By Jason Napodano, CFA
On August 8, 2014, Neuralstem Inc. (CUR) reported financial results for the second quarter ending June 30, 2014. The company reported only marginal revenues in the quarter, resulting from previous licensing deals of the floating cannula to Cedars-Sinai Medical Center in February 2013 and Q Therapeutics in September 2012. Operating loss for the quarter was $3.5 million, driven by $1.9 million in R&D and $1.5 million in G&A. Both costs were in-line with expectations. Net loss for the quarter totaled $6.8 million and included a $3.1 million non-cash warrant modification expense. Actual cash burn during the second quarter from operating activity was only $2.6 million.
As of June 30, 2014, Neuralstem reported cash and investments of approximately $30.2 million. We remind investors that the cash balance was strengthened in January 2014 through an $18.7 million net registered direct offering of common stock. The company sold 6.873 million shares of stock at $2.91 per share. Also offered to investors were 3.436 million in five-year warrants exercisable at $3.64 per share. Based on an average quarterly burn rate of $2.8 million over the previous six quarters, we see the current cash balance of $30.2 million as sufficient to fund operations, less debt repayments, into the second quarter 2016.
NSI-566 ALS Update
For background on ALS and review of NSI-566 Phase 1 results, see our report from May 2014 >> HERE
All eyes have now turned to the ongoing Phase 2 study (NCT01730716), being conducted again by Eva L. Feldman, MD at Emory University in Atlanta, and at two additional sites at the Massachusetts General Hospital in Boston and the University of Michigan in Ann Arbor. The trial began in September 2013 and just recently treated the last patient in early August 2014 (patient # 15). The trial will continue until six months past the final surgery, at which point the data will be evaluated. As such, we expect data presentations from all cohorts around March / April 2015. We note the next American Academy of Neurology meeting will take place in late April 2015 in Washington, DC.
The Phase 2 study was designed to treat up to 15 patients in five different dosing cohorts. The first 12 patients received injections in the cervical region of the spinal cord only, where the company believes NSI-566 could help preserve breathing function, in escalating doses ranging from five injections of 200,000 cells per injection, to 20 injections of 400,000 cells each (8 million cells total). The final three patients in the trial received both cervical and lumbar injections, for a total of 40 injections of 400,000 cells each, or a total of 16 million cells transplanted. All the patients will be ambulatory and without bulbar ALS.
We are eager to see what ratcheting up the dose of NSI-566 can do for ALS patients. For example, the impressive gains made by Mr. Harada from the Phase 1 study were achieved with 1.5 million cells total. For the fifth cohort, patients will have 20 bilateral injections at 400,000 cells per injection into the lumbar spine, and then return four weeks later for another 20 bilateral injections at 400,000 cells per injection into the cervical spine.
Although final data will not be presented until 2015, because of the open-label design of the trial, we do expect continued data leaking out from patients and the media. Similar to Mr. Harada's blog back in 2013, we have already seen positive anecdotal evidence from some patients post-surgery.
…A Huge Opportunity…
In the U.S., roughly 30,000 individuals have ALS. According to the University of California, San Diego School of Medicine - Center for ALS Research and Therapy, only 50% of these patients will live longer than three years. Only 20% will live longer than five years. As such, we suspect that at least one-third of these 30,000 patients are non-ambulatory. Bulbar ALS occurs inapproximately 30% of all ALS patients. Based on the stats above, in the U.S., we figure there are roughly 15,000 individuals that are a target for treatment with NSI-566. On a worldwide basis, there are an estimated 450,000 ALS patients. Using a similar breakdown, the target global population for NSI-566 is 211,000 patients. We remind investors the company is already planning a second Phase 2 study with NSI-566 in Mexico to expand the regulatory path outside the U.S.
According to the Muscular Dystrophy Association, the average cost to care for an ALS patient per year is $63,692. Average lifetime cost is around $200,000 based on three-years of care. The total national healthcare burden of the disease ranges between $256 and $433 million annually. Based on these statistics, we believe Neuralstem can charge in the area of $150,000 per surgery and still provide economic value into the healthcare system. With 20% market share in the U.S., which seems doable considering a complete lack of alternative treatment options for ALS, NSI-566 would have peak sales of roughly $450 million. On a global basis, with 5% ex-U.S. penetration, peak sales will eclipse $2 billion.
NSI-566 SCI Update
…Spinal Cord Injury Trial Begins…
On April 16, 2014, Neuralstem announced the institutional review board of the University of California, San Diego School of Medicine approved the initiation of a Phase 1 study (NCT01772810) with a primary analysis designed to determine the safety of NSI-566 for the treatment of paralysis and related symptoms due to chronic spinal cord injury at various times over a 60 month period from surgery. Target enrollment is 8 patients with complete paralysis (ASIA-A) defined under the American Spinal Injury Association classification. Secondary objective of the study is to evaluate the graft survival in the transplant site by MRI and SCI motor and sensory index scores, bowel and bladder function, pain, UAB IMR scores, SCIM scores, evoked sensory and motor potentials, and electromyogram (EMG) (max visit at 24 months).
Patients will get six injections of NSI-566, with the first four patients getting 100,000 cells per injection followed by the next four patients getting 200,000 cells per injection. All injections will take place in the thoracic spinal cord with injuries between T2 and T12. We note that Neuralstem plans a second spinal cord injury trial in Seoul, South Korea with partner, CJ CheilJedang. This trial is planned to focus on acute injured patients will start in the next few months. The start of the U.S. trial at UCSD is receivingnational attention from the media.
Data from a preclinical rodent study with NSI-566 in SCI has been published in Cell (14:150(6)1264-73) by Lu P. et al. In the study, NSI-566 plus growth factor cocktails were embedded into transected spinal cords of rats. Results showed that grafted cells differentiated into multiple cellular phenotypes, including neurons, which extended large numbers of axons over remarkable distances. Extending axons formed abundant synapses with host cells. Grafted neurons supported formation of electrophysiological relays across sites of complete spinal transection, resulting in functional recovery. In another peer-reviewed study, published in Stem Cell Research & Therapy, in May 2013 (4:5(4-57) rats transplanted with NSI-566 three days after a spinal cord injury at L3 showed improvement along several measures of motor function and a reduction of spasticity. The study demonstrated that intraspinal grafting of NSI-566 cells during the acute phase of a spinal cord injury could represent a safe and effective treatment that ameliorates post-injury motor and sensory deficits.
…Another Huge Opportunity…
According to a 2011 annual statistical report created for the Spinal Cord Injury Model Systems, there are an estimated 275,000 Americans living with a spinal cord injury. According to the statistics, 46% of these individuals will be classified as ASIA-A upon admittance to the hospital. Roughly 90% survive, and 80% are still classified as ASIA-A one year post injury. Approximately 35% of all spinal cord injuries are in the thoracic region on the spin. This population, approximately 34,500 individuals, is the target market for Neuralstem's Phase 1 study. However, for the purpose of our financial model, we assume that if NSI-566 works, regardless of the entry criteria for the Phase 1 trial, neurosurgeons will use it in all patients and all areas of injury. For example, 40% of spinal cord injury patients are classified as ASIA-B through ASIA-E one year after injury; another 24% are classified as "unknown". Approximately 54% of all spinal cord injuries are in the cervical region of the cord.
As for the price of the surgery, we believe $75,000 is realistic (note a discount to the orphan disease ALS). According to the National Spinal Cord Injury Statistical Center's February 2013 report, "Spinal Cord Injury Facts and Figures at a Glance," (1) during the first year, average "cost of care" for a ASIA-A injury patient ranges from $340,787 to $1,044,197, depending on the severity of the injury, (2) the net present value to maintain a quadriplegic injured at age 25 for life is $4,633,137, and (3) the NPV to maintain a paraplegic injured at age 25 for life is $2,265,584. Because these costs place a tremendous financial burden on families, insurance providers, and government agencies, and because there are limited other treatment options available, we believe a cost of $75,000 is fair (and actually quite conservative).
If we apply these data in the same fashion that we have applied the ALS epidemiology and pricing model, with 2.5% U.S. market share, NSI-566 is a potential $500 million drug. Outside the U.S. (note the acute spinal cord injury trial expected to begin in South Korea with partner, CJ CheilJedang later this year), the market may be multiples of this size, or another $2+ billion.
NSI-566 Ischemic Stroke Update
Outside of ALS and SCI, Neuralstem is pursuing an indication for NSI-566 in ischemic stroke. We point investors to a recent peer-reviewed paper by Tajiri N. et al, 2014 on highlighting very encouraging data from a preclinical rodent study with NSI-566 in the treatment of ischemic stroke.
On January 13, 2014, Neuralstem announced that the first patient was treated in the Phase 1/2 trial to test the effects of NSI-566 transplantation in the treatment of ischemic stroke. The trial will be taking place at BaYi Brain Hospital in Beijing, China and is designed to assess if one-time treatment with NSI-566 through direct intracerebral injections helps improve motor function following an ischemic stroke. Management is particularly excited about the design of the trial, with the Phase 1 part of the trial seeking to enroll 18 patients in an open-label, dose-escalation protocol. Once safety and dose escalation is complete, the trial will expand to a Phase 2 single-blinded protocol in 100 patients. Patients will be randomized 1:1 to physical therapy plus NSI-566 or just physical therapy, with assessment at four months after surgery. Management thinks if the data are positive from the Phase 2 portion of the trial, the company’s China subsidiary, Suzhou Neuralstem Biopharmaceuticals, may be able to commercialize the drug in China quickly thereafter. That would be an enormous opportunity for the company.
NSI-189 – Background and Phase 1b Data
In June 2014, Neuralstem released results from its Phase 1b study with NSI-189. We have performed a detailed analysis of this data and encourage investors to see our article from June 2014 >> HERE
We have briefly spoken with management since these results have been presented. We expect the data to be published in a major medical journal in 2015. Management at Neuralstem believes, “With such positive data supporting this novel neurogenesis-based platform, we and fellow investigators, including lead study author, Dr. Maurizio Fava, Executive Vice Chair, Department of Psychiatry, Executive Director, Clinical Trials Network and Institute, Massachusetts General Hospital, are preparing the Phase 2 trial application.”
We expect that the company will seek to initiate a multi-site Phase 2 study by the start of the second quarter 2015. This next clinical trial will test two doses (40 mg QD 40 mg BID), along with a randomized, double-blinded, placebo control group, in approximately 150 patients with confirmed diagnosis of recurrent major depressive disorder (MDD). The goal of the study is to confirming previous findings from the Phase 1b study.
Our previous analysis of NSI-566 for the treatment of ALS, SCI, and stroke yield a fair-value of $6 per share. Adding in approximately $1.00 per share for NSI-189 raises our price target to $7 per share. We continue to be optimistic on the future of Neuralstem.
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