Neuralstem (CUR) announced a $19.65M registered direct offering on Friday morning. Recall that Jason Napodano of Zacks Small-Cap Research has covered Neuralstem at length for PropThink. Just last month he explained why the stock was intriguing into 2014. Jason’s expectations – that CUR would top $3.00 in a few months – panned out rather quickly.
Neuralstem is selling 6,752,744 shares of common stock at $2.91 per share (a discount from the previous close of about 8%) for gross proceeds of $19.65M. Neuralstem is throwing in warrants equal to half the amount of common stock purchased, exercisable at $3.64 within 5 years. This financing should bring CUR’s cash balance to well over $30 million. This does not include 18 million warrants exercisable at September 30 at a weighted-average price of $1.80. Given the stock’s move in December, many of those warrants may have been exercised during the fourth quarter, increasing Neuralstem’s cash position significantly. Neuralstem will have a fully diluted sharecount of approximately 125 million after this financing.
CUR’s end-of-year run is in-part attributable to Napodano’s Bold Prediction for 2014 that Neuralstem will get a Breakthrough Therapy Designation for NSI-566 in amyotrophic lateral sclerosis. No one in the biotech community is discussing BTD for -566, hence the excitement about this potential designation. In addition, and as Napodano has outlined, the company has a myriad of catalysts early in the new year.
Neuralstem is expected to release results from a phase 1b study of its small molecule NSI-189 in Major Depressive Disorder any day. We don’t expect safety to be an issue given the trial’s progression through a 52-patient phase 1a safety study two years ago, but efficacy remains a wildcard. According to the company’s January investor presentation, secondary endpoints in the trial include: pharmacodynamic effects – hippocampal volume by MRI, BDNF/CRH/other factors in blood, urine biomarkers, cortisol in saliva, qEEG (Quantitative electroencephalography), MADRS (Montgomery-Asberg Depression Scale), NGH Depression Questionnaire, and the Columbia Suicide Rating Scale. The investor presentation indicates that the trial is complete and the results are being analyzed. Napodano explored -189 in detail in June.
Neuralstem was well-capitalized before this raise, but after a tremendous run into the end of 2013, it’s not entirely surprising to see Neuralstem firm up the balance sheet (raise when you can in biotech!). It’s easy to read into the raise ahead of so many value-driving events as an indicator that management does not have faith in the forthcoming trial results; however, Jason Napodano spoke with Neuralstem management on the morning of the financing, who indicated that a long-only hedge fund approached Neuralstem about the deal and ultimately lead the round. It’s also interesting to note that while the registered financing means buyers can sell stock at any time, whoever participated in the raise is buying CUR near 52-week highs.
We suspect that the majority of these participants are not involved for a quick flip given the stock’s recent run to new highs and the fact that they approached CUR about financing the company. This would also suggest that management does not expect the -189 data imminently (next week) lest they be accused of “front-running” or leaking the data. Nevertheless, CUR investors should be aware that the afore-mentioned warrant-holders may be looking to exercise and sell some of the many in-the-money warrants.
Based on the phase 1b’s endpoints, the company will have data measuring -189’s efficacy in patients with depression. We have no view on whether -189 will produce a clinical benefit, but we believe that a phase 1b failure and subsequent decline in share price in the next few weeks may make for a compelling buying opportunity ahead of a plethora of events related to NSI-566 in the first half of the year. CUR’s valuation is a bit rich for us to suggest going long the stock now: fully diluted, CUR carries a valuation of almost $400 million. NSI-189 succeeding in the phase 1b trial – meaning the drug demonstrates a clinical improvement in depression patients – would suggest a significant revaluation as the neurogenesis approach of -189 would present a completely new avenue for treating CNS disorders. Likewise, a failure would present a buying opportunity ahead of numerous NSI-566 events in 1H14. On Friday, CUR is holding up well following the raise, hovering around $3.00 at mid-day.
