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Expert Financial Analysis and Reporting

Initiating Coverage of Neuralstem with a Buy (CUR, $0.92)

Product Development Overview

This report provides an introduction to stem cells and the cells that comprise the central nervous system. Basic knowledge of both is needed to understand the investment thesis for Neuralstem. Its technology platform is based on first isolating neural stem cells from fetal tissue and then expanding them in cell cultures to produce enormous quantities for clinical studies and hopefully eventual commercial use. The neural stem cells when transplanted can differentiate into the three key cell types of the central nervous system: neurons, astrocytes and oligodendrocytes. These newly transplanted cells can integrate with existing tissue to repair or create new neural circuitry.

Most of investor attention on Neuralstem has centered on its neural stem cell transplantation programs for treating amyotrophic lateral sclerosis or ALS (also known as Lou Gehrig's disease) and spinal cord injury. However, its technology also has promise for developing novel small molecule drugs. It can isolate and grow stem cells found throughout the brain and spinal cord, something that few, if any, other companies can do. It can then screen for molecules that have a desired effect on those cells. Using this approach it has developed a new small molecule drug that works through a novel mechanism of action for the potential treatment of depression, Parkinson's, Alzheimers' and other diseases of the central nervous system. The company is currently dividing spending about equally between the stem cell transplantation and its small molecule programs.

A Perspective on Investing in Stem Cell Therapy

I recently attended the MD Becker Conference on Immunotherapy and listened to a panel discussion of four well-knownWall Street biotechnology investors. I found some of their comments to be an excellent starting point for presenting the investment thesis on Neuralstem. While stem cell therapy companies were not featured in this conference, their investment issues are very similarto those of immunotherapy companies.

The four investors were unanimously negative on small companies who were focusingon immunotherapy and by extension of their thinking would also be negative on stem cell therapy companies. The most important point that all four investors pressed was the riskiness in investing in small companies pioneering potentially paradigm shifting technologies. They dismissed these companies as "science projects" feeling that the clinical outcomes were too uncertain and the timelines for development were too long to warrant investment consideration.

When asked about the types of companies in which they liked to invest, they said that they favored companies whose lead products had data fromwell controlled, randomized phase II trials. They also favored companies working with proven technologies such as small molecules and monoclonal antibodies. They essentially dismissed small companies doing pioneering work in immunotherapy and stem cell therapy.

I point out their views not to disparage or argue with them although I do disagree. The importance of understanding their viewpoint is that they represent consensus thinking on Wall Steet. They have no interest in investing in companies like Neuralstem or immunotherapy companies like Northwest Biotherapeutics and NovaBay, small companies that I have recently highlighted. The collateral problem that this causes is that Wall Street analysts provide coverage on companies that large institutional investors are interested in. This results in redundant coverage of the large and medium sized biotechnology companies, but almost total neglect of small pioneering companies like Neuralstem.

These four investors are trying to minimize risk by investing in evolutionary advances in science on the premise that reducing risk makes for a more favorable reward/risk ratio.

However, I am not sure that this strategy really accomplishes that. An audience member pointed out to them that ArQule and Keryx fit their investment criteria to a tee. They were developing small molecule drugs for oncology that had shown statistically significant effectiveness in phase II b trials. Both subsequently reported disappointing data and that has led to a 50% drop in their stock prices.These experiences show that there is considerable risk as well in investments based on consensus thinking.

I think there is room in a diversified portfolio of biotechnology companies to have some "science projects." There are some amazing technologies, like stem cell therapy, that hold the potential for dramatic medical breakthroughs. However, big companies seem to avoid these opportunities for the same reason as big investors; they see it as just too risky. There aren't many employees of large company research departments that would spend 14 years of their careers sponsoring an unproven technology as the management of Neuralstem has been willing to do. The paradox in biotechnology is that big companies aren't willing to go after the potential paradigm shifting technologies. These are left to small companies, largely ignored by investors, which struggle with modest market capitalizations and have difficulty attracting capital.

I believe biotechnology trials and investments in companies conducting them are risky- period. If you are investing in biotechnology, there is no way to avoid this. This argues for diversification, but why not include some companies in which the reward in the event of success gives the skyrocket investment returns that are a biotech investors' dream. Relative to current investor consensus thinking, the risksare not dramatically different, but the returns could be dramatically higher. This is not to argue that investors go out and buy every small company with an interesting story. I place an emphasis on companies with promising clinical data, but I don't always demand that it be from a large trial. I believe that Neuralstem is one of the "science project" companies that warrantserious investment consideration.

Key Investment Issues withNeuralstem

Let's now turn from the macro-economic investment issues confronting Neuralstem and other small stem cell therapy companies to those that are Neuralstem specific.This company has spent 14 years developing its regional neural stem cell therapy and has the leading position in the world withthis specific approach to stem cell therapy. For another company, large or small, to try to replicate what the company has done would be a daunting challenge that would take many years. It has a highly proprietary technology base and strong intellectual property. Its products, if successfully developed should have a very long commercial life.

The stem cell transplantation program is first targeting amyotrophic lateral sclerosis or ALS and will soon open trials for treating neurological damage caused by trauma and stroke. These are devastating conditions for which there are no effective treatments. The company is now reporting maturing data from an ongoing phase I trial in ALS. In the first phase of the study, twelve ALS patients received neural stem cell transplants in the lower lumbar region of the spine. The primary objective was to establish safety for both the implanted cells and the surgical procedure.

The first six of these twelve patients were non-ambulatory (the first three treated were also on breathing machines) which indicates that motor neurons in the lumbar regions of their spine that control walking were already dead. There was no expectation that transplanting neural stem cells in the lumbar region would give any therapeutic signal. Determiningsafety was the primary objective. It was shown to be safe to the satisfaction of the FDA in these first six patientsso that Neuralstem was allowed add another six patients to the trial.

The stage ofALS in the nextsix patients was less advanced. They were still ambulatory which indicated that some motor neurons in the lumbar region were still functional. This raised the possibility that Neuralstem's neural stem cells could integrate with remaining nerve tissue to improve neural function. One of these six patients died of a heart attack which was determined not to be connected with the transplantation and could not be evaluated.

This left five patients out of the first twelve treated for whom there was some possibility of seeing a signal of efficacy. Encouraging results were seen in four of these patients asthe disease was stabilized for nearly one year. This was noteworthy because ALS patients almost always experience a steady decline over this length of time.The fifthpatient experienced an extraordinary improvement which was unprecedented in the experience of ALS investigators involved in the trial.This is not a disease in which there are occasionally spontaneous remissions. Physicians did another diagnostic workup to confirm that he indeed had ALS.

Neuralstem is blinded to the results the trial and ethically and legally cannot discuss an individual patient's results. However, Ted Harada who was the 11 th patient treated in trial (he had 10 bilateral injections of cells in the lumbar region), experienced an extraordinary result and went public with the information. He wrote on his blog that in 2010, he was diagnosed with ALS at the age of 38. He said "My left leg fatigued easily. I was short of breath, my energy tapped. I needed a cane to walk. Then came the barrage of tests, the results the same.There is no hope. You are without hope.Then I heard about a clinical trial transplanting neural stem cells into the spinal cords of ALS patients. It was the first of its kind. The Food and Drug Administration approved it and I qualified. I was treated at Emory University Hospital in March 2011.Since then, the deterioration from ALS has temporarily slowed. I even completed a 2 1/2-mile walk to defeat ALS."

Mr. Harada was later interviewed by Fox television and on that interview one of the investigators in the trial, Dr. Eva Feldman, the principal investigator in the trial, was quoted as saying, "We have found the procedure to be extremely safe.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."

Mt Harada has now been given an additional five unilateral injections in the cervical (upper) region of the spine as an ongoing part of the trial. As explained later in this report, injections in the lumbar region would be expected to have an effect on walking while injections in the cervical region are expected to have more of an effect on breathing, speech and swallowing. Most ALS patients die because they no longer can breathe. Initial results of Mr. Harada and five other patients who received cervical injections should be available by year end 2012 or early 2013.

Analysts like me are conditioned by experience to be skeptical about drawing conclusions from data based on small numbers of patients and to dismiss extraordinary improvements such as Mr. Harada's as occurring by chance. The most dangerous words in the English language are "this time it's different", but the situation with ALS may be different. It is caused by deterioration and death of spinal cord motor neurons and once they die they are not replaced by the body. The disease usually starts in the lower lumbar region of the spine and spreads up the spine over time. This suggests that the condition can only get worse and this has been the clinical experience with ALS. Preventing progression in the four patients and Mr.Harada's extraordinary improvement takes on more meaning in this context.

ALS is an orphan drug disease with only 5000 new cases per year in the US and a prevalence of 35,000. However, pricing for orphan disease drugs for life threatening conditions can be set very high. Insurance companies regularly reimburse such drugs at $200,000 to $300,000 per year as opposed to $10,000 per year for drugs dealing with less severe diseases. At these prices, the US addressable market based on incidenceof ALS is $1+ billion and based on prevalence is $7+ billion. Neuralstem's neural stem cells could achieve very quick penetration of the market based on replication of the results seen in the phase I trial. Each 1000 patients treated could produce $200 to $300 million of revenues.

Most of investor attention on Neuralstem has centered on the neural stem cell transplantation programs. However, its technology also has promise for developing novel small molecule drugs. It has isolated neural stem cells from throughout the spinal cord and brain. These can be screened to find molecules that work through novel mechanisms of action.

The first small molecule drug is NSI-189. The hypothesis underlying the development of this drug is that age and disease can cause the hippocampal region of the brainto atrophy. This is the part of the brain associated with memory. Some investigators think that this atrophy may contribute to diseases like depression, Alzheimers and Parkinson's. Based on screening against its proprietary hippocampal cell line, Neuralstem, studies conducted in vitro (cell cultures) and in animals indicated that NSI-189 may re-stimulate the growth of neurons in the hippocampus. Research on central nervous system drugs has been largely based on themanipulationof neurotransmitters such as serotonin and dopamine. While this approach has led to the creation of drugs like Prozac and Zoloft that produced billions of dollars of sales, this research course has largely exhausted itself and CNS drug research is floundering. Also these drugs had only mediocre efficacy.

Against this back drop just laid out, the novel hypothesis explored and novel mechanism of action make NSI-189 an interesting project. The product is in a phase I trial to primarily determine safety. Unlike the ALS program, this is likely to be a drug that will require lengthy and costly trials as depression does not pose the risk to life as does ALS. It might take six to eight years, costly clinical trials involving thousands of patients and as much as a billion dollars to develop this drug. Neuralstem can only pursue development of this drug through a partnership.

Investment Thesis

My investment interest for Neuralstem is driven by its novel and enormously excitingstem cell transplantation and small molecule technologies. I can get a little bored following the evolutionary technologies that Wall Street focuses on. It may be a science project, but there is more than just "hype" with the story. Although, we have data on only five ALS patients that suggest that its neural stem cell therapy is effective, I think that in the context of the progressive nature of the disease that the phase I trial has given an important signal on efficacy and has shown that the surgical procedure has acceptable safety.

As an investment, Neuralstem, with its $78 million market capitalization is valued like a venture capital investment that faces many years of clinical development. However, it has already gone through 14 long years of development. In an optimistic scenario, its stem cell transplantation product could begin phase III trials in 2014, an NDA could be filed in 2016 and US marketing could begin in 2017. Assuming 1000 patients treated in 2017 at a price of $200,000 per patient, this could create $200 million of revenues. I think that the multiple placed on sales would be five to ten times resulting in a $1 billion to $2 billion market capitalization. The company currently has about 85 million fully diluted shares outstanding counting all in the money as well as out of the money options and warrants. Based on some rough assumptions for financing, there might be 125 million shares outstanding by 2017 resulting in an$8+ share price.

The company also has an interesting business development strategy in China. In cooperation with the Chinese military, it is beginning a phase I trial in patients who have suffered neurological damage due to ischemic stroke. In this procedure, the same neural stem cells used in the US trial for ALS are implanted into the brain of an ischemic stroke victim rather than the spinal cord. A phase I trial will be starting by yearend or early 2013. I discuss the timeline for development in detail later in this report, but assuming success in the clinical trials, the product could be approved in 2015 in China.

Neuralstem has planned another clinical trial program in Mexico that will also study the same neural stem cells. If the company can close a partnering deal, a phase I trial could begin in 1H, 2013; it will not start the trial without a partner. The development timelineis discussed in detail later, but assuming success in the trials, the product could be approved in Mexico in 2016.

Clearly, the upside in the stock is extraordinary if these scenarios all develop successfully but this must be balanced against the many risks that I outline in this report. The clinical trials may report disappointing results or safety issues could emerge that in the bleakest scenarios could lead to liquidation of the company. This is another of the asymmetric investment opportunities that I sometimes focus on.

The performance of the stock over the next one to three years will be primarily driven by clinical results from the neural stem cell transplantation program. The small molecule program is not likely to produce meaningful phase IIb data before then. I think that the hypothesis behind NSI-189 is very interesting, but it just has a slower development timeline. Neuralstem is confident that it can partner NSI-189 in 1H, 2013. The terms and the partner chosen could have a short term impact on the stock price.

Clinical Trial Timelines

The stock performance in 2013 and 2014 will be driven by milestones on clinical trials. I have laid out potential timelines under the assumption that all trials are successful and complete on time. These are shown below:

Neural stem cell clinical studies in US for ALS

  • 1Q, 2013: Six more surgeries were performed after the initial twelve patients on whom data has been released. These injections were in the cervical region. The last surgery was performed in August 2012. The first interim data on these six new patients will be available around the end of the year.
  • 1Q, 2013: If there are no safety issues in the 18 surgeries that have been performed to date, the FDA may allow Neuralstem to begin a phase II trial that will involve higher concentrations of cells per injection and more injections in both the lumbar and cervical regions of the spine.
  • 2Q, 2014: Results of phase II reported.
  • 4Q, 2014 Phase III trial involving 40 to 50 patients begins
  • 3Q, 2016 Initial results of Phase III trial reported
  • 4Q, 2016 NDA filing for ALS
  • 2Q, 2017 US approval


Neural stem cell clinical trials in China for ischemic stroke patients with neurological damage

  • 1Q, 2013 Phase I/II trial starts in 9 to 18 ischemic stroke patients
  • 3Q, 2013 Initial data relating to safety is available
  • 4Q, 2013 Phase II trial involving 100 ischemic stroke patients with neurological damage begins
  • 4Q, 2014 Results available
  • 3Q, 2015 Approval based on phase II results may be possible


Neural stem cell clinical trials in Mexico for ALS and spinal cord injury

  • 2Q, 2013 Start of trial is dependent on partnering deal
  • 2Q, 2013 Phase I/II trial begins in twelve to eighteen ALS and spinal cord injury patients subsequent to partnering
  • 1Q, 2014 Results of trial
  • 2Q, 2014 Phase II/ III trial starts in 100 ALS and spinal cord patients
  • 2Q, 2016 Results are available
  • 4Q, 2016 Regulatory filing
  • 3Q, 2017 Product approved


NSI-189 clinical development

  • 1Q, 2013 Phase Ib results
  • 2Q, 2013 Partnering deal with potential upfront payment of $5 to $20 million depending on strength of phase Ib data
  • 4Q, 2013 Phase IIa trial in depression involving 200 patients begins under sponsorship of partner


Financial Issues

Neuralstem operates as a virtual company with a burn rate of $500,000 to $600,000 per month or $6 million to $7 million per year before any expenses for clinical trials. This should remain the case for the next few years. The company will bear no costs after 1Q, 2013 either for the NSI-189 trial orthe Chinese and Mexican trials of its neural stem cells.

The primary incremental cost over and above the $6 to $7 million burn rate will be the cost of the US trial in ALS. Each ALS patient costs about $130,000. In the phase II trial that could start in 2Q, 2013, the company will enroll 18 patients at a potential cost of $2.3 million; this will be spread over 2013 and 2014. The total expenditures in 2013 and 2014 could be $12 to $14 million in intrinsic burn and $2.3 million for the phase II trial plus a small amount for beginning the phase III trial late in 2014. This adds up to $15 to $17 million of spending in 2013 and 2014.

The company currently has about $10 million of cash on its balance sheet and by year end this could be about $8 million. The partnering of NSI-189 could bring in $5 to $20 million in 2Q, 2013. At the lower end of the range Neuralstem would need to raise additional cash in 2014. At the upper end of the range it would have $10 to $15 million of cash at the end of 2014. There also could be potential upfront fees from partnering neural stem cells in the US in 2014 and the Mexican deal in 2013.

Stem Cell Overview

The most common cells in the human body are specialized cells which make up the internal organs, skin, bones, blood, and connective tissue; there are more than 200 types. Stem cells have unique properties that distinguish them from specialized cells: (1) they can divide and create duplicates of themselves, sometimes after they have been dormant for long periods, (2) they do not perform any direct function in the body as do specialized cells, and (3) they can turn into specialized cells in a process called differentiation. Specialized cells can only replicate into identical specialized cells.

Stem cells do not perform specialized functions such as heart cells which work in conjunction with neighboring heart cells to pump blood. However, they can change into specialized cells like nerve, heart muscle and blood cells. The therapeutic goal in stem cell therapy is to transplant theappropriate type of stem cells into damaged organs that can then differentiate into specialized cells and treat disease and injuries that have been difficult or impossible to treat effectively with current drugs.

At a casual first glance, stem cell therapy could appear to be straightforward. Why not just find the appropriate stem cell, deliver it to the area such as the spinal column or heart where you want to grow new cells and let things happen? It is infinitely more complex than this. Stem cells are not so easy to isolate and expand. Moreover their action in the body is not well understood as they interact with surrounding cells in extremely complex ways.

Stem cell therapy holds the promise of being a major step forward or a paradigm shift in treating human disease.In my opinion, this is inevitable, but the question is how long will it take and will the small companies now pioneering the technology be winners or historical footnotes?The history with monoclonal antibodies is illustrative. The key discoveries for producing monoclonal antibodies occurred in the early 1970s and the Nobel Prize for their discovery was awarded in 1984. However, it took until 1997 to launch the first major product based on monoclonal antibodies, Rituxan (rituximab), which has current sales of $6+ billion. Stem cell therapy may also take a long time as the first products are just beginning to be studied in humans, but it could be one of the next great drivers of biotechnology.

Embryonic and Adult Stem Cells

There are numerous types of stem cells but they are broadly classified into two categories: embryonic and an "all other" category called adult stem cells. Embryonic stem cells can ultimately differentiate into all of the cells that make up the body such as the heart, lung, skin, sperm, eggs and other tissues. They are obtained from the human embryos createdthrough in vitro fertilization procedures, not from eggs fertilized in a woman's body. Unwanted embryos that would otherwise be destroyed areobtained with the informed consent of the woman. Because these embryos have the potential for life, they are the focus of ethical issues on stem cell research.

Adult stem cells are found residing in tissue such as bone marrow, muscle, and brain and typically generate the cell types of the tissue in which they reside. While embryonic cells can potentially lead to the creation of any cell in the body, adult stem cells generally give rise to specific populations of specialized cells. They can generate replacements for cells that are lost through normal wear and tear, injury or disease. For example, hematopoietic stem cells create red and white blood cells and neural stem cells can create neurons, astrocytes and oligodendrocytes that make up the central nervous system.

Manufacturing Stem Cells

The manufacturing process for living cells like stem cells is significantly different from small molecule drugs that are made through chemical processes. They bear more similarity to monoclonal antibodies and recombinant DNA produced products in which living cells produce drugs which are then harvested. However, the growth, expansion and preservation of living stem cells produce new and major challenges. The cells are grown in cultures and the living cells produced are the product. The challenge in manufacturing is to reproduce stem cells without allowing them to change into specialized cells. For example, embryonic stem cells tend to clump into embryoid bodies and spontaneously differentiate into various specialized cells when grown in culture.

Adult stem cells primarily form the specialized cell types of the tissue in which they reside. They can divide when needed and can give rise to mature cell types that have the characteristic shapes, specialized structures and functions of that particular tissue. Specific types of adult stem cells and the specialized cells into which they develop are as follows:

  • Hematopoietic stem cells in bone marrow: red blood cells, B lymphocytes, T lymphocytes, natural killer cells, neutrophils, basophils, eosinophils, monocytes, and macrophages.
  • Mesenchymal stem cells in bone marrow: bone cells (osteocytes), cartilage cells (chondrocytes), fat cells (adipocytes), and other kinds of connective tissue cells such as those in tendons.
  • Neural stem cells in the brain and spinal cord: neurons, astrocytes and oligodendrocytes. Neuralstem's technology is based on neural stem cells.
  • Epithelial stem cells in the lining of the digestive tract: absorptive cells, goblet cells, paneth cells, and enteroendocrine cells.
  • Skin stem cells in the epidermis and at the base of hair follicles: keratinocytes, which migrate to the surface of the skin and form a protective layer, epidermis and hair follicles.
  • Transdifferentiation. Certain adult stem cell types can differentiate into cell types seen in organs or tissues other than those expected. For example, neural stem cells in some situations candifferentiate into blood cells.


Typically, there is a very small number of stem cells in each tissue, and once removed from the body, their capacity to divide is limited, making generation of large quantities of stem cells difficult. They can generate a line of genetically identical cells that then gives rise to all the appropriate differentiated cell types of the tissue.There is proof of principal in using adult stem cells as stem cells gathered from the bone marrow have been used in bone marrow transplants used to treat leukemias and lymphomas for over 40 years.

The basic role of adult stem cells in creating and repairing tissue gives hope that they can be used to treat innumerable diseases and injuries. In the case of neural stem cells which are the focus of Neuralstem and this report, they are being clinically tested in ALS with plans to test them in other central nervous system diseases such as Parkinson's disease and Alzheimers. They will also soon be tested in patients who have suffered trauma to the central nervous system such as those with spinal cord injuries and stroke.

Neural Stem Cells and the Central Nervous System

The central nervous system or CNS is comprised of the brain, spinal cord and neurons that connect to peripheral parts of the body; it is the most complex organ of the body. The primary cells in the CNS are neurons, astrocytes, and oligodendrocytes.


There are 20 to 30 billion neurons that transmit signals throughout the central nervous system. Electrical impulses in the brain are processed and then transmitted by neurons through electrical and chemical signaling. Neurons are generally comprised of a cell body and extensions called dendrites and axons. There can be multiple dendrite extensions, but cell bodies never give rise to more than one axon. Dendrites are thin structures that extend only a short distance and form a dendritic tree. An axon can extend for as long as three feet and may also branch hundreds of times before it terminates. Axons usually transmit signals and dendrites usually receive them.

The axons carry electrical signals away from the neuron's cell body and this allows neurons to communicate with each other to transmit messages throughout the brain and distant parts of the body. Axons of one neuron connect with the dendrites of another neuron at a junction called the synapse. It is here that the electrical impulses carried by the axon results in the release of special chemical messenger molecules that transmit electrical or electrochemical signals across the gap. Axon dysfunction is the cause of many inherited and acquired neurological disorders in the brain and spinal cord. Injuries can also damage or destroy axons and cause paralysis.

Glial Cells (Astrocytes and Oligodendrocytes)

Glial cells are non-neuronal cells that provide support and protection for neurons. They have four main functions: (1) they surround neurons and hold them in place, (2) supply nutrients and oxygen to neurons, (3) insulate one neuron from another, and (4) destroy pathogens and remove dead neurons. Until quite recently, the conventional wisdom was that they did not play any role in neurotransmission, but this is changing to the view that they modulate neurotransmission.

Astrocytes are the glial cells that are the most abundant cells in the human brain. They provide nutrients to nervous tissue, repair brain and spinal cord following traumatic injuries and support the endothelial cells that form the blood-brain barrier. They are the primary structural component of the brain and spinal cord, but they also interact with neurons to transmit the electrical signals of the brain and promote the myelinating activity of oligodendrocytes:

The main function of oligodendrocytes is to provide support and to insulate the axons (the long projections of neurons) in the central nervous system. They do this by creating a myelin sheath made up of lipids and proteins. An individual oligodendrocytecell can form myelin sheaths around up to 50 axons. Oligodendrocytes provide functionality analogous to the insulation on a household electrical wire.

Neuralstem's Core Technology

Neuralstem's technology platform is based on being able to isolate neural stem cells and then robustly reproduce them in numbers necessary for clinical and commercial use. The neural stem cells when implanted can differentiate into new cells that replace damaged or dead cells. Through creating new neurons (neurogenesis) and the expression of factors that support existing cells, they can repair or create new neuron circuitry. The objective is not to replace the dead or diseased neurons, but to support motor neurons that are still functioning or to nurse them back to health.

Like all stem cells, neural stem cells can either divideinto new, identicalneural stem cells or differentiate into specialized neurons, astrocytes or oligodendrocytes. Neural stem cells are most active during fetal development as they form the complex infrastructure of the brain and spinal cord. The technology utilizes discrete cell lines from different regions of the developing CNS. The firm's spinal cord stem cell line, for example, only gives rise to spinal cord neurons, while cells isolated from the ventral midbrain only give rise to dopaminergic neurons.

Dr. Carl Johe is a co-founder of Neuralstem, and his discoveries are the basis of Neuralstem's neural stem cell technology. Working with rodents, he was able to isolate neural stem cells from fetal tissue. He found that these cells could reproduce themselves when grown in a culture and when implanted in the brains of mice they could differentiate into neurons, astrocytes and oligodendrocytes which could integrate with existing tissue and become an integral part of the brain.

He also discovered how to grow neural stem cells in culture and how to preserve them for future transplantation in a way that did not interfere with their ability to differentiate into fully functional specialized cells. He demonstrated that the implanted cells could respond to signals from existing cells that would determine which cells they would differentiate into. These cells integrated and made synaptic contact with the host cells and also expressed growth factors needed to nourish and protect cells.

Dr. Johe also found that the point in gestational time at which the cells are harvested and the location in the spinal cord and brain from which they are harvested are critical variables. Not all neurons, astrocytes or oligodendrocytes are exactly the same; they vary by region in the brain. Neural stem cells harvested from different areas of the brain and at the proper gestational age are needed to produce the correct phenotypes. Neuralstem refers to this as regionally defined neural stem cells. Neuralstem had to experiment with hundreds of tissue samples before finding the optimal neural stem cell for its clinical development program.

Neuralstem through long experimentation has discovered how to isolate and expand human neural stem cells from regions of the developing fetal nervous system in virtually unlimited numbers from a single donated tissue. The first product developed is now being clinically tested in ALS and should shortly be tested in spinal cord injury and stroke. Neural stem cells needed for other areas of the brain such as the hippocampus were derived from a different donor.

Neuralstem has collected over 600 different neural stem cell lines from different regions of the central nervous system. Each of these produces distinct specialized cells when allowed to differentiate that may have very different activities in the central nervous system. Neuralstem has created cell banks from these neural stem cell lines that have not been fully explored.

The goal of cell therapy is to replace and/or repair dead or diseased cells. Unlike embryonic other stem cell technologies, Neuralstem aregrowing regionally specific stem cells that are already suited to the task prescribed to them once transplanted into the CNS. In spinal cord indications, for instance, the company will be using human spinal cord stem cells that once inside the body; do not become any cell other than that to which they are fated.

Neuralstem expects that its transplanted cells will integrate into the host tissue and will help to create new circuitry that will help signals from the brain get to where they need to go. It should also slow down or halt the degeneration of cells caused by disease or injury by expressing neuroprotective growth factors.

The Critical Manufacturing Steps

The starting material for Neuralstem's products is spinal cord and brain tissues of aborted fetuses. The controversy over stem cell research is centered on embryonic stem cells in which there is in vitro fertilization of an egg which produces a fetus that could develop into a human being. This is obviously not the case with an aborted fetus. For regulatory purposes, stem cells are categorized as embryonic or an all other category called adult stem cells. Neuralstem's cells are seen as adult stem cells which means that it is favorably positioned to conduct clinical trials and ultimately for commercial approval.

The NIH and FDA have laid down rigorous guidelines to document consent and the procedure by which fetuses may be acquired for scientific research. Mothers are not asked until after the abortion if they want to donate the tissue of the aborted fetus for scientific research and must then sign an informed consent form. Neuralstem does not identify in advance which fetuses will be selected and rigorously follows the guidelines.

The company has obtained tissues from fetuses at various stages of development. Neuralstem has found that the combination of gestational age of the fetus and the location in the spinal cord or brain from which the tissue is obtained gives rise to regionally specific neural stem cells that produce specialized cells with varied phenotypes. For example, the neurons, astrocytes and oligodendrocytes produced by a spinal cord neural stem cell differ from those produced by a neural stem cell in the hippocampus region of the brain. Neuralstem has tested hundreds of donated fetuses to identify neural stem cell that can differentiate into the desired specialized cells.

Isolating the neural stem cell from other spinal cord and brain tissue involves art and trial and error; it isboth experimentation and science. There is no single cell marker that can define a regionally specific neural stem cell. The determination is made by examining specific structural features such as shape, color and molecular biomarkers. Individual cells are also examined by sectioning and staining with examination by light or electron microscopes. The selected cells are then grown in a culture dish and allowed to divide into new neural stem cells which are tested to determine their properties.

The selected stem cells are transferred into a plastic laboratory culture dish that contains a broth to provide nutrition for the cells. When the dish is filled to capacity, excess cells are then transferred to another dish to continue the expansion. This re-plating process is called a passage. Once the cell line is established, the original cells can yield billions of stem cells. As a rough estimate, 12 passages may lead to 18 doublings of the neural stem cells. Neural stem cells can actually go through 60 divisions before they begin to develop reproduction errors. However, Neuralstem usually limits the number of divisions to 30 to 40 in order to minimize quality control issues.

One of Dr. Johe's essential discoveries was that culture conditions, if properly understood and controlled, self-select for the type of cell that will survive. He found that the culture medium only needs to provide for nutrition and health of the cell. The neural stem cells can then divide on their own. This was in contrast to conventional wisdom that believed chemical elements had to be added to get the cells to divide.

Neural stem cells grown in a culture dish usually begin to differentiate into specialized cells after two to three divisions. This creates a problem for the production process because the goal is to keep the cells in their stem cell state and not allow them to differentiate. Neuralstem found that by keeping the neural stem cells sufficiently separated, they could achieve this; it is all part of the passage process. Neuralstem also found that it could get the cells to double in 24 to 36 hours.

The neural stem cells can divide at a prodigious rate. One neural stem cell can undergo mitosis 60 times so that one stem cell can give ultimately give rise to a billion, billion identical cells. This is 1,000,000,000,000,000,000 cells. Just one donor can provide the basis for treating an enormous number of patients and can supply all of the clinical trial programs and commercial use. To put this in perspective, Neuralstem believes that ALS patients may need 20 injections with each injection containing 300,000 cells for a total 600 million or 600,000,000 cells. The cells of a single donor can treat 1.7 billion patients. There will not be a need for continuing supplies of fetal tissue after a cell line is established, at least for a very long time.

Following production in the cultural medium, the cells are cryopreserved in a fairly standard process. When needed for clinical trials they are thawed and placed in a syringe.

The tight packing of neural stem cells in the syringe starts the process of differentiating into specialized cells once they are injected. Neuralstem has found that it does not have to add any chemical elements to cause this differentiation. The signaling between endogenous cells in the gray matter and the injected neural stem cells will cause the neural stem cells to differentiate into neurons, astrocytes and oligodendrocytes.

Neuralstem has shown that its neural stem cell lines differentiate into about 50% neurons and 50% glial cells. Animal studies have shown that the survival rate of transplanted cells is on the order of 95+%. The implanted cells also express factors that promote cell growth and repair in the central nervous system environment.

Neuralstem has successfully developed manufacturing processes that are in compliance with Good Manufacturing Processes. It has also established safety in toxicology studies. The company believes that it can produce these cells in a manner that satisfies regulators. Currently, the cells are being manufactured for Neuralstem by Charles River. The current operation will need to be scaled up for commercialization. The company does not envision this as a potential problem because there is not a change in the manufacturing process required, just larger scale of its culture process in a clean room environment.

Amyotrophic Lateral Sclerosis or ALS

Amyotrophic lateral sclerosis (ALS), also called Lou Gehrig's disease, is a progressive, always fatal, neurological disease that affects about 35,000 Americans with 5,000 new cases reported each year. Itis generally considered to be a disease of motor neurons in the spinal column; these project their axons from the spine to control voluntary and involuntary muscle contractions. ALS progressively damages and kills motor neurons leading to a progressive loss of control and muscle atrophy in affected areas.

ALS results in loss of control over bodily functions involving muscles. It usually does not affect cognition or the sensations of sight, touch, smell and taste so that mentally alert patients are trapped in a dysfunctional body.About 75% of patients first lose control of voluntary movement in the arms and legs. Others may initially experience problems in swallowing and chewing and a few start with breathing problems. Regardless of where symptoms originate, the disease inexorably spreads. Effects on swallowing and chewing can cause choking and aspiration of food into the lungs. In the terminal stages of the disease, most patients are maintained on feeding tubes and mechanical ventilators. The principal cause of death from ALS is respiratory failure or pneumonia, usually within three to five years of diagnosis.

There is only one drug approved for the treatment of ALS. This is Rilutek (riluzole), which was studied in two clinical trials. The endpoint of these trials was the need for tracheostomy or death. Interestingly, it did not achieve statistical significance in the first study on its endpoint based on the log rank test (p=0.12) prospectively defined. In the second study the log rank test p value was 0.076. In both trials, it did achieve statistical significance by the Wilcoxon statistical test (p=0.05) and the FDA approved it on this basis. Rilutek appeared to increase median survival by 90 days.

Phase I Trialin ALS

Neuralstem filed an IND for its clinical trial in ALS in December 2008. The primary purpose of the planned phase I trial was to establish safety of the implanted calls and also for the surgical procedure used to implant them in the spine. The FDA helped Neuralstem design a phase I trial that usesan escalated risk approach. The protocolwas initially approved for 12 cell transplantations or surgeries and has since been expanded to 18. The protocol called for the first six patients to be non-ambulatory patients and then for the next six to be ambulatory; all were to receive injections in the lumbar region of the spine. The first patient was treated in January 2010.

Neuralstem is transplanting neural stem cells into the grey matter of the spinal cord. In animal models, these cells showed that they could establish synaptic connections with host motor neurons present in the animal and release growth factors which protect neurons. A major goal of phase I is to show that the transplanted neurons graft permanently into the region where they are transplanted. They hope to show that they can rebuild circuitry by acting in concert with host neurons and alsoto protect host neurons from further damage.

The primary endpoint of the trial is to establish safety over a 36 month period. Secondary endpoints will assess efficacy through qualitative and quantitative rating scales, both patient and physician administered. The status of all patients will be assessed by physicians using Amyotrophic Lateral Sclerosis Functional Rating Scale-Revised or ALSFRS-r. This is an accepted scale that has been used in prior ALS trials. It measures the change in functionality of 12 different bodily functions: speech: salivation; swallowing; hand writing; cutting food and handling utensils; dressing and hygiene; turning in bed and adjusting bed clothes; walking; climbing stairs; shortness of breath upon exertion; shortness of breath when lying still; and respiratory insufficiency. Each item is ranked by a physician on a scale of from 4 (normal) to 0 (severely disabled). A normal person would score near 48 and a severely debilitated patient might score around zero.

In addition to ALSFRS-r, the patients are also assessed using physiological measurements. Forced vital capacity or FVC measures total lung capacity by the amount of gas that was retained at the end of a maximum inhalation. Hand strength is determined with a grip dynamometer. There are also measurements involving muscle strength, vital capacity, negative inspiratory force, electrical impedance myography, comprehensive pain assessment, incontinence and urinary retention, quality of life and spasticity.

Initially, injections were only given in the lumbar region. The cervical region of the spine is the neck area that starts at the base of the skull. Below that is the thoracic region and below that is the lumbar region. The bottom part of the spine called the sacral region ends with the tailbone. Motor neurons extend from each of these regions. Motor neurons in the lumbar region control walking.

In patients who are non-ambulatory, the motor neurons in the lumbar region are mostly or totally dead. The first six patients treated were six non-ambulatory patients.There was little potential for showing a therapeutic effect, but the FDA was primarily interested in data on the safety of both the implanted cells and the surgical procedure. After this injections were to be allowed in six ambulatory patients for whom there was some possibility of a therapeutic effect.

The first 12 patients treated were separated into four cohorts based on the severity of their symptoms and the number and location of injections they received as follows:

  • 3 non-ambulatory patients given five unilateral injections in the lumbar region,
  • 3 non-ambulatory patients given ten bilateral injections in the lumbar region,
  • 3 ambulatory patient given five unilateral injections in the lumbar region, and
  • 3 ambulatory patient given ten bilateral injections in the lumbar region


The first three patients treated in addition to being non-ambulatory were also on breathing machines. These were severely ill patients who had almost no expectation for an improvement in their condition. The six non-ambulatory patient group is a proxy for an untreated control group.The FDA initially did not want to allow injections in the cervical region which controls speech, swallowing and breathing for fear that they could cause additional harm to the patient.

Neuralstem is now expanding this phase I ALS trial from 12 to 18 patients and is also planning trials in spinal cord injury and paralysis or loss of motor control resulting from stoke. It will be using the same regional neural stem cells for each trial. This allows for safety data collected from each trial to be used collectively and broaden the number of patients evaluated for safety.

The procedure involves surgically slicing the spinal cord and then transplanting the cells in a procedure that takes several hours. This gives rise to safety concerns about the surgical procedure as well as the effect of the implanted cells.Each injection delivers 100,000 neural stem cells, although based on animal data Neuralstem believes that 300,000 cells per injection would be a more optimum dose. The company also believes that the more effective number of injections will be 10 bilateral injections in the lumbar region and 10 bilateral injections in the cervical region. Targeting the lumbar region would be expected to have the most effect on being able to walk and the cervical region on maintaining respiratory function, speech and swallowing.

The patients are to be evaluated one month after surgery to assess safety and measure the secondary efficacy endpoints of the study. More follow-up is done at three, six and nine months during the first year, at six months during the second year and once a year thereafter. MRIs are performed at each follow-up.

Phase l Trial Results, Thus Far

In analyzing the data that has so far been created, Neuralstem has analyzed results according into ambulatory and non-ambulatory groups. In the non-ambulatory group there was a continued deterioration in status as measured by ALSFRS-r. This was as expected. However, there was no sign of any enhanced deterioration after surgery suggesting that there was no safety issue.

In the six ambulatory patents, one patient died of heart disease which was judged by the physician to be unrelated to either ALS or the treatment. In four of the other five patients, the treatment indicated that the disease remained stable for the first 300 days as measured by the ALSFRS-r after the surgery. This gives hope that the therapy was effective as ALS is normally marked by a steady decline in ALSFRS-r.

The slowing of disease progression in the ambulatory group was more pronounced and the 11th patient treated (an ambulatory patient given ten bilateral injections in the lumbar region) experienced a remarkable improvement. Spontaneous improvements in ALS are unheard of so that this one patient experience does carry some weight. He was able to walk unassisted several months after receiving therapy. He showed a dramatic improvement, that the physician re-diagnosed him to re-confirm that he was suffering from ALS.

The FVC declined rapidly in the three members of the non-ambulatory group who were not already on a breathing machine. For the patients in the ambulatory group four patients were relatively stable with the exception of Ted Harada who showed a dramatic improvement. The HHD data was less clear. Four of five patients in the ambulatory group were pretty stable at 300 days. Two patients in the non-ambulatory group were stable at 300 days and two declined sharply.

The interimdata release showedthat the neural stem cell transplantation was safe and well-tolerated which was the primary objective of the trial. This is a major hurdle to have leaped over and has allowed Neuralstem to proceed to giving injections in the cervical region. There were a number of serious adverse events recorded as would be expected in patients this sick, but none were attributed to the neural stem cells. MRI indicated that there was initial fluid buildup around the injection sites reflecting the trauma of the injection, but this resolved in a few months.

Device for Delivering the Cells

The surgical procedure requires that neural stem cells must be injected into the gray matter of the spine. This gives rise to the concern of damage from the surgery. The surgical device used in the procedure was designed by the ALS clinical trial surgeon, Dr. Nicholas M. Boulis, when he was at the Cleveland Clinic. It is world's first intraspinal delivery device for stem cells. Dr. Boulis is now at Emory University and is performing the surgeries in the phase I trials. The technology for the device was licensed by Neuralstem from Cleveland Clinic in 2008.

The injections are complicated by constant movement of the spine in accordance with respiration and other movements of the body. The surgery requires injections into precise locations in the spinal cord at which motor neurons control limb function (lumbar) or respiratory (cervical). It uses stereotactic injection and imaging technologies to provide a three dimensional image. Because the spinal cord is moving in the cerebrospinal fluid, it must also be stabilized. All of this technology is to allow precise control of where the injection is delivered.

Next Steps in the US Clinical Development in ALS

Following the treatment of the first twelve patients, the FDA approved six new patientsurgeries in which five unilateral cervical injections were given with 100,000 cells per injection. Patient #13 was dosed in November 2011, #14 in March 2012 and # 15 in April, 2012; the latter was the first woman enrolled in the trial. These were all newly treated patients, but patients 16, 17 and 18 will be patients who previously received ten bilateral lumbar injections. They are actually patients 10, 11 and 12 and Ted Harada is one of these.

The surgery on the last patient, #18 was performed in August, 2012 and the first interim data could be reported around yearend 2012. Safety will be the primary endpoint and the secondary endpoints will be the same as for the first twelve patient surgeries. It is hoped that the injections in the cervical region will improve breathing, speech and swallowing more than has been seen so far. This is because motor neurons that control breathing originate in the cervical region. If this is the case there could be better scores on the ALSFRS-r scale as itcontains six measures related to breathing speech and swallowing. It is also hoped that the therapeutic effectof the cells implanted with the first surgeries in the lumbar region will increase over time in the three treated patients.

If the procedures involving patients 13 through 18 continue to demonstrate that the procedure is safe, the FDA will almost certainly gives its approval on Neuralstem's protocol for aphase II trialthat might start in 1Q, 2013. The plan is to enroll 18 more patients in two centers, Emory University in Atlanta where the first patients have been treated and at the University of Michigan in Ann Arbor. The phase II trial is expected to complete enrollment in six to nine months given that two centers are enrolling. Trial enrollment could complete in 3Q or 4Q, 2013 and initial results reported in 1Q or 2Q, 2014.

This phase II trial will be an open label trial with the primary endpoint being safety. The secondary endpoints will continue to be ALSFRS-r and other endpoints used in the phase I trial previously described. The trial will involve dose escalation in both the number of cells injected and the number of injections given. Exact details of the trial design haven't been released, but the company has said that based on animal studies that it believes the appropriate number of cells that should be injected is as much as 300,000 or more per injection as compared to 100,000 given in all patients treated to date. In addition, I would expect that the number of injections could be increased to as many as ten bilateral injections in the lumbar region combined with perhaps ten in the cervical region. These are guesses on my part, but are probably reasonable.

It is possible that the higher number of cells given could produce better efficacy. For example, Ted Harada received 1,000,000 cells through ten bilateral injections in the lumbar region. Some patients in phase II may receive up to 6,000,000 cells through ten injections in the lumbar and ten in the cervical region of the spine. Patients will be closely watched for safety issues given the higher number of cells, but this has not resulted in safety issues in animal studies.

If the phase II results are positive on safety with reasonable signals on efficacy, a phase III trial could begin in 4Q, 2014. The design of the trial, of course, will depend on results obtained in the phase I and phase II trial. I would guess that it would involve giving 10 bilateral injections of 300,000 cells in the lumbar and ten bilateral injections in the cervical region of the spine. This could be a 40 to 50 patient trial performed at four centers. Enrollment could take a year and assuming a six month follow-up from the time of last patient treatment, initial results could be reported in mid-2016. If positive, an NDA filing could be made in late 2016 and I would expect a quick review by the FDA leading to a possible approval in 3Q, 2017.

Clinical Trialof Neural Stem Cells in China

Neuralstem announced an agreement in April of 2011 BaYi Brain Hospital in Beijing, China to jointly prepare a clinical protocol for treatment of neurological damage due to ischemic stroke. BaYi Brain will be the site of the trial and Neuralstem will be the sponsor.This protocol was then submitted to an IRB for review and approval. This trial is being done under the aegis of the Military Regulatory Agency which requires only IRB approval to allow the trial to start.

Anticipating approval to begin the trial, Neuralstem established a wholly-owned subsidiaryin 2010 called Neuralstem China (Suzhou Sun-Now Biopharmaceutical Co. Ltd.). Neuralstem China has constructed a clinical-grade manufacturing space, and has obtained the license required by the Chinese government for doing business in China. Neuralstem has stated that China has several different regulatory paths to commercialization and that its strategy is to pursue each path simultaneously.

The phase I/II trial in ischemic stroke will use the same neural stem cells used in the ALS trial in the US. However, the cells will be injected directly into the brain instead of the spinal cord. There has been a significant amount of clinical experience involving injections of stem cells into the brain that has established the surgical procedure and area of administration of the cells. As a result the surgical technique for administering stem cells into the brain has been reasonably established, but the stem cells have been ineffective. The Chinese trial can be conducted on the shoulders of these earlier trials.

A phase I/II trial will start in late 2012 or early 2013. It will involve nine to eighteen patients who have suffered neurological damage due to ischemic stroke. The procedure will involve five injections given at different depths of the brain. Interim data from the trial is expected by 2Q or 3Q, 2013 and will be primarily related to safety.

Under Chinese regulatory practice, a phase II trial could start almost immediately, so that it could begin in 2Q or 3Q, 2013. This could involve 100 patients suffering from neurological damage due to ischemic stroke. Surgeries will begin after the patients have been stabilized and will be combined with physical therapy. There will be a control group that receives only physical therapy. The completion of enrollment and initial results could be reported in as soon as one year so that results may be available in 2Q or 3Q, 2014. Stroke has been extensively studied in clinical trials and there are a number of wellvalidated scales that evaluate functional recovery. Success in the phase II trial could lead to approval in China in 2H, 2015.

Clinical Trials in Mexico

The company has also planned for a development program in Mexico that will use the same neural stem cells in both ALS and spinal cord patients. Mexican surgeons have already been trained at Emory on how to perform the procedure. The plan is to start with a short phase I/II trial using the dose established in the phase II trial in the US involving number of cells per injection and also number of injections.

Off of this short phase I/II trial, the plan is to then go directly into a phase III trial involving 100 patients. Neuralstem is cash constrained so that it cannot undertake this trial on its own and will only go forward if it finds a partner willing to bear the expenses of the trial. Neuralstem reports that there is considerable interest from partners, but has not issued guidance that it will sign a partnering agreement.

For the sake of discussion, if we assume a partnering deal is done in 1Q, 2013, the intial phase I/II trial could be completed by 3Q, 2013 with initial results in 1Q, 2014. This could allow the start of the phase II/III trial in 1H, 2014. It would take about two years to complete the trial and report results so that regulatory approval could be sought in 1H, 2016 and approval gained in late 2016 or early 2017, all assuming favorable outcomes.

The Small Molecule Program, NSI-189

One of Neuralstem's cell lines produces hippocampalneurons when allowed to differentiate in culture. These cells have been used to screen for new drug candidates that might protect and repair the hippocampus, the area of the brain that is responsible for memory and learning. Because Neuralstem is the only company to have this cell line, it gives rise to molecules with unique mechanisms of action.

For many years, investigators thought there was no neurogenesis (growth of new neurons) after birth, but this view is changing. Research now suggests that neuron formation in adulthood does occur in two regions of the brain: the sub-ventricular zone lining the lateral ventricles and the sub-granular zone of the hippocampus. Early neuroanatomists considered the nervous system fixed and incapable of regeneration. Adult neurogenesis is an example of a long-held scientific theory being overturned.

Preclinical data suggests that NSI-189 significantly stimulates the generation of new neurons (neurogenesis) in vitro and in animal models. In mice, NSI-189 stimulated neurogenesis of the hippocampus and increased its volume. NSI-189 stimulated neurogenesis of human hippocampus derived neural stem cells in vitro. This gives rise to the hypothesis that NSI-189 may reverse the human hippocampal atrophy seen in major depression and other central nervous system disorders.

NSI-189 has the potential to address directly the pathology of the disease itself. This is a paradigm shift from the traditional small molecule drugs that primarily target serotonin and other neural transmitter levels in the brain. In this manner, the firm aims to broaden its scope into areas such as anxiety, depression, and schizophrenia. Neuralstem is also developing other small molecule drugs to treat neurodegenerative, as well as neuropsychiatric, disorders. In this manner, the firm aims to broaden its scope into areas such as anxiety, depression, and schizophrenia.

NSI-189 Clinical Trials

Neuralstem initiated a first in human trial of NSI-189 in March 2011. This Phase 1a trial testeda single oral dose of NSI-189 in healthy volunteers. The patients were given one dose and then evaluated for safety over a 34 day period. This was successfully completed and allowed for the initiation of the now ongoing phase Ib part of the trial.

The phase Ib component will consist of a drug arm and a placebo arm. Patients given the drug will be divided into three cohorts. The first cohort will be given 40 mg once per day. If there are no safety issues, a second cohort will be given two 40 mg tablets once a day. Again with no safety issues, a third cohort will then be given three 40 mg tablets once a day. The primary outcome measure is safety, but a secondary assessment will be determination of pharmacokinetic measures through a blood sample.

The Phase 1b trial is enrolling patients with major depressive disorder so that it is possible that some signal of therapeutic effect may be seen. These could point the phase II trial toward patients with depression, anxiety or some other indication. Neuralstem also began a nine-month toxicology study in late 2011.

Partnering NSI-189

The phase Ib trial might complete by the end of 2012. Neuralstem is committed to doing a partnering deal after this trial is completed. The clinical trial program could change after a partner has been brought on board, but the current plan of Neuralstem is to do a 200 patient trial in patients with major depressive disorder and possibly other versions of depression.

For partnering purposes, it is more advantageous to partner after a phase IIb trial, but Neuralstem lacks the financial resources. The company hopes to announce a partnering deal in 2Q, 2013. The shape of the deal that they prefer would be to have one partner responsible for the US and the rest of the world although it is possible that the Far East might be separately partnered.

Neuralstem is at a disadvantage in partnering because of the lack of phase IIb, but it has very strong patent position and the mechanism of action that targets hippocampal atrophy is a unique and fresh approach to depression. The primary approaches of manipulating neurotransmitters have been pretty much exhausted and a new approach has needed. Based on all of these factors, I think that the upfront payment on the partnership could be anywhere from $5 to $20 million, depending on the safety data from the phase Ib and any possible signals of efficacy as it is being done in patients with major depressive disorder. So far in phase Ia, the side effects have been minimal.

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