CUR Deal Prices At $1.00, Likely Pegs Stock At This Level For A While

On the same day that the company released exciting data from a pre-clinical stemcell experiment in rats - sending shares up more than 90% from $1.00 to $1.93 - Neuralstem Inc. (AMEX:CUR) announced on Thursday evening a $7M registered direct offering of common stock. In response, CUR is off in early trading on Friday after closing at $1.38, as the market sold into yesterday’s run up. Later Friday morning, the company will be presenting at the Neurodegenerative Conditions Research and Development conference, and shares are already rebounding slightly on anticipation of positive data from an ongoing phase Ib trial of IND-189, a novel treatment for depression. Thursday's shares were priced at a sizable discount to market at $1.00 each, putting the downward pressure on the stock today, and while the data to be presented today could be positive, CUR’s decision to sell stock at $1.00 is likely to pin shares to this valuation. We note that the company knew full well that the new Phase Ib data would be out today prior to pricing the registered direct. Notably, CUR’s clinical programs are highly innovative, but are all early stage, meaning that significant risk remains for candidates to be smoothly and fully developed. As a result, we believe CUR will have to live with its self-imposed $1.00/share price until it shows meaningful data from later-stage clinical trials (Phase II or later).

On Thursday morning, Neuralstem reported results from preclinical testing on rats in which their proprietary neural stem cells, called NSI-566, made significant progress in restoring motor function to disabled animals. After severing the spinal cord and rendering the rats permanently paraplegic, Neuralstem scientists transplanted the spinal stem cells into the damaged area. Over the course of seven weeks, the treated rats had substantial motor function restored, and the stem cells showed long-distance growth with synaptic connectivity. The leap from an animal model to human testing can be large, and there have been several companies in the past that have shown this kind of neurogenerative results in rats, so investors may be wary of putting too much faith in the results of the study. NSI-566 cells are also in Phase I/II trials for Amyotrophic Lateral Sclerosis (ALS).

CUR has seen a resurgence of trading activity this month after reporting the completion of a Phase I ALS trial in late August for NSI-566. Better indication of this candidate’s success will begin to be judged when the company releases the full data set from the recently concluded trial, which is expected to be reported some time in the middle of next year. A long position after Neuralstem’s mid-August capital raise made for a nice swing trade into the run-up to yesterday’s news (see PropThink’s previous coverage), however the recent capital raise so close to new clinical data was a bit surprising. Neuralstem should have enough capital from these two offerings to continue operating through 3Q13 if it maintains its historical burn rate of roughly $9M annually.