Expert Financial Analysis and Reporting

Investment Thesis

My recommendation of Neuralstem (CUR) has been based primarily on the potential for its neural stem cells NSI-566 in treating ALS. However, the Company is also developing NSI-189, a novel small molecule drug that could offer a completely new approach to treating major depressive disorder and other central nervous system diseases. Drug research in the CNS area has run its course using traditional approaches of manipulating neurotransmitters in the brain even though there remain large unmet medical needs.

Studies so far show that NSI-189 can reverse atrophy in the hippocampal region of the brain. There is a growing body of thought that this may provide a new therapeutic approach to treating central nervous system diseases. If so, tiny Neuralstem has a very significant leadership position in this field of research. Upcoming results from a phase 1b randomized trial of NSI-189 in major depressive disorder may provide some insight and hopefully a signal of activity in this disease. Positive results could add a new dimension to the Neuralstem investment thesis.

Introduction and Overview

I recently conducted an interview with Richard Garr, CEO of Neuralstem (CUR) about NSI-189, the Company’s small molecule drug that has just completed a phase 1b trial in major depressive disorder. Results of this trial will be presented at a conference on June 24^th and this article provides some background for interpreting those results. In this article, I asked Mr. Garr a number of questions about NSI-189 and recorded his responses.

Almost all investor focus on Neuralstem has been on its neural stem cell product NSI-566, that has produced very encouraging results in the treatment of ALS. There has not been much attention paid to NSI-189 even though it is at a comparable stage of development having just completed a phase 1b trial.

The phase 1b trial of NSI-189 enrolled 24 patients; it began in May 2012 and ended in February 2014. There were three ascending dose cohorts in which the first cohort was administered 40 mg once daily, the second 40 mg twice daily and the third 40 mg three times daily. There were six patients on drug and two on placebo in each cohort. The drug was administered over 28 days under carefully controlled conditions as all patients remained in the hospital for that period.

The primary outcome measures were drug safety, tolerability and pharmacokinetics but a secondary goal was assessment for preliminary efficacy in patients with major depressive disorder. This means that it is possible that some signal of therapeutic effect may be seen.

ClinTrials.gov more complexly describes the primary outcome measure as safety determined by the number and severity of adverse events of the drug versus placebo over a 28 day period. Measures of safety include vital signs, standard physical examination, ECG, EEG, standard clinical laboratory tests (hematology and biochemistry), standard neurological exam and the Columbia Suicide Severity Rating Scale. Secondary outcome measures will address pharmacokinetics such as AUC, Cmax, Tmax, T1/2, CL, and Vz.

In animal studies, NSI-189 was shown to increase the size of the hippocampal region of the brain by as much as 20%. This is beleived to result from increasing the number of synapses or nerve connections in the brain. As will be discussed shortly, atrophy of the hippocampus is hypothesized to play a role in a broad number of human psychiatric diseases. NSI-189 is the first drug to directly address this condition. It is one of the most novel small molecule drugs in development in biotechnology and I am curious to see the results of the phase Ib trial.

The company has just announced that phase 1 b results will be reported at the 29th Annual CINP World Congress of Neuropsychopharmacology in Vancouver, Canada at 5:15 PDT on June 24, 2014. The title of the poster is: “Effects of NSI-189, a neurogenic compound, on quantitative electroencephalography (qEEG) in patients with major depressive disorder (MDD) during a phase 1b randomized, double-blind, placebo controlled, multiple ascending dose study”.

Questions on NSI-189

SmithOnStocks: What is the biological hypothesis that is the basis for developing NSI-189?

Richard: The hypothesis is that age and disease cause the hippocampal region of the brain to atrophy. This is the part of the brain associated with memory, thought processes and even psychiatric and cognitive disorders such as depression, Alzheimers and various dementias. There appears to be a high correlation with atrophy of the hippocampus and these diseases.

The hippocampus is virtually unique in its ability to grow new neurons in the adult brain.  Our technology uniquely allows us to grow regionally specific neural cells of the adult human brain in basically unlimited quantities in vitro.  So even though we are a cell therapy company at heart, we always believed that we had a unique window from which to observe important biology in the brain through screening potential drug candidates against our unique cell lines.

For many years, scientists had thought there was little or no neurogenesis (growth of new neurons) after birth, that we were in a sense “hard wired” in the brain, but this view is changing. Research now suggests that very limited neuron formation does occur throughout life in the hippocampus.

We all have an endogenous supply of neural stem cells that provides for replenishment of the hippocampus over time. There are more when we are young, and fewer as we age.   Early neuroanatomists considered the nervous system fixed and incapable of regeneration. The new concept of adult neurogenesis is an example of a long-held scientific theory being overturned.

 

SmithOnStocks: How did you discover this small molecule (NSI-189)?

Richard: Well, we were actually looking for it.  Because of our unique window on the brain, we were awarded a contract from DARPA to screen for and discover a new class of drugs to specifically protect and enhance hippocampal neural stem cells in something called The Warfighter of the Future program. The “super solider” of the future was to be enhanced both physically and mentally.

One of Neuralstem’s stem cell lines produces hippocampal neurons that can differentiate in cell cultures. These cells have been used to screen for new drug candidates that might protect and repair the hippocampus.

Traditional drug development must decide on a molecular target in the brain and develop a drug that will interact with the target, which may or may not have a therapeutic effect. Neuralstem can take a different approach by screening drugs against hippocampal cells in a culture dish. We can be agnostic about the precise target and just look for a molecule that can cause neurogenesis.

We are able to test compounds against the cells with all manner of toxic insults applied, which you can think of as models of various diseases like stroke for instance; and we can also test compounds against the various stages of neurogenesis.  We have found that there are distinct phases in fact, and we can influence the process of neurogenesis with different compounds at different points in the process.

So this was the world’s first (and only) thorough search for a new class of neurogenic drugs, specifically neurogenic in the human hippocampus, based on screening against actual human hippocampal neural stem cells. It was only after we had begun this process, when evidence began to accumulate showing a very high correlation between hippocampal atrophy and depression, that we began looking in that direction with our research.

 

SmithOnStocks: How does NSI-189 differ from the drugs that are currently in use for treating depression?

Richard: Tests that Neuralstem has conducted in vitro (cell cultures) and in animals indicate that NSI-189 re-stimulates the growth of neurons in the hippocampus. Research on the current crop of central nervous system drugs has been largely based on the manipulation of neurotransmitters such as serotonin and dopamine. While this approach has led to the creation of drugs like Prozac and Zoloft that produced tens of billions of dollars of sales, the lack of anything really new in this area after decades suggests that this research course has largely exhausted itself.

CNS drug research has been so unproductive that many big pharmas have simply opted out of the space. This is despite the significant unmet medical need resulting from current drugs having only mediocre efficacy. Despite this daunting back drop we felt that a novel hypothesis based on a unique screening technology made NSI-189 an interesting project.

If we are right, this is a paradigm shift from the traditional small molecule drugs that primarily target serotonin and other neural transmitter levels in the brain. We believe we are reversing hippocampal atrophy and most likely increasing synaptagenesis in the hippocampus. And as evidence mounts that hippocampal atrophy is implicated in all manner of psychiatric and cognitive indications, I suspect that Neuralstem will be developing other small molecule drugs to treat neurodegenerative, cognitive as well as neuropsychiatric, disorders. We are already exploring things like stroke, traumatic brain injury and Alzheimers in pre-clinical collaborations.

 

SmithOnStocks: What did you find out in pre-clinical studies?

Richard: Preclinical data suggested that NSI-189 significantly stimulated 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 on the order of 20%. NSI-189 also 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.

This drug may actually structurally rebuild the hippocampus, inducing up to a 20% increase in hippocampal volume if results in animal models are replicated in humans. We believe this is due to synaptogenesis. This is the world’s first truly neurogenic drug that is designed to specifically increase the number of synapses in the hippocampus.  But as with all neuroscience, the story is complicated, not simple.  While we are seeing synaptagenesis, it may well be that there are also overlapping pathways providing benefit.  We are teasing out that data now.

 

SmithOnStocks: When did you begin human studies?

Richard: Neuralstem initiated a first in human, phase 1 trial of NSI-189 in March 2011. This Phase 1a trial tested a 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 completed  phase 1b part of the trial.

Neuralstem also began a nine-month toxicology study in late 2011.

 

SmithOnStocks: With your limited financial resources at the time, how did you fund the pre-clinical and phase 1 trial?

Richard: The genesis for this program was the US Department of Defense which wanted a compound like this to treat cognitive impairment for the War Fighter of the Future program. Neuralstem received $2.5 million from the army to discover the drug.  Later, when scientists saw the high correlation between depression and hippocampal atrophy, we received $0.5 million from NIH to put the lead compound into animal models of depression. Until we had that data, we always ran the program on a “cash neutral” only basis.   The result was a discovery of a new class of drugs which have been the subject of new patents covering both the class of drugs and individual molecules; the lead compound is NSI-189.

 

SmithOnStocks: What was the objective of the recently completed phase 1b component of the trial?

Richard: The phase 1b was a randomized double blind placebo controlled multiple dose escalation study in patients with Major depressive disorder (MDD). Patients given the drug were divided into three cohorts. The first cohort was given a 40 mg tablet once per day; the second cohort was given 40 mg tablets twice a day and the third received 40 mg tablets three times a day. There were six patients on drug in each cohort and two on placebo. The primary outcome measures were drug safety, tolerability and pharmacokinetics but a secondary goal was assessment for preliminary efficacy.

SmithOnStocks: What can you tell us about the phase 1b program?

Richard: Well, not much right now.  We have completed the phase 1b dose escalating study of NSI-189. The study used MRI scans at baseline and later to determine if there was an enlargement of the hippocampus. We used quantitative EEG measurements as both a safety measurement and a possible biomarker that could confirm efficacy if it was seen because there is a correlation between certain signals that the EEG picks up in specific regions of the brain, and efficacy with depression drugs.  We also measured many of the standard depression behavioral tests that are used in the industry.  The dosing was 28 days, and the patients were in the hospital center the entire time.

SmithOnStocks: It was my impression that you were going to release the phase 1 data after the trial was completed and data analyzed which appears to have been finished? Why haven’t we seen the data?

Richard: I am restricted in what I can say right now about that.  The only thing we have said publicly is that it will probably take us through May or a little longer to crunch all the data; but that the early look was encouraging enough that we have already committed to conducting a phase two trial.  I might also point out that we recently added Catherine Sohn to our Board of Directors.  Cathy ran all commercialization for Glaxo for 8 years, and earlier in her career actually launched Paxil, one of the all time most successful depression drugs.  Finally, it has been made public on the CINP web site that one set of data from the 1b trial will be presented in a session on June 24^th entitled

 

SmithOnStocks: Have you seen the data?

Richard: I really can’t say anything else about this or any other data at this time.

 

SmithOnStocks: How do you think investors should view the small molecule program at Neuralstem?

Richard: Well interestingly, since we got the animal model data from the NIH funded depression study, we have always spent about half of our resources on the small molecule program.  And by resources I mean money, time and energy.  I don’t believe our current valuation reflects much if any value for this program, and I think that is a mistake.

We have spent this much of our limited resources on this platform because we clearly believed it had at least proportionate value to stem cells.  And now we are committing to a phase two trial, and brought on a Board member with tremendous experience and expertise in this area.  So I think investors should see our belief and commitment to this side of the company; and understand why we believe it has tremendous value.

Remember, this program is based not on a single receptor, or just a novel pathway, but on the premise that we had a unique and invaluable window on neurogenesis in the adult human brain.  We alone grow regionally specific, fully functional human neural stem cells.  Now we are a cell therapy company at heart, and that will never change, but I believe the NS-189 program will prove that our small molecule discovery platform is every bit as superior and productive as we believed it would be.

 

SmithOnStocks: Could you give us an overview of the clinical development pathway for NSI-189?

Richard: The product has completed a phase 1a healthy volunteer phase and then a 1b trial to primarily determine safety. Unlike the ALS program, depression in not an orphan indication; this is likely to be a drug that will require enormous and costly trials. We have committed to conducting a meaningful phase two trial, but that is just the start of late stage development for this drug.

 

SmithOnStocks: What are your thoughts on partnering NSI-189?

Richard: We have stated in the past that we would partner NSI-189 after the 1b data was available.  From a practical point of view, there has been little appetite for partnering before proof of principal data is available; and we are actively gearing up for such an effort as soon as all the phase 1b data is in and reviewed.  For partnering purposes, it may be more advantageous to partner after a phase 2 trial, but Neuralstem until recently lacked the financial resources. The Company now has the resources to conduct the phase 2 which we anticipate starting later this year.  We still believe the program will benefit from having a partner, but we are not resource constrained if we don’t find a deal that we like.

 

SmithOnStocks: If you decide to go into phase 2 without a partner, could you describe what the trial might look like, the timeline for completion and the cost.

Richard: It probably will look something like a 250 patient trial that will take 18 months to 24 months to complete and cost somewhere between $5 million and $10 million dollars.

 

SmithOnStocks: What is the intellectual property position with NSI-189?

Richard: We have issued patents in the U.S. and worldwide, and we are adding to the IP with new data created by various studies.

 

SmithOnStocks: Do you have any closing thoughts on how investors should look at the NSI-189 opportunity?

Richard: Again, I think they should think of it as a second declared asset along with the spinal cord cell therapy product.  The company has historically spent 50% of its resources on this platform and I believe it has been given little if any value in the way investors look at the company.  I believe that is a great misunderstanding of where this program is, and where it could be headed.

 

 

 

Tagged as CUR, Inc., Neuralstem, Inc., NSI-189 + Categorized as Company Reports