Neuralstem Phase I Results Encourage Market, Stimulates Buying

Although it seems that investors have lost their appetite for many stem cell investments at this stage of the broader rally in the stock market, there are exceptions worth pointing out. Neuralstem (CUR), for instance, has been in a strong uptrend since the company finally on April 17th that the company received approval from the FDA to commence a Phase II clinical trial in 18 patients with ALS (amyotrophic lateral sclerosis) using its line of spinal-cord derived stem cells NSI-566. These proprietary stem cells can be differentiated into neurons, which can (in theory) replace the dying cells in a patient with a neurodegenerative disease.

Although the jump from Phase I to Phase II development is not a reliable guarantee of eventual success for any therapy, this marks an important milestone for the company and also establishes the initial safety profile for Neuralstem’s NSI-566. The market became particularly enamored with shares of CUR after the company presented the results of the early stage ALS trial.

The trial, which was conducted on 15 patients with ALS, started in early 2010 and concluded only recently. According to PI Eva Feldman in a recent Neuralstem press release, 6 of the patients in the study experienced stability, slow progression, or even improved disease course 700 to 850 days after implantation with NSI-566 cells. The remaining 9 saw no noticeable improvements, while 6 patients died of ALS within the first few months after the surgery.

The results imply that the therapy is very effective against the progression of ALS given that NSI-566 is introduced early on, which is very exciting due to the complete lack of any treatment alternatives for ALS patients. Having said this, investors should not make any conclusions about any drug or therapy’s efficacy in any particular disease without the numbers behind the Phase I results – especially with such a tiny patient population. More specifically, we will want to compare the improvements in the 6 patients relative to the others based on the ALSFRS (Amyotrophic Lateral Sclerosis Functional Rating Scale) in any ways possible to determine whether or not this kind of result can be replicated in future clinical trials with enough statistical significance to give NSI-566 an approval for the ALS indication later on.

The upcoming Phase II trial, which is expected to begin before the end of the H1 2013, should be watched closely since it will demonstrate to Neuralstem investors and the rest of the market whether or not the company can replicate the implied efficacy in the Phase I studies with NSI-566. The company’s market capitalization, just short of $100M, is likely to jump significantly if the Phase II trial produces similar results and much more down the line (presumably during Phase III development) due to the sheer size of the untouched multi-billion ALS market.

And, if Neuralstem can provide a working ALS treatment that can slow or even reverse the course of the disease based on the ALSFRS, it is unlikely that the company would have much trouble achieving extremely high market penetration and pricing power with even a modest budget for SG&A expenses. This would hopefully allow NSI-566 to avoid the kind of problems that Dendreon’s (DNDN) Provenge therapy had, although manufacturing costs have proven burdensome as well.

Also baked into the $100M valuation is NSI-566’s development into a number of other indications that have significant unmet need, although the market seems fixated on ALS due to the unique affinity that Neuralstem’s product seems to have for this disease. It’s because of this that I generally expect less movement in shares of CUR in reaction to non-ALS related headlines coming out from the company, and exaggerated reactions to third party opinion regarding the program going forward.