eating. Neurons from the cervical region also control breathing and as the disease progresses, breathing must be assisted by mechanical ventilators. Many ALS patients die from pneumonia and other complications of mechanical ventilation.

The disease usually starts in the lumbar region and is referred to as limb onset. However, in some patients, the disease starts in the cervical or upper region of the spine; this is called bulbar disease. According to one investigator about 90% of patients are limb onset and 10% are bulbar, but this estimate was based on his clinical experience.

ALS is usually a disease that inexorably progresses as measured the ALSFRS-r scale that measures functionality. There may be periods in which the disease plateaus for a month or two or three, but almost all patients just don't get better or stabilize. They just experience a steady decline. There are however, some rare atypical ALS patients who stabilize for periods of many years. Steven Hawking the noted British physicist is an example.

For those of you, who want a more in-depth review, please refer to the two reports that I have written in the last half year.

Update of the Phase I Trial of Neuralstem's Neural Stem Cells

The FDA was concerned about the safety for both the neural stem cells and the surgery used to implant the cells and required the trial to progress very slowly. The first cohort was three non-ambulatory patients who were given five unilateral (on one side of the spine) injections in the lumbar region of the spine. As in all injections in this trial, there were 100,000 cells in each injection. This was followed by the next cohort of three non -ambulatory patients who were given ten bilateral lumbar injections, five on each side of the spine.

In the update just presented, five of these patients died and there was no evidence that the neural stem cells had any therapeutic effect. One patient treated was an atypical patient who entered the study while on a mechanical ventilator and continues to live with the disease; his condition is stable, but there is no evidence of benefit from the transplanted neural stem cells. The main conclusion that can be drawn from this phase of the trial is that the cells are safe and the surgical procedure used to implant them is safe. There is no evidence of benefit in this group, but this is not surprising in these patents with advanced disease.

The next three patients treated were three ambulatory patients who were given five unilateral injections in the lumbar region of the spine. This was followed by a cohort of three patients who were given ten unilateral injections in the lumbar region. Of this group of six patients, one died from a heart attack that the investigator concluded was unrelated to the disease or the treatment. No conclusion about safety or efficacy can be drawn from the experience of this patient. Another of these six patients was an atypical patient, who remained stable, but there is no clear evidence that the surgery produced benefit in this patient

Of the first twelve patients treated, only four ambulatory patients had any reasonable chance of getting any benefit from the therapy. Encouragingly, these four patients had what can only be called spectacular results in which the disease condition was stable, declined modestly or improved over periods ranging from 700 to 850 days. This is something that investigators with whom I spoke believe is an extraordinary signal of efficacy. The two atypical patients among the first twelve patients treated also remain stable, but it is not clear if the neural stem cells helped them.

The next phase of the trial involved giving five unilateral injections in the cervical region of the spine. Remember, it is the cervical region of the spine that controls breathing, eating and speech. Three of the patients treated were ambulatory patients who had previously received lumbar injections. Three patients were newly treated ambulatory patients.

The three previously treated patients had all responded well to injections in the lumbar region. No data was presented as to whether the cervical injection provided any additional benefit. We will learn of this at some later point. Of the three new patients treated, one was atypical and as was discussed previously it is difficult to judge if there was a benefit. The other two patients had bulbar symptoms and the lead investigator was discouraged that the neural stem cells had any effect.