Novel Stem Cell Therapies for Neurodegenerative Diseases › hs-fs › hub › 150154 ›...

†BOLD WORDS ARE REFERENCED IN THE GLOSSARY ON PAGES 53-55.

Novel Stem Cell Therapies for Neurodegenerative Diseases

Snapshot March 30, 2009

Neuralstem, Inc. (“Neuralstem” or “the Company”) is a biotherapeutics company using a patented process to grow neural stem cells† to treat central nervous system (CNS) diseases. The neurodegenerative conditions that the Company targets are incurable and are usually associated with severe side effects, such as muscle atrophy, partial or complete paralysis, or death. Neuralstem’s proprietary Human Neural Stem Cell technology isolates stem cells from CNS tissue of the developing human brain and spinal cord and expands these cells in the laboratory for up to 60 doublings. By amplifying the natural ability of fetal stem cells to self-renew for long time periods, the Company creates billions of cells from each original stem cell—enabling commercial quantities from a sole donated tissue. To Neuralstem’s knowledge, its technology was the first to accomplish both commercial quantities and controlled differentiation of neural stem cells into mature, physiologically relevant neurons and glia. The initial product candidate of this therapeutic platform is a spinal cord cell line. When implanted into animal models, the cells have extended the lives of rats with amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease) and reversed paralysis in ischemic spastic paraplegia models. In December 2008, Neuralstem filed an Investigational New Drug (IND) application for a Phase I trial of its spinal cord cells in patients with ALS, which affects roughly 30,000 people in the U.S. In February 2009, the Company received the FDA’s response, which Neuralstem is now addressing. In a Phase I trial, the Company aims to study the safety and feasibility of injecting its cells directly into the spinal cords of ALS patients, where the healthy, fully functional cells are expected to replace or repair damaged and missing nerve cells.

Recent Financial Data

Key Points

� Neuralstem’s technology has been studied extensively through collaborations with major research institutions, including Johns Hopkins University and the University of California, San Diego (UCSD). The Phase I trial is scheduled to occur at Emory University under the leadership of world-class ALS researchers using specialized surgical devices licensed from the Cleveland Clinic.

� In addition to ALS, Neuralstem is testing its spinal cord cells as therapies for traumatic spinal cord injury, ischemic spastic paraplegia, and Huntington’s disease (HD), among other CNS disorders. The Company also has a small molecule for depression in development. Spinal cord injuries, either brought on by a traumatic event or caused by an underlying condition, affect up to 400,000 people in the U.S.

� In a global approach to product development, Neuralstem is also partnered with Taiwan’s China Medical University Hospital for ALS clinical trials, which are expected to follow U.S. trials by six to nine months. The Company also has an initial commercialization agreement with CJ CheilJedang Corp. for several Asian countries, and recently partnered with a professor in Germany’s Albert-Ludwigs-Universität Freiburg for clinical studies in HD. In February 2009, Mr. James Sasser, a former U.S. senator and ambassador to China, joined Neuralstem’s Advisory Board to further guide the Company’s development and commercialization efforts in China.

� Neuralstem holds rights to four issued patents with over a dozen additional patent applications pending worldwide. Further, the Company’s experienced management team includes Dr. Karl Johe, who invented the Human Neural Stem Cell technology while at the U.S. National Institutes of Health (NIH).

� At September 30, 2008, Neuralstem had cash of over $5.2 million. Subsequently, in December 2008, the Company issued 1.6 million shares of Common Stock to raise net proceeds of $1.76 million.

Ticker (Exchange) CUR (NYSE-Alt)* Recent Price (03/27/2009) $1.06 52-week Range $0.75 - $2.67 Shares Outstanding 33.75 million Market Capitalization $35.8 million Average 3-month Volume 123,634 Insider Owners +10% 27.03% Institutional Owners 0.71% EPS (Qtr. ended 09/30/2008) ($0.10) Employees 7

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Neuralstem, Inc.

9700 Great Seneca Highway Rockville, MD 20850

Phone: (301) 366-4841 www.neuralstem.com

* The NYSE Euronext has acquired the American Stock Exchange (AMEX) and renamed it the NYSE Alternext US LLC (NYSE-Alt), a wholly owned subsidiary of the NYSE.

CRYSTAL RESEARCH ASSOCIATES, LLC EXECUTIVE INFORMATIONAL OVERVIEW® PAGE 2

Table of Contents

Snapshot ....................................................................................................................................................... 1

Recent Financial Data ................................................................................................................................... 1

Key Points ..................................................................................................................................................... 1

Executive Overview ....................................................................................................................................... 3

Growth Strategy ............................................................................................................................................. 7

Intellectual Property ....................................................................................................................................... 8

Company Leadership .................................................................................................................................... 9

Core Story ................................................................................................................................................... 12

Stem Cell Background .......................................................................................................................... 12

Neuralstem’s Patented Technology ...................................................................................................... 15

Amyotrophic Lateral Sclerosis (ALS) .................................................................................................... 20

Additional Potential Applications of Neuralstem’s Technology ............................................................. 26

Competition ................................................................................................................................................. 30

Recent Milestones ....................................................................................................................................... 33

Key Points to Consider ................................................................................................................................ 35

Historical Financial Results ......................................................................................................................... 36

Risks ............................................................................................................................................................ 39

Recent Events ............................................................................................................................................. 50

Glossary ...................................................................................................................................................... 53


Executive Overview Neuralstem, Inc. (“Neuralstem” or “the Company”) develops treatments for incurable neurodegenerative diseases and for the regenerative repair of acute disease. The Company’s therapies are based on transplanting human neural stem cells into sick patients in order to replace dead or malfunctioning nerve cells with new and fully functional healthy cells. Neuralstem believes that it is a next-generation stem cell company as it is focused not on basic research of stem cells, but on how to move its Human Neural Stem Cell technology into patients. The Company estimates that it is at least five years ahead of many early stage stem cell ventures in terms of being able to grow and control its cell lines with an understanding of their function. Neuralstem’s present objective is to optimize the delivery of its neural stem cell therapies to patients, which could be accomplished in its anticipated Phase I clinical trial for amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease) in 2009. The Company submitted an Investigational New Drug (IND) application for the trial to the U.S. Food and Drug Administration (FDA) in December 2008, which the FDA has reviewed. The FDA presented its comments, questions, and recommendations about aspects of the IND, such as the outlined trial protocol, product manufacturing, and prior preclinical data, to Neuralstem in February 2009. As a result, the Company’s anticipated Phase I trial in ALS patients has been placed on clinical hold until Neuralstem can address the FDA’s concerns and evaluate the trial modifications, which the Company believes it can do in an expeditious manner. Human Neural Stem Cell Technology Stem cells, the center of an emerging field of treatment known as regenerative medicine or cell therapy, are unspecialized (“blank”) cells. They become specialized cells, e.g., a blood, bone, or nerve cell, via a process called differentiation. In addition to being able to differentiate into a multitude of different cell types, stem cells are capable of self-division and self-renewal over long time periods. As such, they offer the possibility of renewable sources of replacement cells and tissues to treat many kinds of diseases. Neuralstem leverages the innate capabilities of fetal stem cells in order to create novel treatment approaches for disorders of the central nervous system (CNS). Dr. Karl Johe, the Company’s scientific founder and chairman of the Board of Directors (biography on page 9), developed the Human Neural Stem Cell technology while at the National Institute of Neurological Disorders and Stroke (NINDS), part of the U.S. National Institutes of Health (NIH). Neuralstem believes that this technology was the first to jointly accomplish the following: (1) produce neural stem cells of the human brain and spinal cord in commercial quantities; and (2) control the differentiation of these cells into mature, physiologically relevant human neurons and

glia—two critical CNS cell groups. Neurons transmit electrical signals throughout the body, and glial cells provide support and nutrition, maintain homeostasis, form myelin, and aid signal transmission.

The Company’s patented Human Neural Stem Cell technology is specifically designed to identify, isolate, expand, purify, and control the differentiation of human neural stem cells collected from developing or adult CNS tissue. The Company has demonstrated to be able to isolate fetal stem cells from CNS tissue and then expand (double) each cell in the laboratory up to 60 times, which ultimately creates a bank of billions of neural stem cells. With a single donated tissue, Neuralstem has created a cell bank of spinal cord cells that may be able to treat all of its future spinal cord patients. These neural stem cells have been tested in animals, have been found safe in animals, and have been manufactured under Good Manufacturing Practices (GMP) conditions. Accordingly, the Company believes that its cells can ultimately be produced in a manner that the FDA supports. Moreover, under Neuralstem’s controlled differentiation, the stem cells only become cells of the CNS (i.e., of the brain and spinal cord). Because the technology is regionally specific, when Neuralstem grows its spinal cord stem cells, the Company only gets spinal cord neurons. There are considerable benefits to being able to control the differentiation of the stem cell, including the potential creation of treatments that


are more efficacious and safer than alternative uncontrolled cell therapies. Additionally, a distinguishing aspect of Neuralstem’s technology is that the Company does not add growth factors in vitro to manipulate its stem cells into becoming a certain type of cell, nor does it rely on unknown growth factors in the body. Rather, the Company’s neural stem cells already possess all of the information that they need to differentiate constitutively into the types of neurons they are fated to become, without undergoing any mutations or other adverse events that could compromise their use. In preclinical studies of rats with ALS (performed in conjunction with Johns Hopkins University researchers), Neuralstem’s cells extended survival time, extended the time before weight loss began occurring, and improved muscle strength. In separate tests conducted at the University of California, San Diego (UCSD), the cells reversed paralysis in rats with ischemic spastic paraplegia and also improved motor function. Greater details of the preclinical results are provided on pages 17-18. The Human Neural Stem Cell technology is also used for drug development as Neuralstem can analyze the effects of potential biological molecules on its neural cells grown in vitro. The Company has identified a group of potentially neuroprotective compounds for which it is pursuing preclinical studies in animal models of depression. This could represent a new avenue to treat depression, as current antidepressants do not offer neuroprotection. Although resource dependent, Neuralstem seeks to bring a depression compound into preclinical toxicity tests and a healthy volunteer Phase I trial by the second quarter 2010. Neuralstem’s U.S. Product Development The Company’s principal product candidate is its spinal cord cell line created with the Human Neural Stem Cell technology. The first indication for Neuralstem’s spinal cord cells is ALS. Pending Neuralstem’s submission and subsequent FDA approval of a revised IND, the Company seeks to commence Phase I trials in ALS during 2009. After establishing safety in the ALS indication, Neuralstem expects to begin further trials of this therapeutic platform in traumatic spinal cord injury and ischemic spastic paraplegia as well. The Company could be eligible for the FDA’s Orphan Drug or Fast Track product designations for some of its indications. Figure 1 depicts Neuralstem’s product pipeline, followed by a summary of ALS and the Company’s anticipated ALS Phase I trial protocol.

Amyotrophic Lateral Sclerosis (ALS) ALS is an incurable degenerative motor neuron disease. Symptoms of ALS generally first appear in the limbs, such as a weakness in a hand, foot, arm, or leg, and then advance over several years to muscle atrophy, total paralysis, and often death. The disease is estimated to afflict 30,000 patients in the U.S., with an average of 5,600 new diagnoses in the U.S. each year. For most ALS patients, the mean survival time after diagnosis is two to five years (Source: the ALS Association [www.alsa.org]). As there is no cure for ALS and no therapy to reverse its progression, current treatments focus on relieving the symptoms of

Preclinical Filed IND Phase I

Spinal Cord CellsAmyotrophic Lateral Sclerosis (ALS)Traumatic Spinal Cord InjuryIschemic Spastic ParaplegiaHuntington's Disease (HD)*

Small Molecule CompoundsDepressionOther cognitive disorders

* HD is not in the U.S.

Figure 1Neuralstem, Inc.

PIPELINE SUMMARY

Sources: Neuralstem, Inc. and Crystal Research Associates, LLC.

Product Candidate/Therapeutic Area


the disease and enhancing the patient’s quality of life. Sanofi-aventis U.S. LLC’s Rilutek® is the only medicine currently approved by the FDA to treat ALS. Sanofi-aventis U.S. is part of the global group, sanofi-aventis SA (SNY-NYSE). While Rilutek® showed in clinical trials to modestly increase patients’ chance of survival during the first year of treatment versus a placebo, the medicine cannot restore physical function, and after 18 months, there was no difference in survival time between patients on the medication and those on a placebo (Source: sanofi-aventis). Anticipated Phase I Clinical Trial in ALS The primary objectives of Neuralstem’s Phase I trial are to confirm the safety and feasibility of two areas: (1) the Company’s spinal cord cells; and (2) the Company’s method of delivering these cells into patients. Secondary endpoints are targeted toward demonstrating a slowdown of the degenerative ALS process in treated patients. The surgery required to deliver the cells to the spine entails multiple injections directly into the spinal cord’s gray matter, which, to the Company’s knowledge, has not been done before. To mitigate the risk of the surgery and to ease concerns of the FDA, Neuralstem’s clinical trial protocol was designed by four leading spinal surgeons. Neuralstem expects to enroll 15 patients who have varying stages of ALS. There is no placebo in this trial; each patient is enrolled with the purpose of receiving the real cells. After the first three patients receive injections of the spinal cord cells, an Independent Data Safety Monitoring Board is scheduled to review initial safety findings and determine whether the surgery and therapy are safe. Neuralstem believes that achieving favorable human results early in the trial could represent a major milestone in its clinical development of an ALS stem cell therapy and differentiate the Company from other stem cell technologies in development. The entire study is anticipated to require 24 months to complete. The trial is scheduled to be conducted at Emory University under the leadership of Dr. Johnathan Glass, director of the Emory Neuromuscular Laboratory and director of the Emory ALS Center, and Dr. Eva Feldman, one of the world’s leading ALS researchers and head of the A. Alfred Taubman Medical Research Institute at the University of Michigan Medical School. Both Emory University and the University of Michigan Hospitals and Health Centers are included in U.S. News and World Report’s 2008 ranking of “America’s Best Hospitals” for the Neurology and Neurosurgery specialties. It is important to note that both universities’ Institutional Review Boards (IRBs) must formally approve the trial, which does not occur until after the Company receives FDA approval for the trial. Neuralstem’s Global Product Development As Neuralstem’s goal is to move from a research-oriented business to a revenue-generating enterprise, the Company is undertaking a “near-simultaneous” worldwide commercialization strategy that capitalizes on the shorter regulatory pathways in other countries as well as “friendlier” environments for stem cell development. For example, clinical trials of the spinal cord cells in ALS are expected to begin at Taiwan’s China Medical University Hospital approximately six to nine months after initiation in the U.S. Neuralstem has already entered into a partnership with CJ CheilJedang Corporation, under which CJ CheilJedang purchased an option to negotiate for an exclusive license to Neuralstem’s stem cell products and technology after the completion of a successful human clinical trial. CJ CheilJedang could obtain exclusive rights for Neuralstem’s products in Korea, Indonesia, the Philippines, Malaysia, Singapore, and Vietnam, as well as a first right of negotiation for Japan. Neuralstem is also fully committed to pursuing a regulatory and commercial pathway for its spinal cord cells in China, where the Company believes that there is a potential for significant growth. Mr. James Sasser (biography on page 11), a former U.S. senator and ambassador to China, joined Neuralstem’s Advisory Board in February 2009 in order to help guide the Company’s efforts in China. In addition, Neuralstem collaborates with Professor Guido Nikkah, Ph.D., of Germany’s Albert-Ludwigs-Universität Freiburg for further development of the Human Neural Stem Cell technology in Huntington’s disease (HD). Neuralstem aims to qualify its GMP nerve cells into Professor Nikkah’s human clinical trial program to treat HD, based on the Company’s belief that Professor Nikkah’s program is one of the most advanced of its kind in Western Europe.


Headquarters and Employees Neuralstem’s headquarters are located in Rockville, Maryland. The Company was founded in 1996 by Dr. Karl Johe and Mr. Richard Garr (biographies on page 9). It was first incorporated in Maryland in 1997 and then re-incorporated in Delaware in 2001. The Company’s early focus was on genomics, drug discovery, and cell therapy and transitioned to the transplantation of neural stem cells to treat disease toward the end of 2003. Neuralstem is an outsource-model company, where management spends as little funding on infrastructure as possible. The Company employs seven full-time individuals, three of whom work in research and development and four of whom perform administrative functions. Neuralstem also benefits from outside consultants in business and scientific areas, with research conducted both in-house and through third-party laboratory consulting companies under Neuralstem’s supervision. For instance, production of the neural stem cell lines occur at Charles River Laboratories International, Inc. (CRL-NYSE), which conducts tailored research models, laboratory animal support services, and preclinical and clinical services (including GMP cell processing) for global clients. Aside from management, several of Neuralstem’s employees are dedicated to accounting and other financial matters, such as maintaining compliance with the Sarbanes-Oxley Act of 2002.


Growth Strategy The Company operates with the objective of commercializing the Human Neural Stem Cell technology. Its primary activities are directed at transitioning away from being a research company in favor of being a product-oriented, revenue-driven company. To date, the Company’s efforts have been directed toward identifying, isolating, and culturing large varieties of neural stem cells while also developing therapies using these cells. Product Development While the Human Neural Stem Cell technology supports the isolation and growth of stem cells from many regions throughout the CNS, Neuralstem is presently allocating its resources toward the development of its spinal cord cells. The Company’s regulatory and commercial strategy initially entails focusing on indications that have smaller patient populations, and then, once the safety and efficacy of the cell therapy has been demonstrated, expanding into more sizable indications as well. At present, Neuralstem seeks to treat ALS, which has a patient population of approximately 30,000 in the U.S. Pending FDA approval of a revised IND, the Company anticipates beginning Phase I clinical trials for ALS in 2009. After establishing the safety of the cells and surgery employed in the ALS trial, the Company expects to initiate trials of the same therapeutic cell platform for traumatic spinal cord injury and ischemic spastic paraplegia as well. The safety and efficacy data generated from these trials could enable Neuralstem to conduct studies in larger indications, such as stroke and multiple sclerosis. Global Focus Due to the U.S.’s lengthy regulatory process, Neuralstem believes that it can likely begin marketing its spinal cord therapies globally while the product is still in clinical trials in the U.S. Thus, the Company maintains a worldwide focus on its product development, with initial target markets in Asia. For instance, by commercializing in China first (while simultaneously continuing clinical development of the spinal cord cells in the U.S.), Neuralstem may be able to leverage its media coverage and revenue from China to complete its U.S. activities. In China, the Company anticipates partnering with an exclusive licensee to function as a distributor. In Korea, Indonesia, the Philippines, Malaysia, Singapore, and Vietnam, Neuralstem has already entered into an agreement regarding an exclusive license with CJ CheilJedang Corp. (further detailed on page 26). This license is not expected to be finalized until after Neuralstem successfully completes a clinical study in humans. In all of its agreements thus far, the Company has retained the right to be the manufacturer of the product. Neuralstem does not intend to transfer its technology to any partner. In November 2008, the Company announced its first strategic agreement in Germany as well. This collaboration with Professor Guido Nikkah, Ph.D., of Germany’s Albert-Ludwigs-Universität Freiburg for the HD indication is further detailed on page 28. Outsourcing As addressed under Headquarters and Employees on page 6, Neuralstem is an outsource-model company. The Company believes that the expertise needed to move its technology to commercialization exists around the world, and that funding is more efficiently spent when dedicated to moving clinical programs forward than building costly infrastructure. Greater details on the impact of Neuralstem’s outsourced business model are provided on pages 18-19. Financing To continue financing its development, Neuralstem intends to seek additional funding primarily through public or private financing transactions, although the Company may also engage in new licensing or scientific collaborations, grants from governmental or other institutions, or other related activities. Similar to its collaboration with CJ CheilJedang, Neuralstem expects to enter into partnering agreements in 2009 for markets in Latin America and China, which could represent an additional source of non-dilutive capital.


Intellectual Property Through both ownership and exclusive licenses, Neuralstem holds rights to four issued patents, as listed in Table 1. In addition, the Company has another 13 patent applications pending worldwide in the fields of regenerative medicine and stem cell therapy. Neuralstem is also active at inlicensing intellectual property rights for the devices and equipment required to optimize surgical transplantation of its stem cell therapeutics into the brain and spinal cord. Greater details relating to some of these licenses are provided on page 24. Altogether, the Company believes that its technology, know-how, and collaborations with major research institutions and members of academia provide it with a competitive advantage that could help facilitate the development and commercialization of its products.

Neuralstem and StemCells, Inc. (STEM-NASDAQ) are engaged in the initial stages of litigation regarding intellectual property. StemCells has challenged Neuralstem’s patents in the U.S. and in Europe. Both entities have also filed suits against each other. Neuralstem’s announcements related to the recent suits and countersuits that have been filed are presented on page 51 of the Recent Events section of this report, with the most recent being the 05/12/2008 entry. For greater details of the litigation between Neuralstem and StemCells, please reference the Legal Proceedings section of Company’s Form 10-Q filed with the U.S. Securities and Exchange Commission on November 13, 2008. In addition, the U.S. Patent and Trademark Office (USPTO) issued an official Notice of Allowance for Neuralstem’s “Stable Neural Stem Cell Lines” U.S. patent application in January 2009. This patent relates to the technology’s ability to immortalize any human neural stem cell by rendering long-lasting and robust growth—the feature that allows Neuralstem to create commercial quantities of its stem cells. Specifically, this patent protects the Company’s method of perpetuating this growth, which Neuralstem believes avoids the harmful effects of traditional, uncontrolled immortalization approaches. It enables systematic drug screening of new CNS drugs against many kinds of human brain cells as well as stem cell-mediated protein delivery for neurologic diseases.

Number Country Filing Date Issue Date Expiration Date Title

5,753,506 U.S. 09/25/1996 05/19/1998 09/25/2016EP0915968 Europe* 05/07/1997 07/25/2007 05/07/2017

6,040,180 U.S. 05/07/1997 03/21/2000 09/25/2016

6,284,539 U.S. 10/09/1998 09/04/2001 10/09/2018

755849 Australia 09/20/1999 04/03/2003 09/20/2019 Stable Neural Stem Cell Lines

* Validated in several European countries, including France, Germany, Ireland, Spain, Sweden, Switzerland, and the UK


Table 1Neuralstem, Inc.

ISSUED PATENTS

Method for Generating Dopaminergic Cells Derived from Neural Precursors

In Vitro Generation of Differentiated Neurons from Cultures of Mammalian Multipotential CNS Stem Cells

Isolation, Propagation, and Directed Differentiation of Stem Cells from Embryonic and Adult Central Nervous System of Mammals


Company Leadership Management Neuralstem’s leadership includes individuals with considerable stem cell experience, such as scientific founder Dr. Karl Johe, as well as members with legal and corporate finance expertise. Table 2 summarizes Neuralstem’s key management, followed by detailed biographies.

Karl Johe, Ph.D., Scientific Founder and Chairman Dr. Johe is Neuralstem’s scientific founder as well as chairman of the Company’s Board of Directors. He originally developed Neuralstem’s technology while at the NIH’s National Institute of Neurological Disorders and Stroke (NINDS). Dr. Johe has over 15 years of research and laboratory experience. He is the sole inventor of Neuralstem’s granted stem cell patents and is responsible for strategic planning and development of the Company’s therapeutic products. Dr. Johe received a B.A. in chemistry and a Master’s degree from the University of Kansas, and a doctorate from the Albert Einstein College of Medicine. From 1993 to January 1997, he served as a staff scientist at the Laboratory of Molecular Biology of the NINDS in Bethesda, Maryland. While holding this position, Dr. Johe conducted research on the isolation of neural stem cells, the elucidation of mechanisms directing cell type specification of CNS stem cells, and the establishment of an in vitro model of mammalian neurogenesis. I. Richard Garr, J.D., President, Chief Executive Officer, and General Counsel Mr. Garr has been chief executive officer (CEO), a director on the Board of Directors, and cofounder since 1996. He was previously an attorney with Beli, Weil & Jacobs, the B&G Companies, and Circle Management Companies. Mr. Garr is a graduate of Drew University (1976) and the Columbus School of Law, the Catholic University of America (1979). Additionally, he was a founder and is a current Board member of the First Star Foundation, a children’s charity focused on abused children; a founder of the Starlight Foundation’s MidAtlantic chapter, which focuses on helping severely ill children; and is a past honorary chairman of the Brain Tumor Society. John Conron, CPA, Chief Financial Officer Mr. Conron has served as chief financial officer (CFO) since April 2007. A certified public accountant (CPA), he joins the Company after more than 30 years in the field of corporate finance. Since 2003, Mr. Conron has been consulting early stage companies by providing critical outsource CFO functions, such as implementation of accounting systems, creation and monitoring of internal controls, Sarbanes-Oxley compliance, audit preparation, financial modeling, and strategic planning. Prior to working as a consultant, Mr. Conron was with Loral CyberStar, Inc., a wholly owned subsidiary of Loral Space & Communications, Inc. (LORL-NASDAQ), where he was CFO from 2000 to 2003. Previously, he was CEO at Transworld Telecommunications, which formerly offered telecommunication services in Russia. Mr. Conron was also CFO and a director of London’s Mercury Communications, a subsidiary of Cable & Wireless PLC (CW-LON).

Karl Johe, Ph.D. Scientific Founder and Chairman I. Richard Garr, J.D. President, Chief Executive Officer, and General CounselJohn Conron, CPA Chief Financial OfficerThomas Hazel, Ph.D. Executive Vice President, Research

Neuralstem, Inc.Table 2

Source: Neuralstem, Inc.

MANAGEMENT


Thomas Hazel, Ph.D., Executive Vice President, Research Dr. Hazel works with Dr. Johe to manage Neuralstem’s upcoming clinical trial for ALS and complete development of the Company’s small molecule neurogenesis compound targeted to treat depression. Dr. Hazel returns to Neuralstem after four years as the chief science officer at Innovative Biosensors, Inc. in Maryland. Prior to that, Dr. Hazel worked with Dr. Johe at Neuralstem for four years to develop the Company’s techniques for isolating and growing human neural stem cells. Before joining Neuralstem, he served as a senior staff scientist at the NIH, which he joined after receiving a Ph.D. in genetics from the University of Illinois. Board of Directors The Board of Directors oversees the conduct of and supervises the Company’s management. Table 3 provides a summary of Board members, followed by detailed biographies.

Karl Johe, Ph.D., Scientific Founder and Chairman, Neuralstem, Inc. Biography on page 9. I. Richard Garr, J.D., President, Chief Executive Officer, and General Counsel, Neuralstem, Inc. Biography on page 9. William C. Oldaker, Founding Member and Partner, Oldaker, Belair & Wittie, LLP Mr. Oldaker is a founding member and partner in the Washington, D.C., law firm of Oldaker, Belair & Wittie, LLP. He formed the firm in 1993. From 1987 to 1993, he was a partner in the Washington, D.C., office of the law firm of Manatt, Phelps & Phillips, LLP. In 2004, Mr. Oldaker was a founder of WashingtonFirst Bank in Washington, D.C., and now serves as a member of the Board of Directors. He was previously a director of Century National Bank from 1982 until its acquisition in 2001 (now a division of the Park National Bank). Mr. Oldaker was appointed by former U.S. President William J. Clinton to serve as a commissioner on the National Bioethics Advisory Commission, a post he held until 2001. He is a member of the Colorado, D.C., and Iowa Bar Associations, the Bar Association for the Court of Appeals, D.C., and the Bar of the U.S. Supreme Court. He is also a partner in the National Group, LLP, a consulting firm. Scott V. Ogilvie, J.D., Chief Executive Officer and President of Gulf Enterprises International, Ltd. Mr. Ogilvie is CEO and president of Gulf Enterprises International, Ltd., an investment company with U.S. and Gulf Cooperation Council operating partners and shareholders. Gulf Enterprises brings international expertise, investment capital, and operating platforms to Middle Eastern and North African markets across a variety of industries, such as infrastructure, industrial, information technology, energy, entertainment, healthcare, and real estate. Mr. Ogilvie is also managing director and chief operating officer of the CIC Group, Inc. Formed in 1995, the CIC Group is a closely held international financial services and investment holding company. Mr. Ogilvie began his career as a corporate and securities lawyer with Hill, Farrer & Burrill LLP. He has extensive public and private corporate Board experience in finance, real estate, and technology companies. He is also a founding member of the Board of Directors

Karl Johe, Ph.D. Scientific Founder and Chairman, Neuralstem, Inc.I. Richard Garr, J.D. President, Chief Executive Officer, and General Counsel, Neuralstem, Inc.William C. Oldaker Founding Member and Partner, Oldaker, Belair & Wittie, LLPScott V. Ogilvie, J.D. Chief Executive Officer and President of Gulf Enterprises International, Ltd.


BOARD OF DIRECTORSNeuralstem, Inc.

Table 3


of the American Kuwaiti Alliance, a U.S. non-profit corporation composed of prominent Kuwaiti and U.S. companies and institutions. Mr. Ogilvie received a BSBA-finance degree from the University of Denver and holds a J.D. from the University of California, Hastings College of Law. Advisory Board James Sasser, J.D., Senior Advisor on China Mr. Sasser joined Neuralstem as senior advisor on China in February 2009. He was elected to the U.S. Senate from Tennessee in 1976, where he served for 18 years. During that time, Mr. Sasser served as chairman of the Senate Budget Committee as well as chairman of various subcommittees on the Appropriations Committee, the Banking Committee, and the Governmental Affairs Committee. In 1995, he was appointed a fellow at the Kennedy School at Harvard University. While at Harvard, he was appointed U.S. ambassador to the People’s Republic of China by President Clinton and served in that capacity for almost four years. He had a pivotal role in stabilizing Sino-U.S. relations and traveled with Chinese President Jiang Zemin on his historic visit to the U.S. Mr. Sasser also serves on the Board of Trustees of the National Geographic Society, on the Board of the Elliott School of International Relations at George Washington University, and as a member of the Council on Foreign Relations. He is presently a senior advisor to FedEx Corp. (FDX-NYSE) and senior counselor to APCO Worldwide Inc. in Washington, D.C. He has served as a consultant to other U.S. corporations doing business in China, including Ford Motor Co. (F-NYSE), the former Unocal Corp., and Brown-Forman Corp. Mr. Sasser was educated at Vanderbilt University, where he received a B.A. in 1958, and at Vanderbilt Law School, where he received a J.D. in 1961. In 1998, he was selected as a distinguished alumnus of Vanderbilt Law School. He has also served in the U.S. Marine Corps.


Core Story Neuralstem, Inc. (“Neuralstem” or “the Company”) is a biotherapeutics company using its patented Human Neural Stem Cell technology to treat diseases of the central nervous system (CNS). The Company’s immediate focus is on amyotrophic lateral sclerosis (ALS), a painful, usually fatal degenerative nerve disease that presently afflicts as many as 30,000 individuals in the U.S. The Company’s approach to treating people with this incurable condition centers on producing commercial quantities of neural stem cells (those that relate specifically to the nerves) and transplanting these healthy cells into patients in order to replace and/or repair dead or malfunctioning cells. In addition to ALS, Neuralstem has research programs in place to address traumatic spinal cord injury, ischemic spastic paraplegia, Huntington’s disease (HD), and depression. The Company believes that its technology may also have use in the future for other neurodegenerative conditions, such as Parkinson’s disease, multiple sclerosis, and stroke. The Company considers itself to be a second-generation stem cell company as it is highly focused on optimizing its neural stem cells and moving these into the clinic and into patients rather than solely conducting discovery research. Neuralstem filed an Investigational New Drug (IND) application with the U.S. Food and Drug Administration (FDA) in December 2008 for approval to begin a human clinical trial of its spinal cord cells in ALS patients. As further detailed on page 22 under Neuralstem’s Proposed U.S. Clinical Trial in ALS, the FDA provided comments, questions, and recommendations about aspects of the IND in February 2009. Thus, the anticipated Phase I ALS trial is on clinical hold until Neuralstem can address the FDA’s concerns and modifications, which the Company believes it can do in an expeditious manner. Neuralstem believes that its technology overcomes many of the concerns that have plagued the stem cell industry and demonstrates the possibility of a stem cell company with a true product focus. STEM CELL BACKGROUND Stem cells are at the center of an emerging field of treatment known as regenerative medicine or cell therapy, which is based on the concept of producing new cells to replace and/or repair the body’s missing or damaged cells. The human body is composed of a multitude of different cells, most of which have specific functions, such as brain cells, skin cells, and blood cells, among others. Stem cells, however, are “unspecialized,” indicating that they have not yet become a certain cell type. Stem cells lack the tissue-specific structures that would enable them to perform specialized functions. For instance, a stem cell cannot work with its neighbors to pump blood throughout the body (such as a heart muscle cell); it cannot carry molecules of oxygen throughout the bloodstream (such as a red blood cell); and it cannot send electrochemical signals to other cells that allow the body to move or speak (such as a nerve cell). However, in a process called differentiation, a stem cell is signaled to become a specialized cell. Internal signals controlled by a cell’s genes are interspersed across long strands of deoxyribonucleic acid (DNA) and carry coded instructions for all the structures and functions of a cell. In addition, external signals for cell differentiation include chemicals secreted by other cells, physical contact with neighboring cells, and certain molecules in the microenvironment. Beyond their ability to differentiate into specific cell groups, stem cells have another fundamental difference from other cells: they are capable of self-division and self-renewal over long time periods. Unlike muscle, blood, or nerve cells, for example, which do not typically replicate, stem cells may replicate (proliferate) many times over. An initially small population of stem cells, when exposed to conditions in the laboratory in which it can proliferate for many months, can yield millions of cells. As such, stem cells offer the possibility of renewable sources of replacement cells and new tissues to treat many kinds of diseases, conditions, and disabilities. Stem cells are found throughout the stages of human development, as overviewed below and on page 13. (1) Early embryonic stem cells are found at the first stage of human development—in the embryo. These

cells are totipotent, meaning they can differentiate into any kind of cell in the body. Embryonic stem cells have the ability to self-renew indefinitely in their undifferentiated state, which is a unique characteristic distinguishing them from human stem cells found in other stages.


(2) Blastocyst embryonic stem cells, which are able to become almost any kind of cell in the body (“pluripotent”), are found in the embryo seven days after fertilization.

(3) Fetal stem cells, also pluripotent, appear after the eighth week of development once the embryo has become a fetus. These stem cells are responsible for the growth of all tissues before birth. Neuralstem’s therapeutic platform employs specific fetal stem cells that are procured from key areas of the CNS at the end of the mitotic (cell division) cycle, prior to differentiation. The Company selected fetal-derived neural stem cells as its focus for development because these cells still retain the ability that embryonic stem cells have to be expanded into billions of progeny cells, but they only differentiate into the cells that make up the brain and the spinal cord. In contrast, embryonic stem cells have the ability to differentiate into any type of cell.

(4) Umbilical cord stem cells found in the blood of the umbilical cord are multipotent, only able to

differentiate into a limited number of cell types. As these stem cells are genetically identical to the newborn baby, the blood from the umbilical cord can be collected after birth and cryopreserved. As the child grows up, the stem cells from this cord blood may be used if needed for autologous bone marrow transplants, among other diseases, in place of finding a donor.

(5) Adult stem cells entail those unspecialized cells residing in any already developed tissue, not just in “adults.” Any stem cells obtained from a person after birth are adult stem cells. Common locations of adult stem cells include the nerves, blood, skin, bone, and muscle. These stem cells are programmed to form a limited number of different cell types of their own tissue, and as such, are classified as multipotent. Neuralstem believes that there is a widespread consensus that the only stem cells that can truly be effective in neurodegenerative diseases are either the embryonic or fetal cells that are able to differentiate into CNS cells. To the Company’s knowledge, there has not been much evidence to support the use of adult stem cells for CNS disorders.

In healthy individuals, cells perform functions such as secreting or metabolizing substances essential to life (e.g., sugars, amino acids, neurotransmitters, and hormones). Damaged or dying cells no longer perform these functions, causing degenerative illnesses. Many approaches to treating such diseases have centered on administering patients the substances or proteins that are diminished due to impaired cellular function. However, many of these therapies encounter difficulties attempting to reach the precise sites of action in the quantities and durations required for efficacy. In contrast, a healthy cell is believed to be able to resolve these issues by simply carrying out its natural role. Thus, transplanting patients with healthy functioning cells may provide more efficacious treatments that restore organ functions, and potentially even offer cures, for many diseases. This is the basis behind regenerative medicine. Dynamics of the Stem Cell Industry On March 9, 2009, newly elected U.S. President Barack Obama reversed an Executive Order issued in August 2001 by former President George W. Bush that limited embryonic stem cell research. Although stem cells can come from adult tissues (as overviewed above), many researchers have held that the most potent stem cell lines are those obtained from the newly formed embryos discarded by fertility clinics (Source: the Atlanta Journal-Constitution January 19, 2009). However, this method of procuring stem cells often conflicts with conservative religious ideologies, and the U.S. previously limited federal funding and support for stem cell research. Prior to March 2009, any laboratory receiving federal funding was only allowed to use certain government-approved stem cell lines (those created before the August 2001 Executive Order went into effect)—a stipulation that disadvantaged U.S. companies seeking to pioneer novel stem cell therapies for still incurable diseases. In contrast, the global market for stem cell research progressed, and Neuralstem believes that China now has one of the world’s most receptive climates for stem cells. While the U.S. government now aims to work aggressively to recoup the ground lost to the previous Executive Order, it is not yet known how much federal money is to be dedicated to stem cell research until after grants are applied for and issued (Source: the Associated Press March 9, 2009). In response to many scientists who claimed that the executive stance was crippling one of the generation’s most promising initiatives, several U.S. states had begun independently funding stem cell research. For example, in 2004, California passed Proposition 71, which devotes $3 billion over 10 years to stem cell research. Created following the passage of Proposition 71, the California Institute of Regenerative Medicine (CIRM) has approved 253 research grants totaling more than $635 million to date for embryonic and pluripotent stem cell research.


However, just as states can authorize funds for stem cell research, they can also prohibit the practice. For instance, Georgia outlawed the use of state funds for this purpose in 2006, and some expect that Georgia state legislators could counter a relaxed federal policy by attempting to forbid federal funding for embryonic stem cell research at state university laboratories (Source: the Atlanta Journal-Constitution). Due to President Obama’s action, the U.S. stem cell industry could also see more funding being allocated to stem cell researchers by the U.S. National Institutes of Health (NIH). Yet, due to the present economic slowdown, it is possible that approval of federal funding could lead states that already finance stem cell research to reduce expenditures in this area in order to conserve cash. This is particularly relevant to states like Maryland, which passed a three-year stem cell initiative but left the appropriations to an annual basis. It is important to note that Neuralstem does not use any state-sponsored research grants, although some of the Company’s collaborators include large state research universities, which Neuralstem believes represent the type of institutions most likely to benefit from increased federal spending. Additionally, the Company is now largely focused on clinical trials of its cells, not basic research. The Central Nervous System (CNS) Composed of the brain and the spinal cord, the CNS controls most bodily functions, including the vital organs, sensation, and movement. The spinal cord is a collection of long nerve fibers approximately 15 inches to 17 inches in length, stretching from the base of the brain to the waist. It stops above the cauda equina, at which point the nerves are suspended in spinal fluid as they continue down the length of the vertebral column. The spinal cord is located in the center of the backbone (the spine), which serves to protect the spinal cord. The nerve fibers are connected to nerve roots located in between each vertebra, as illustrated in Figure 2. The nerve roots link the CNS to the peripheral nervous system (PNS), which extends throughout the rest of the body. Without the spinal cord, the brain cannot communicate with the body.

One of the major classes of cells in the nervous system are neurons, which send and receive electrical signals over long distances in the body. The primary role of neurons is to process and transmit neural information. Another class of cells in the nervous system are called glia (or neuroglia). Glial cells are non-neuronal cells with several functions: to provide support and nutrition, maintain homeostasis, form myelin, and participate in signal transmission. Without glia, the neurons do not work properly. It is estimated that while there are approximately 100 billion neurons in the brain, there are 10 to 50 times that many glial cells in the brain.

Figure 2SPINAL NERVE STRUCTURES

Source: SpineUniverse.com.

Spinal CordBase of the Brain

Peripheral NervesNerve

Roots

Cauda Equina

Nerve Root

Spinal Cord

Vertebral Body

Neuroforamen


NEURALSTEM’S PATENTED TECHNOLOGY To create cures for CNS diseases, Neuralstem is capitalizing on its Human Neural Stem Cell technology. This technology was originally discovered by Dr. Karl Johe, the Company’s scientific founder and chairman (biography on page 9). It encompasses the Company’s ability to identify and isolate fetal neural stem cells from areas of the developing human brain and spinal cord. These isolated stem cells are then expanded and purified in cultured dishes (called in vitro growth), where the cells differentiate into human neurons and glia. Neuralstem’s capability of purifying its cell lines occurs as the Company is separating the raw donor tissue into cells. The cell division is monitored and those that fail to divide within a predetermined time period are removed from the line. The process is summarized in Table 4.

Neuralstem believes that its technology was the first to jointly accomplish the following: (1) be able to produce neural stem cells of the human brain and spinal cord in commercial quantities; and (2) be able to control the differentiation of these cells into mature, physiologically relevant human neurons and glia. � Commercial Quantities. With its Human Neural Stem Cell technology, the Company can isolate CNS

stem cells from fetal tissue and then expand (double) each cell in the laboratory up to 60 times, which ultimately creates a bank of billions of stem cells. To do so, Neuralstem uses proprietary processes that expose the cells in vitro to specific factors and mediums that interrupt the cells’ internal self-renewal limitations. Thus, with a single donated tissue, Neuralstem has created sufficient spinal cord cells likely to treat all of its spinal cord patients. In contrast, typical adult stem cells divide more slowly than the Company’s fetal-derived adult stem cells and are therefore more challenging to use in the creation of commercial quantities.

� Controlled Differentiation. Under Neuralstem’s controlled differentiation, these stem cells only become

cells of the CNS (i.e., of the brain and the spinal cord). This completely controlled differentiation, which results in the stability of the product, is a core safety characteristic of the Company’s cells. With its dedicated neural stem cell bank, the Company is wholly focused on treating neurodegenerative diseases.

As overviewed above, the Company’s Human Neural Stem Cell technology differs from some other available stem cell technologies in that it is not “one size fits all.” The technology is regionally specific, ensuring that when Neuralstem grows its spinal cord stem cells, the Company only gets spinal cord neurons. Likewise, to produce neurons for Parkinson’s patients, the stem cells must come from the ventral midbrain region specific to Parkinson’s disease because these cells truly are fully functional, physiologically relevant human neurons relating to particular areas of the brain. A distinguishing aspect of Neuralstem’s technology versus other stem cell technologies in development is that the Company does not add growth factors in vitro to manipulate the stem cells into becoming a certain type of cell, nor does it rely on unknown growth factors in the body. Rather, the Company’s neural stem cells already possess all of the information that they need to differentiate constitutively into the types of neurons they are fated to become, without undergoing any mutations or other adverse events that could compromise their use.

(1) Identify and isolate human neural stem cells from areas of the developing human brain and spinal cord

(2)

(3)

(4) Begin the process of differentiating the cells into the physiologically relevant neurons and glia

(5)

Table 4


While the stem cells are still in their blank (undifferentiated) state, expand the cells in vitro in cultured dishes until a sufficient quantity of blank stem cells has been grown (this stage allows for the creation of commercial quantities of the cells)

Purify the cells in vitro by removing those that do not divide within a predetermined time period (this step may be repeated 3 or 4 times)

Sample the cells while they are differentiating in vitro in order to confirm that they are becoming the desired cell types

STEPS OF THE HUMAN NEURAL STEM CELL TECHNOLOGYNeuralstem, Inc.


There is a considerable benefit to being able to control the differentiation of the stem cell. Because fetal stem cells are pluripotent, they can give rise to all different cell types. In the past, uncontrolled differentiation has posed problems for stem cell treatments in terms of both efficacy and safety. For instance, to be efficacious, a treatment for ALS must use spinal cord nerve cells, not blood or heart cells. Moreover, in order to be safe, physicians must be able to know precisely what cells they are injecting into a patient. For example, it would not be safe to inject stem cells into the brain if it is not known that those cells would be brain cells and not bone cells. In addition, because embryonic stem cells have the ability to become blood cells, they are capable of recreating the immune system of the donor, which bears the risk of graft-versus-host disease (GVHD). In contrast, Neuralstem’s cells are programmed to become only the intended cell types—neurons and glia—potentially enabling safer, more efficacious therapies for neurodegenerative diseases than competing stem cell technologies could provide. Figure 3 illustrates how the Company’s human neural stem cells may be able to treat CNS diseases. The example shown in Figure 3 pertains to ischemic spastic paraplegia, which is further detailed on page 27.


These cells repair damaged cells and replace missing cells

As the cells are repaired, the damaged region recovers and

motor function is restored

Spinal cord damage typical of ischemic spastic paraplegia

AN OVERVIEW OF HOW NEURALSTEM'S STEM CELL THERAPIES CAN WORKNeuralstem, Inc.

Figure 3

Using a patented process to grow and expand neural stem cells in

vitro

After up to 60 doublings, a robust cell line with billions of progeny

cells is created

As the new cells reach the affected area, they change into

new types of cells

Many of the neural stem cells in this part of the spine are missing

or damaged

Administering neural stem cells to the affected tissue


As further described on pages 28-29 under A Small Molecule Compound, the Human Neural Stem Cell technology has also shown to be useful for drug development. Because Neuralstem can grow neural cells in vitro, the Company can also analyze the effects of potential biological molecules on neurons. Through studies related to this type of small molecule development, Neuralstem has identified a group of compounds that may be able to enhance the survival of endogenous cells in the brain’s hippocampus region, an area of the brain that helps regulate emotion and memory. Neuralstem is currently pursuing studies of a small molecule as a potential neuroprotective treatment for depression. Preclinical Support for Neuralstem’s Technology Both Neuralstem and its research collaborators (some of which are overviewed on page 19) have performed extensive scientific studies on the Company’s neural stem cell lines. The cells have demonstrated the ability to reliably differentiate into approximately 50% neurons and 50% glial cells. After transplant into animal models, these cells have shown survival rates of 95% to 100%. Implanted cells have been found to express neuroprotective factors that promote cell growth and repair within their CNS microenvironment. They also produce GABAergic interneurons, which have a key role in alleviating spasticity indications (e.g., ischemic spastic paraplegia) by expressing the GABA neurotransmitter. GABA regulates the CNS’s levels of glutamate, a neurotransmitter involved in learning and memory that, under certain circumstances, can cause nerve cell death in a variety of neurodegenerative disorders, including ALS. Histopathological examinations of the animal models transplanted with Neuralstem’s cells have shown neuronal generation and integration, and the restoration of significant motor function. Highlights of some of these preclinical studies are provided below. In collaboration with researchers from the Johns Hopkins University School of Medicine, Neuralstem grafted its spinal cord cells into 37 nude rats that had been engineered to simulate conditions of ALS. Nude rats are genetically modified to lack a functioning immune system and, as such, cannot destroy transplanted human cells. In this study, researchers found that subjects injected with live spinal cord cells did not begin to lose weight until 59 days post transplant (on average), a week after the control group (implanted with dead cells). The live cell group was also able to perform better over a longer time interval at walking an uphill plank (to test strength) than the control group. Furthermore, the rats transplanted with Neuralstem’s spinal cord cells lived an average of 86 days, which was 11 days longer than the average for the control group. One of the chief outcomes of this study was that the Company was able to demonstrate that its spinal cord cells, when transplanted into an injured spinal cord, could differentiate into nerve cells that could integrate and establish connections with other cells, thereby transferring the nerve impulses that control muscle action. In 2007, Neuralstem and researchers from the University of California, San Diego’s (UCSD) Anesthesiology Research Laboratory and Department of Pathology conducted preclinical proof-of-principle studies in animal models of ischemic spastic paraplegia. As published in Neuroscience, a two-month study of ischemic paraplegic rats found that 10 injections of between 10,000 and 30,000 spinal cord stem cells per injection led to the progressive recovery of ambulatory function. The cells were transplanted into the rats 21 days after the onset of paralysis with motor function recovery evaluated every seven days. Nine subjects were given the spinal cord cells and seven were given a placebo with no stem cells. All nine rats in the active group had substantially improved motor scores versus the control group, with three subjects walking again by six weeks and three others exhibiting improved mobility in all lower extremity joints and increased muscle tone. In each transplant, the majority of implanted stem cells survived and became mature neurons. Future human patients, unlike the rat subjects in this study, will likely be able to receive physical therapy following the stem cell treatment—which Neuralstem believes can accelerate the integration of the grafted stem cells and enhance the therapeutic benefit of the cells. Figure 4 (page 18) depicts several graphs of the Company’s preclinical data, highlighting the spinal cord cells’ effect at improving subjects’ BBB scores and motor evoked potentials (MEPs) in ischemic paraplegic rats. The BBB score is based on the Basso, Beattie, and Bresnahan (BBB) scale, an open-field locomotor test for rats to assess hind limb motor function. MEP amplitude measures muscle response following direct stimulation of the exposed motor cortex.


An additional three-month study in 13 rats was also performed, of which six rats served as a control group. Seven of the subjects showed a time-dependent improvement in motor function and were able to move their lower extremities, although the rats did not return to walking by the end of the study period. Researchers speculated that response differences were due to subtle changes in graft position, the need for a longer-term post-transplant period (6 to 12 months) in order for the implanted neurons to finish maturing, and the need for physical rehabilitation. In contrast, control animals showed no recovery. Moreover, in March 2009, Neuralstem reported that its transplanted human neural stem cells made synaptic contacts with the motor neurons of rats with ALS-like symptoms. This data, which was published in the Journal of Comparative Neurology, constitutes evidence that the transplanted cells integrated into the nervous system of the host. The rats had a genetic mutation called SOD-1 G93A, which gives them a disease similar to ALS in humans. Neuralstem believes that this was the first demonstration of transplanted human neurons synapsing, or making mature structural connections, with rat motor neurons. While earlier studies with this ALS model showed that the stem cells delayed onset of the disease and had a neuroprotective role, there is now evidence that the cells can become an integral part of the rat nervous system controlling the muscles. Impact of Neuralstem’s Outsourced Business Model Production of the Neural Stem Cell Lines Neuralstem outsources the manufacturing and storage of its stem cells to Charles River Laboratories, where a series of neural cell banks have been created. The Company believes that these cell banks can serve as the basis for its therapeutic products. Founded in 1947, Charles River conducts tailored research models and laboratory animal support services as well as preclinical and clinical services for its

*hNSCs = human Neural Stem Cells

Source: Rubicon Global Research 2007.

Study III: BBB ScoreStudy I: BBB Score

SELECTED GRAPHS HIGHLIGHTING PRECLINICAL RESULTS IN RATS TRANSPLANTED WITH NEURALSTEM'S SPINAL CORD CELLS

Neuralstem, Inc.Figure 4

Partial recovery of MEPs amplitude at two months after hNSCs grafting

hNSCs + FK-506Medium + FK-506

Responders (n=7)Non-Responders (n=6)Vehicle Controls (n=6)

BB

B s

core

s

% o

f MEP

s re

cove

ry Responders

Non-Responders

Vehicle Controls

r = 0.944

Cell graft

Survival Time (Weeks)PrePre 2 4 6 8 10 12

0

100

80

60

40

20

0

8

6

4

2

0

20181686420

BBB

sco

res

2 4 6 8 10

BBB

2 6 8Cell transplant (Weeks)


global clients. The firm has over 60 facilities in 15 countries and serves leading pharmaceutical, biotechnology, government, and academic organizations worldwide. Charles River has the capacity to support Good Manufacturing Practices (GMP) cell processing in quantities that Neuralstem believes is sufficient for its preclinical and clinical trial needs. The Company does not maintain a quantity or volume commitment with Charles River; the cells are ordered and produced on an as-needed basis. The Company also manufactures some of its cells in-house. These are the cells used for research grants and collaborative programs, which are not required to meet such stringent FDA stipulations as are the cell lines used for preclinical and clinical studies. Third-party Research Agreements Neuralstem employs a combination of in-house research, outside research conducted under the Company’s supervision, and research agreements with various universities and laboratories. Neuralstem enters into each of these collaborations for a specific purpose using its neural stem cells, and provides the cells, technical assistance, and other research materials as determined by the Company to be sufficient for accomplishing the project’s aims. In exchange, Neuralstem is entitled to the following: (1) the right to certain patentable discoveries; (2) a fully paid, royalty-free, non-exclusive license to inventions made by the partner with respect to the Company’s technology; and (3) the first right to negotiate an exclusive license. There are no milestone or royalty payments associated with most of these collaborations, and each party is generally responsible for its own expenses. Agreements often have a three-year term. A summary of some of Neuralstem’s current research collaborations is provided below, although this is not an exhaustive list. � The University of California, San Diego (UCSD). Neuralstem initiated a research project with UCSD in

May 2002 to study the applicability of the Human Neural Stem Cell technology to ischemic spastic paraplegia and traumatic spinal cord injury. This research led to the filing of a patent titled “Transplantation of Human Cells for Treatment of Neurological Disorders.”

� Johns Hopkins University School of Medicine. This partnership commenced in March 2001 for the purpose of studying Neuralstem’s technology in ALS and traumatic spinal cord injury. Its findings also contributed to the filing of the aforementioned patent. Further, in preclinical studies conducted with Johns Hopkins researchers, Neuralstem’s cells extended the lives of rats with ALS.

� Albert-Ludwigs-Universität Freiburg. In November 2008, Neuralstem entered into a collaboration with

Professor Guido Nikkah, Ph.D., of Germany’s Albert-Ludwigs-Universität Freiburg with the aim of advancing development of Neuralstem’s human neural stem cell therapies for HD. Under this collaboration, the Company’s therapies could be studied in clinical trials in 2010.

� The University of Central Florida. In March 2006, a research project was begun with the University of

Central Florida to study the technology in relation to the treatment of spinal cord injuries. Targeted Disease Indications Neuralstem’s first targeted indication is ALS using the Company’s main product—its spinal cord cell line. The Company also anticipates employing its spinal cord cells to treat traumatic spinal cord injuries, ischemic paraplegia, HD, stroke, and multiple sclerosis. By using one therapeutic platform (the spinal cord cells) at present, Neuralstem can leverage what it learns through the early ALS trials in future studies of other indications. Moreover, Neuralstem and its research partners have already begun characterizing neural stem cells from other areas of the CNS as well, which the Company may be able to use in the future to treat additional diseases, such as Parkinson’s disease. Pages 22-26 detail the development of Neuralstem’s cell therapy for treating ALS, which entails finalizing an IND in the U.S. with the goal of beginning human clinical trials in 2009 as well as leveraging collaborations in Asia to conduct parallel clinical trials. Pages 26-29 overview some of the Company’s other development programs using its spinal cord cells, including advancements toward studying traumatic spinal cord injuries in the clinic and the recently announced collaboration in Germany for HD.


AMYOTROPHIC LATERAL SCLEROSIS (ALS)

More commonly known as Lou Gehrig’s disease after the former New York Yankees baseball player (pictured in Figure 5), ALS is an incurable degenerative motor neuron disease. As the nerve cells deteriorate, symptoms of ALS generally first appear in the limbs, such as a weakness in a hand, foot, arm, or leg. The disease then advances over a period of years to muscle atrophy, total paralysis, and often death. Derived from Greek, “amyotrophic lateral sclerosis” refers to three of the condition’s characteristics: (1) no muscle nourishment (“a-myo-trophic”), which results from the

death of the motor neurons that send impulses to muscle fibers; (2) the area of the spinal cord where the portions of the nerve cells that

signal and control the muscles are located (“lateral”); and (3) the scarring that occurs in the spinal region as it degenerates

(“sclerosis”).

Approximately 60% of patients have muscle weakness as the initial symptom of ALS. The disease is progressive, gradually degenerating the nerve cells in the CNS that control voluntary muscle movement. (ALS does not affect the muscles of the heart or digestive system, since these movements are automatic and not under voluntary control.) As the hands and feet experience greater muscle weakness, individuals may find it harder to do daily activities from buttoning a shirt to walking. The limbs may also begin to look thinner, which is caused by the muscles atrophying. Over time, the weakening and paralysis spread to the body’s core. Once the trunk is affected, ALS causes problems with speech, swallowing, chewing, and breathing—the latter of which ultimately necessitates ventilator or another form of respiratory support in order for the patient to survive. Disease Prevalence ALS is estimated to afflict approximately 30,000 patients in the U.S., with an average of 5,600 new diagnoses in the U.S. each year. The disease has been known to go into remission or halt its progression in a small number of people; however, there is not yet a scientific explanation for why or how this occurs. For most ALS patients, the mean survival time after diagnosis is two to five years (Source: the ALS Association [www.alsa.org]). As far as is known, ALS appears to be both genetic and spontaneous. Familial (hereditary) ALS occurs in 5% to 10% of cases, while the rest seem to occur at random on otherwise healthy adults. Most cases of ALS are in people between the ages of 40 and 70, although the disease has been diagnosed in patients in their twenties and thirties. It is most common in men and people of Caucasian origin but people who have served in the military or who live in Guam, West New Guinea, and parts of Japan may also have an increased risk of developing ALS, the latter of which is speculated to be due to dietary factors (Source: the Mayo Foundation for Medical Education and Research). Current Treatment Options for ALS Although ALS was first identified in 1869 by a French neurologist, the most significant progress made toward understanding and treating the disease has occurred in just the past decade (Source: the ALS Association). However, there is not yet a cure for ALS. Current treatments focus on relieving the symptoms of the disease and enhancing the patient’s quality of life. One FDA-approved treatment, sanofi-aventis U.S. LLC’s Rilutek®, showed in clinical trials to modestly increase patients’ chances of survival during the first year of treatment versus a placebo. Yet Rilutek® cannot restore physical function that has already been lost, and after 18 months, there was no difference in survival time between patients on the medication and those on a placebo (Source: sanofi-aventis). Rilutek® is the only medicine currently approved by the FDA to treat ALS, although physicians may prescribe a variety of products aimed at alleviating the muscle cramps, constipation, fatigue, excessive salivation, excessive phlegm, pain, and depression that accompany ALS.

Figure 5LOU GEHRIG

Source: The ALS Association.


Additionally, there are a variety of companies, institutions, and academic groups researching new treatment options for ALS. These range from noninvasive trials that measure breathing function in ALS patients who are on certain type of ventilation device to potentially curative therapies like that of Neuralstem. A search of ClinicalTrials.gov, a global trial database maintained by the NIH, found at least 50 open studies actively recruiting or soon to be recruiting ALS patients as of March 2009. In addition, the ALS Association has committed nearly $40 million toward ALS research during the past decade, and is presently funding more than 100 research studies. In particular, the association views gene therapy and stem cells as promising areas of study for this disease. As listed in Table 5, seven research studies currently funded by ALS Association grants entail the use of stem cells as a method to better understand or to treat ALS.

It is important to note that these studies are at the laboratory stage or are only being tested in animal models to date. As addressed at the beginning of the Core Story, Neuralstem is dedicated to moving its Human Neural Stem Cell technology into clinical development, whereas most of the studies listed in Table 5 are still only directed at improving the understanding of the relationship between stem cells and ALS. For example, the study at Harvard University seeks to compare stem cell-derived motor neurons in familial ALS to normal motor neurons in order to identify genetic differences that could point toward new therapeutic targets. The study at Yale University aims to develop a genetic modification that could enhance the nerve fiber growth of stem cell-generated neurons transplanted into the spinal cord.

Investigator's Institution

Harvard University

University of Wisconsin

Massachusetts General Hospital

Johns Hopkins University

University of Wisconsin

Yale University

Massachusetts General Hospital

Table 5

Source: the ALS Association.

Initiated by the Milton Safenowitz Post Doctoral Fellowship for ALS Research

Initiated by the ALS AssociationProject Title

Using Embryonic Stem Cells to Identify Gene Products that Mediate Non-cell-autonomous Motor Neuron Death in ALS

Using induced Pluripotent Stem (iPS) Cells to Generate ALS Patient Specific Stem Cell Lines

CSMN Precursors; Mouse Adult CSMN-specific Precursors; and IGF-I Support of CSMN Axons and Survival in “G93A” Transgenic Mice

Glial Precursor Transplantation Targeting Non-neuronal Pathways for ALS Therapeutics

Modeling Human Motor Neuron Degeneration Using Stem Cells

Optimizing Motoneuron Transplantation in ALS for Nerve Fiber Growth

Initiated by the Investigator

Molecular Controls over Early Specification and Differentiation of Corticospinal Neurons (upper motor neurons)

STEM CELL RESEARCH FUNDED BY THE ALS ASSOCIATION


Neuralstem’s Potential Stem Cell Therapy for ALS

Neuralstem proposes to treat ALS through spinal injections of its stem cells produced via the Human Neural Stem Cell technology, as described on pages 15-19. Ultimately, the Company’s goal is that once an individual is diagnosed with ALS, that person can almost immediately undergo surgery to inject spinal cord cells into the lumbar section of the spine to repair and/or replace the nerve cells in this area. Figure 6 illustrates the spinal cord, highlighting its different sections. Six months after the lumbar injection, the patient would undergo a second surgery, injecting spinal cord cells into the cervical portion of the spine. Each surgery will likely require patients to be anesthetized for several hours. Thus, two surgeries six months apart instead of a single procedure could reduce surgical risk. As detailed on the accompanying pages, Neuralstem is working to move its spinal cord cells into a U.S. Phase I clinical trial in ALS in 2009. In parallel, the Company is progressing with the development of its cells worldwide, with a particular emphasis on establishing partnerships in Asia (as described on pages 24-26).

Neuralstem’s Proposed U.S. Clinical Trial in ALS In December 2008, Neuralstem filed an IND application to the FDA for the initiation of a clinical trial of the patented Human Neural Stem Cell technology in ALS patients. The primary objectives of this Phase I trial are to confirm the safety and feasibility of two areas: (1) the Company’s spinal cord cells; and (2) the Company’s method of delivering these cells into patients. Secondary endpoints are targeted toward demonstrating a slowdown of the degenerative ALS process in treated patients. After reviewing the Company’s IND, the FDA requested additional information in February 2009 regarding product manufacturing, the preclinical studies, and the clinical delivery injection device and technique, which the Company believes it can provide in an expeditious manner. The FDA also noted modifications to be made to the trial’s protocol and eligibility criteria, as well as slight changes to the timing of the surgeries—all of which Neuralstem is presently evaluating. As a result, the Company’s anticipated Phase I trial in ALS patients has been placed on clinical hold until Neuralstem can address the FDA’s concerns and reach an agreement with the agency regarding the trial’s modifications. Thus far, the neural stem cells have already been tested and found safe in animals and have been manufactured under GMP conditions. The surgery required to deliver the cells to the spine entails multiple injections directly into the spinal cord’s gray matter—which, to the Company’s knowledge, has not been done before. Despite being performed on patients afflicted with a fatal disease, any surgery targeting the spine is considered to be highly risky because if performed improperly, the patient could be paralyzed from the point of injection down. To mitigate the potential risk of this novel surgical intervention and to ease concerns of the FDA, Neuralstem’s surgical clinical trial protocol was designed by leading spinal surgeons, including Dr. Edward Benzel (chairman of the Department of Neurosurgery and director of the Center for Spine Health at the Cleveland Clinic) and Dr. Nicholas Boulis of Emory University. Dr. Boulis, formerly of the Cleveland Clinic, is now an assistant professor in the Department of Neurosurgery at Emory University. Trial Protocol The anticipated trial protocol entails enrolling 15 patients who have varying stages of ALS. There is no placebo in this trial; each patient is enrolled with the purpose of receiving the real cells. The Company does not plan on enrolling any end-stage (ventilator) patients in this first trial.

Source: kennethsternchiropractic.com.

Figure 6THE SPINAL CORD

Posterior (Back) Spinal Column

Lateral (Side) Spinal Column


The protocol calls for the treatment of three patients and then a review by an Independent Data Safety Monitoring Board, which examines all aspects of the treatment and determines whether the surgery and therapy were safe in the first three patients. If found to be safe, the Board recommends that the trial continue. Neuralstem believes that this confirmation will likely represent the third major milestone in its clinical development of an ALS stem cell therapy. The first milestone was the filing of the IND; the second is the approval of the IND; and the third is the receipt of the initial human data based on these first three patients. Achieving positive human data could differentiate the Company from other stem cell approaches in development. The entire trial is expected to require 24 months to complete. The Spinal Surgery The surgery expected to be used in this trial involves up to 30 injections per patient: either 10 or 20 bilaterally in the lower lumbar spine and 10 in the upper cervical region. Each injection deposits an exact quantity of spinal cord cells. By targeting the lumbar region, Neuralstem seeks to preserve ambulation in patients (the ability to walk). In the cervical region, the Company is aiming to control the muscles needed to maintain respiratory function. Whereas Neuralstem expects to employ two surgeries for commercial delivery of its cells, in this trial, the Company intends to only perform one surgery except for two proposed “crossover” groups. These patients, likely the last in the trial, could receive both procedures. In this procedure, the surgeon must carefully inject the cells into very specific locations in the spinal cord that correlate with the limb and respiratory functions Neuralstem is trying to preserve. Once placed, the cells do not migrate; they are stationary. As such, the surgery requires stereotactic injection technology, which utilizes scanning devices and a computer to create three-dimensional pictures that aid the surgeons performing the injections. Neuralstem intends to provide the training on how to perform the procedure. In addition, because the spinal cord tends to move even when the patient is anesthetized, the surgeon must use a special device that was created for the purpose of stabilizing the spinal cord during this procedure. Developed by Dr. Boulis while he was at the Cleveland Clinic, this device was designed to achieve a delicate balance between stabilizing the spine so that its movement does not affect the injection locations but not stabilizing the spine so much that it is injured by the needle. The equipment also includes a x, y, and z axis to enable use of stereotactic injection technology in concert with a real-time MRI to show surgeons exactly where the needle is going in the spinal cord. Additional surgical devices to be tested in this trial or used in the future for the commercial delivery of the Company’s neural stem cells are provided on page 24 under Licenses to Inventions that Facilitate Targeted Delivery of Cell Therapeutics to the Spinal Cord. The Follow-Up One month after the surgery, patients are scheduled for follow-ups in order to evaluate the safety of the procedure. At three months following the surgery, patients are to have a second follow-up to analyze the safety of the spinal cord cells. Neuralstem believes that the FDA is likely to require the Company to continue to follow these patients for their entire lives as well. Thus, the first patients are anticipated to have MRIs performed every three months for the first year, every six months during the second year, and annually thereafter. Trial Sites and Investigators Upon FDA approval of the IND, the Company anticipates beginning the trial at Emory University under the leadership of Dr. Johnathan Glass, director of the Emory Neuromuscular Laboratory and director of the Emory ALS Center; and Dr. Eva Feldman, head of the A. Alfred Taubman Medical Research Institute at the University of Michigan Medical School and the Russell N. DeJong Professor of Neurology at the University of Michigan Medical School. The University of Michigan Hospitals and Health Centers placed 13th overall in U.S. News and World Report’s 2008 ranking of “America’s Best Hospitals” and 31st within the Neurology and Neurosurgery category. Likewise, U.S. News and World Report considered Emory University Hospital to be the 13th best in the nation in the Neurology and Neurosurgery sector. Under the IND, Dr. Feldman, who is one of the world’s leading ALS researchers, is to be the overall principal investigator for Neuralstem’s ALS trial program, and Dr. Glass is the site’s principal investigator. However, Neuralstem can only obtain these institutions’ formal approvals to conduct the trial after the FDA approves the trial protocol as put forth in the IND.


Licenses to Inventions that Facilitate Targeted Delivery of Cell Therapeutics to the Spinal Cord Cleveland Clinic In October 2008, Neuralstem announced that it had acquired rights to three inventions from Ohio’s Cleveland Clinic. Founded in 1921, the Cleveland Clinic is a non-profit, academic medical center that focuses on combining clinical and hospital care with research and education. In “America’s Best Hospitals” of 2008, the Cleveland Clinic was ranked 4th overall and 6th for Neurology and Neurosurgery. Each of the three inventions licensed by Neuralstem pertains to the targeted delivery of the Company’s spinal cord cells and was developed by Dr. Boulis. These are listed in Table 6.

Transplanting cells directly into the spine is a challenging but necessary part of treating diseases of the spinal cord—not only in ALS, but in other spinal cord injuries and diseases as well. The Company expects that the technology licensed from the Cleveland Clinic can help circumvent the inherent difficulties of spinal injections, thereby enhancing the safety and efficacy of treatments. To this extent, Neuralstem intends to use some of these inventions in its anticipated ALS trial in order to optimize delivery of its cell therapeutic, with the aim of enhancing the safety and efficacy of the treatment. University of California, San Diego (UCSD) The Company also licenses technology from other institutions, such as UCSD, that are not yet being tested in trials but are intended for future use. With regard to UCSD, the license covers a special needle that is designed to ease the process of injecting cells between certain segments of the spinal cord. Neuralstem’s exclusive license to the “Spinal Multisegmental Cell and Drug Delivery System” invented by Dr. Martin Marsala covers all fields of use and includes the right to grant sublicenses. Under the terms of the agreement, UCSD is eligible for milestone payments and royalties, and Neuralstem assumes the cost of development, manufacture, and approval of the product. Global Development of the Spinal Cord Cells Neuralstem believes that it is obligated to make its ALS treatment available worldwide (contingent on successful human data). Therefore, in addition to preparing for a clinical trial program in the U.S., Neuralstem also continues to seek out global strategic partners that have the neurosurgical expertise to assist with trials and eventually to administer the commercial stem cell therapies. The Company is currently establishing the infrastructure and arrangements needed to make global commercialization possible in the future, with a particular focus on furthering strategic relationships in Asia. China Neuralstem’s commercialization model is to engage in worldwide product launches. Thus, while the Company works to complete lengthy clinical trials in the U.S., it is also starting the regulatory approval process in China—a country that Neuralstem believes is one of the world’s friendliest toward the stem cell sector. Neuralstem estimates that the U.S. regulatory process could last for at least four to five years before the spinal cord cells could be widely available to ALS patients. In contrast, the Company believes that it is likely to begin to commercialize the spinal cord therapy in China within 18 months. Essentially, China has a different perspective than the U.S. for patients with untreatable or intractable conditions.

▪ A Stabilized Platform and Microelectrode Recording Guidance Validation

▪ A Floating Cannula for Spinal Cord Therapeutic Injection

▪ A Spinal Platform and Methods for Delivering a Therapeutic Agent to a Spinal Cord Target


NEURALSTEM'S LICENSES FROM THE CLEVELAND CLINICNeuralstem, Inc.

Table 6


It is important to note that Neuralstem is not attempting to circumvent the U.S. regulatory process by conducting studies in China; rather the Company is going through both of these frameworks in parallel. The objective is to transition from being a research company to being a product-oriented, revenue-driven business. This goal is easier met in Asia, where the Company can accelerate trials, begin receiving the validation and media coverage that accompanies commercialization, and earn revenues—all while the spinal cord therapies are still being evaluated in the U.S. China, with an estimated 2007 GDP real growth rate of between 11.9% and 13%, is one of the world’s largest economies behind the U.S. and Japan. Over the past 30 years, China has worked toward economic reform as the country transitioned from a communist central planning economy to a market-style system. Despite a global downturn during 2008, many estimates of China’s 2008 growth still range from 6% to 9%. The specific Chinese market that Neuralstem is targeting is a tier of smaller private hospitals that serve a population of approximately 100 million people. The Company is engaging in discussions with owners who hold networks of hospitals, with the intent of securing an exclusive distributor into that network. Based on management’s negotiations, Neuralstem estimates that in a typical network of 50 private Chinese hospitals, each hospital may have 100 spinal cord injury patients a year, which equates to approximately 5,000 spine patients annually in the network. Over a number of years, the Company hopes to become the transplant option for up to 50% of these patients in each network. Due to cost and income disparities between China and the U.S., Neuralstem estimates that pricing for its spinal cord treatments in China could range between $5,000 and $10,000 per patient versus an estimate of roughly $120,000 (reimbursable by health insurance) per patient in the U.S. Neuralstem has interviewed institutions and physicians in Asia that may receive training from the Company on how to deliver the stem cell therapies. In doing so, Neuralstem has found Western-trained surgeons at the top levels of many hospitals, widespread Western technologies, and what the Company has classified as an insatiable appetite for state-of-the-art resources. As more people in Asia can afford the Western treatments, hospitals have had to begin meeting demand for these treatments or risk more affluent patients going to a different hospital or leaving the country in order to get the needed therapies. China Medical University Hospital (Taiwan) In December 2008, Neuralstem entered into a partnership with the China Medical University Hospital (depicted in Figure 7) with the goal of further developing the Company’s human spinal cord neural stem cell therapies. Under this collaboration, the two entities expect to launch a human clinical trial program to treat ALS in Taiwan, where the China Medical University Hospital is based. A Taiwanese trial could follow the anticipated U.S. ALS trial by approximately six to nine months. Shinn-Zong Lin, M.D., Ph.D., is scheduled to serve as principal investigator for the trial in Taiwan. With a population of nearly 23 million as of July 2008, Taiwan’s capitalist economy had a GDP real growth rate of 5.7% in 2007. In contrast, U.S. growth in a population of 303 million was 2% during 2007, and global growth was 5.2% (Source: the U.S. Central Intelligence Agency’s [CIA] 2008 World Factbook). In a measure of economic freedom—the link between economic opportunity and prosperity—Taiwan has the world’s 35th freest economy out of 179 ranked countries (Source: the Wall Street Journal and the Heritage Foundation’s 2009 Index of Economic Freedom). Within Asia, the nation ranks 7th out of 41 due to a well-developed legal and commercial infrastructure, a history of entrepreneurship, trade freedom, low tariffs, monetary freedom, and investment freedom. Established in 1980, the China Medical University Hospital is committed to providing medical services and clinical education and research, as well as helping to modernize Chinese medicine. This institution frequently conducts human clinical trials, with at least 16 trials currently recruiting patients (as listed on ClinicalTrials.gov).

Source: Ministry of Education, Republic of China (Taiwan).

Figure 7CHINA MEDICAL UNIVERSITY HOSPITAL


CJ CheilJedang Corp. (Korea, Indonesia, the Philippines, Malaysia, Singapore, and Vietnam) Neuralstem maintains a collaboration with CJ CheilJedang Corporation, a subsidiary of the global CJ Group. CJ CheilJedang is based in Korea, with production capacities in regions such as Indonesia, China, and Brazil. It trades as 097950 in the Korean stock market and has been involved in biopharmaceuticals since the 1960s. According to the CJ group, CJ CheilJedang has leading positions in the production and provision of nucleotides and lysine globally. The collective CJ Group operates in Food and Food Services, Bio Pharma, Entertainment and Media, Home Shopping and Logistics, and Infra (which entails engineering and construction). Neuralstem and CJ CheilJedang entered into a collaboration in February 2008, when CJ CheilJedang purchased an option to negotiate for an exclusive license to Neuralstem’s stem cell products and technology after Neuralstem completes a successful human clinical trial. Under this agreement, CJ CheilJedang bought $2.5 million of Neuralstem’s stock valued at $4.063 per share. Once terms of the agreement are finalized after the clinical trial, CJ CheilJedang will likely have exclusive rights for Neuralstem’s products in Korea, Indonesia, the Philippines, Malaysia, Singapore, and Vietnam. CJ CheilJedang is also expected to receive the first right of negotiation with regard to the Japanese market. Neuralstem expects that CJ CheilJedang will likely await the receipt of the first human safety data from the Company’s Phase I clinical trial in ALS patients in the U.S. before initiating its own trial in Asia and beginning the process of moving the spinal cord cells to commercialization. Neuralstem believes that this arrangement validates its position in the stem cell industry, as CJ CheilJedang is one of Korea’s largest conglomerates. CJ CheilJedang also possesses the knowledge of how to navigate regulatory pathways in key Asian markets—expertise that Neuralstem will likely be able to benefit from under this agreement. ADDITIONAL POTENTIAL APPLICATIONS OF NEURALSTEM’S TECHNOLOGY Traumatic Spinal Cord Injury In addition to ALS, Neuralstem also expects to be able to treat traumatic spinal cord injuries with its bank of spinal cord cells. The Company expects to enter clinical trials for this indication in China in 2009. Spinal cord injuries began receiving considerable attention in the mid-1990s, when actor Christopher Reeve fell off a horse, severely damaged his spine, and was left paralyzed from the neck down (called quadriplegia). There are two types of spine injuries: (1) traumatic, which is brought on by a sudden blow, gunshot, or knife wound to the spine that fractures, dislocates, crushes, cuts, or compresses vertebrae; and (2) non-traumatic, which is caused by an underlying condition, such as arthritis, cancer, blood vessel or bleeding problems, inflammation, and infections. Neuralstem is targeting traumatic spinal cord injuries like that which paralyzed Mr. Reeve. While the exact consequences of a patient’s spinal cord injury depend on the location and extent of the damage, most of these injuries cause permanent disability or paralysis from the site of the injury down. In contrast to quadriplegia, which results from damage to the cortical (neck) area of the spine, paraplegia only entails paralysis of the lower body often caused by thoracic and lumbar (lower back) injuries. Even if not associated with complete paralysis, most spinal cord ailments still result in some of the following: pain or an intense stinging sensation caused by damage to the spine’s nerve fibers; loss of movement; loss of sensation, including the ability to feel heat, cold, and touch; loss of bowel or bladder control; exaggerated reflex activities or spasms; changes in sexual function, sexual sensitivity, and fertility; and difficulty breathing, coughing, or clearing secretions from the lungs (Source: the Mayo Foundation for Medical Education and Research). Many of these effects are related to damage to the localized nerve fibers passing through the injured area, whether the spinal wound is traumatic or non-traumatic. Up to an estimated 400,000 people in the U.S. are living with spinal cord injuries, most of which have occurred due to vehicle crashes and falls among males (Source: the Christopher and Dana Reeve Foundation). In addition, the National Spinal Cord Injury Association estimates that there are 30 new spinal cord injuries each day in the U.S. To date, there is no treatment that can reverse damage to the spinal cord. Advances in care have focused on improving the quality of life for these patients, aiding


recovery of individuals with only partial spinal cord injuries (versus complete spinal cord injuries, for which there is not likely to be any recovery), and reducing the time that spinal cord patients must remain in the hospital. There is a considerable unmet need for safe, effective therapies that can promote nerve cell regeneration or improve nerve function in the nerves that remain after spinal cord injury. Neuralstem believes that its care of traumatic spinal wounds may be quite different from the way in which it addresses the neurodegenerative processes that characterize ALS. Whereas ALS is expected to require 30 very specific injections of the Company’s spinal cord cells, traumatic spinal cord injuries may only necessitate a single injection at the site of the injury. This indication could also be easier for Neuralstem to treat due to the existing standard of care. After admitting a spinal cord injury patient, surgeons often perform a decompressive laminectomy to remove parts of the vertebrae and/or thickened tissues that are placing pressure on the spinal cord and nerve roots. Relieving this pressure can reduce pain. The spinal cord cells could be shipped overnight the night before the surgery, and then surgeons could administer the treatment at the same time as the laminectomy. With only one injection in a standard surgery, delivery of Neuralstem’s spinal cord cells to traumatic spinal cord injury patients will likely not require the specialized equipment or training needed to deliver the cells to ALS patients. Thus, Neuralstem believes that this has potential to be a more widely distributed product. Ischemic Spastic Paraplegia Ischemic spastic paraplegia is a form of spinal cord paralysis that causes permanent, and to date, untreatable, damage to motor function in the lower part of the body. It can result from surgery to repair aortic aneurysms, an operation that Neuralstem believes is performed on thousands of patients worldwide each year. In the aortic aneurysm procedure, the aorta is clamped to repair the aneurysm, but if this restricted blood flow persists for more than 30 minutes, nerve cells in the spine can die (Source: Rubicon Global Research). In preclinical studies conducted in collaboration with researchers from UCSD, Neuralstem found that its cells could reverse paralysis in rats that had ischemic spastic paraplegia (Source: Neuroscience 2007). These studies are further detailed on pages 17-18. In December 2007, the Company entered into a clinical trial research agreement with the Trustees of the University of Pennsylvania through the university’s Department of Anesthesiology and Critical Care. This agreement is specifically targeted toward treating patients suffering from ischemic spastic paraplegia in human clinical trials. The principal investigator is Dr. Albert Cheung, who is a professor of anesthesiology and critical care at the University of Pennsylvania’s hospital, a co-director of the Cardiothoracic Surgery and Anesthesia Clinical Research Group, and a director of the Cardiothoracic Anesthesia Fellowship Program within the Department of Anesthesiology and Critical Care. Huntington’s Disease (HD) HD is a genetic degeneration of the brain’s neurons that progressively causes uncontrolled movements, loss of intellectual faculties, and emotional disturbances, such as mood swings, depression, and irritability. In its more advanced stages, HD prevents patients from being able to make decisions, feed themselves, or swallow. This disease is usually fatal 10 to 30 years after the first symptoms appear, although individuals who have early onset HD may progress more rapidly. As an inherited illness, children of parents who carry the HD gene have a 50% chance of also developing the disease. At present, approximately 30,000 people in the U.S. have HD, with another 200,000 individuals at risk of developing the condition (Source: FDA 2008). In August 2008, OVATION Pharmaceuticals, Inc. received FDA approval to market Xenazine® (tetrabenazine) in the U.S. Xenazine® is the first FDA-approved treatment for Huntington’s chorea, a symptom of HD. Chorea is the incessant, quick, jerky, involuntary movements that characterize HD. Xenazine® is accompanied by some severe side effects, including depression and thoughts of suicide. While this medication is now available to help manage the symptoms of HD, there is still not yet a therapy to stop or reverse the course of HD (Source: the National Institute of Neurological Disorders and Stroke [NINDS]). Figure 8 (page 28) lists some other types of therapies in development to address aspects of HD, as documented by the Huntington’s Disease Society of America during 2008. Following Figure 8 is an overview of Neuralstem’s research collaboration dedicated to using neural cells to treat HD.


Neuralstem’s Research Collaboration to Treat HD In November 2008, Neuralstem entered into a collaboration with Professor Guido Nikkah, Ph.D., of Germany’s Albert-Ludwigs-Universität Freiburg with the aim of advancing development of Neuralstem’s human neural stem cell therapies for HD. The aim of the Company’s partnership with Professor Nikkah is to qualify Neuralstem’s existing GMP nerve cells into Professor Nikkah’s human clinical trial program to treat HD, based on the Company’s belief that Professor Nikkah’s program is one of the most advanced of its kind in Western Europe. As a treatment for HD, Neuralstem’s cells would likely be delivered as an injection into the brain rather than the spinal cord. Under this collaboration, Neuralstem aims to initiate HD clinical trials in 2010. A Small Molecule Compound In addition to using its neural stem cells to treat neurodegenerative conditions, Neuralstem has performed genomic tests and gene expression experiments, as well as screened drugs against its cells, which resulted in the discovery of several small molecule compounds. Small molecules are low-molecular-weight chemical compounds. Many current pharmaceutical drugs are small molecules. Much of the early research in this area was funded by a $7.5 million arrangement with Gene Logic (now part of Ocimum Biosolutions, Inc.) and a $2.5 million former U.S. Department of Defense (DoD) contract for drug screening using the cells derived from Neuralstem’s technology. In its quest to develop new ways to improve memory in soldiers under extreme sleep deprivation, the DoD has been a significant supporter

I II III I II III

Nutritional Supplements HDAC Inhibitors

Antioxidants / Anti-aging

Dopamine Blockers or Stabilizers

Anti-apotosis Autophagy

Metal Chelators

Glutamate Blockers or Stabilizers A2A Receptor Antagonists

Caspase 6 Inhibitor

BDNF Inducers

Genetic Approaches

Other Neurotrophic Factors and Mimetics

Restorative Technologies

Pre-clinical

Avail-able

Sources: the Huntington's Disease Society of America 2008, Crystal Research Associates, LLC, and company websites.

Figure 8SELECTED THERAPIES IN DEVELOPMENT FOR HD

Phase PhasePre-clinical

Basic Research Avail-able

Basic Research

Creatine

CoQ10 (HSG)

Ethyl EPA (Amarin)

Tetrabenazine (Ovation)

ACR - 16 (Neurosearch)

Minocycline (HSG)

TUDCA (HSG)

Methazolamide

Gene Therapy (Neurologix)

Memantine

Dimebon (Medivation)

Citalopram (Celexa)

Cysteamine (Raptor)

Ampakines (Cortex)

Neurturin (Ceregene)

TRO47498 (Trophos) ReN005 (ReNeuron)

Antisense (Isis)

RNA i (Alnylam)

RNAi (Sirna)

KW - 6002 (Kyowa)

M30 (iron) (Varinel)

Clonidine

Verapamil

CHDI funded

Sirtuin inducers (Sirtris)

Oxigon (Intellect Neurosci.)

CoQ10 analogs (Edison)

HDACi 4b (Repligen)

EVP - 0334 (Envivo)


of stem cell research in recent years. Neuralstem ultimately aims to study the activity of its neuroprotective compounds in an array of cognitive diseases. However, at present, continued research and development of novel compounds for depression and other cognitive disorders is limited, as the Company’s focus remains on commercializing its spinal cord cells for ALS. Depression Neuralstem is currently testing a small molecule in animal models of depression, for which it has already performed preliminary in vitro and in vivo tests with regard to neurogenesis and obtained proof-of-principle data. Based on these results, the Company has applied for a U.S. patent on the compound. It is important to note that Neuralstem does not intend to become a fully integrated, small molecule development company. The current objective is simply to bring a compound for depression into preclinical toxicity studies and a healthy volunteer Phase I trial. Thus far, the compound is believed to be neuroprotective, which is a novel approach to treating depression. The Company expects to begin the healthy volunteer Phase 1 safety study of its depression treatment by the second quarter 2010. The most common antidepressants used today are selective serotonin reuptake inhibitors (SSRIs), originally launched in the mid to late 1980s. SSRIs affect the chemicals in the brain called neurotransmitters that nerves use to communicate. The end result is that SSRIs enable more serotonin (a neurotransmitter regulating mood) to be available for nerves. Eli Lilly and Company’s (LLY-NYSE) Prozac® is an example of an SSRI. Over 19 million adults aged 18 and older suffer from depression. In addition, as many as one in every 33 children and one in eight adolescents are afflicted with depression as well. Clinical depression, associated with the highest suicide rate of any psychiatric state, is estimated to be one of the leading causes of illness worldwide by 2020, second only to ischemic heart disease. Further, in approximately 30% of people, the currently available antidepressant medications do not work due to patients’ psychological or biological makeup as well as harsh side effects that prompt patients to discontinue the medicine (Source: WebMD Health Corp. [WBMD-NASDAQ]).


Competition In its quest to commercialize novel stem cell therapies for neurodegenerative diseases, Neuralstem may encounter a wide variety of competition ranging from major multinational pharmaceutical companies and government agencies to smaller specialty biotechnology firms and academic or private research organizations. For instance, in November 2008, Pfizer Inc. (PFE-NYSE) announced that it was launching a new research unit, called Pfizer Regenerative Medicine, dedicated to understanding the biology of stem cells and to develop a new generation of regenerative medicines for major medical needs. In addition, in July 2008, GlaxoSmithKline plc (GSK-NYSE) and the Harvard Stem Cell Institute entered into a five-year, $25 million-plus collaborative agreement to build an alliance in stem cell science, with the aim of leading to the development of new medicines. Furthermore, while the diseases that Neuralstem is targeting currently have no cures or effective long-term therapies, any of the aforementioned entities, among others, may develop or may be presently investigating new treatment approaches that are not stem cell based but that may still enhance efficacy, extend therapeutic windows, alter disease prognosis or progression, or even prevent onset of the illness from ever occurring. Table 7 is not an exhaustive summation of competitors, as it centers only on advanced-stage stem cell companies. Within these competitors, Neuralstem believes that Geron Corp. and StemCells, Inc. have the most similar approaches to treating neurodegenerative diseases, although Neuralstem believes that it has several competitive advantages distinguishing its technology from that of these competitors. (Neuralstem’s Human Neural Stem Cell technology is described on pages 15-19.) In addition to those entities overviewed following Table 7, there are many other stem cell companies that presently focus on different areas of stem cell research than Neuralstem, for example, developing cell therapies to target cancers, creating cellular therapies based on stem cells isolated from adult bone marrow, and using stem cells from umbilical cord blood to facilitate bone marrow transplants.

Geron Corporation Headquartered in California, Geron develops treatments for cancer and other chronic degenerative diseases, such as spinal cord injury, heart failure, and diabetes. The company has an anticancer drug in Phase I clinical development for chronic lymphocytic leukemia, solid tumor cancers, multiple myeloma, and non-small cell lung cancer. Geron has also moved a cancer vaccine into Phase II trials for acute myelogenous leukemia. Most relevant, however, is Geron’s development of human embryonic stem cell-based therapeutics. In January 2009, after submitting a 22,000-page IND (the largest application on record), Geron received FDA clearance to begin a human clinical trial of an embryonic stem cell-based therapy for acute spinal cord injury—believed to be the world’s first human clinical trial of its type. Geron’s Phase I multicenter trial is primarily designed to establish the safety of treating spinal cord injury patients

Geron Corporation GERN-NASDAQ $4.89 $1.95 - $8.50 4,700,920 $422.79 MStemCells, Inc. STEM-NASDAQ 1.81 0.66 - 3.07 4,854,010 169.11 MAastrom Biosciences, Inc. ASTM-NASDAQ 0.40 0.15 - 0.78 2,152,100 57.69 MAdvanced Cell Technology, Inc. ACTC-OTC.PK 0.13 0.01 - 0.29 15,796,900 12.27 MGenzyme Corporation GENZ-NASDAQ 59.23 50.05 - 83.97 3,623,270 15.90 BOsiris Therapeutics, Inc. OSIR-NASDAQ 14.40 10.80 - 21.65 223,487 461.51 MNeuralstem, Inc CUR-NYSE-Alt 1.06 0.75 - 2.67 123,634 35.8 M

Sources: Crystal Research Associates, LLC and Yahoo! Finance.

POTENTIAL COMPETITIONNeuralstem, Inc.

Table 7

Market Cap.Avg. Vol. (3 month)

52-week Range

Last Trade (03/27/09)

Ticker-ExchangeCompany Name


with embryonic stem cells. Secondary endpoints include assessments of efficacy, such as improved neuromuscular control or sensation in the trunk or lower extremities. Geron’s ultimate goal is to restore spinal cord function by injecting stem cell-derived oligodendrocyte progenitor cells directly into the lesion site of the patient’s injured spinal cord. The company believes that it has sufficient quantities of undifferentiated stem cells to potentially treat every spinal cord injury in the U.S. for the next two decades. Geron has been in business since 1992 and has subsidiaries in Scotland and Hong Kong. StemCells, Inc. California-based StemCells is working toward the development of stem cell therapeutics to treat degeneration occurring in the CNS, liver, and pancreas. Unlike Geron, which uses embryonic stem cells, StemCells employs adult stem cells, particularly from brain tissue. The company uses a proprietary process to isolate, purify, and expand its stem cell candidates. To date, StemCells has discovered human neural stem cells as well as a population of candidate stem cells in the human liver and pancreas. The company’s CNS stem cells are purified compositions of normal human neural stem cells that have been expanded and stored as a bank of cells. In preclinical studies, StemCells has found that its CNS cells can be transplanted and can then survive for up to one year with no tumor formation or adverse effects. StemCells recently conducted a Phase I trial of its human neural stem cells in neuronal ceroid lipofuscinoses (NCLs or Batten disease), which was completed in January 2009. In January 2008, StemCells confirmed the death of a female, nine-year-old participant in its trial. Based on autopsy results and medical records, it is believed that the death was due to the natural progression of the disease. In December 2008, StemCells received FDA clearance to initiate a second Phase I trial of its human neural stem cells. This trial aims to evaluate the safety and preliminary efficacy of the company’s approach to treating Pelizaeus-Merzbacher disease (PMD), a fatal brain disorder in young children. StemCells holds over 40 issued U.S. patents, with more than 170 patents worldwide, and raised gross proceeds of $20 million through an equity financing in November 2008. Aastrom Biosciences, Inc. Michigan-based Aastrom Biosciences is developing products for the repair or regeneration of multiple human tissues based on its proprietary Tissue Repair Cell (TRC) adult stem cell technology. Aastrom’s TRC products contain bone marrow stem and progenitor cells that are expanded from cells originating from the patient with the company’s proprietary AastromReplicell® manufacturing system. Aastrom’s TRC products have been used in over 290 patients and are currently in clinical trials for cardiac, vascular, and bone tissue regeneration applications. The company also has plans to expand into the neural therapeutic area. Aastrom is developing Neural Repair Cells (NRCs), based on TRC technology, with the goal of repairing and regenerating neural tissue in patients suffering from degenerative diseases or severe injuries. Advanced Cell Technology, Inc. California-based Advanced Cell capitalizes on stem cell technology in the field of regenerative medicine. The company’s Myoblast program is an autologous adult stem cell therapy for the treatment of heart disease that has completed four Phase I clinical trials and has clearance from the FDA to begin Phase II trials. The company is also moving its retinal pigment epithelial (RPE) and hemangioblast (HG) programs toward clinical development. In August 2006, Advanced Cell announced that it could generate embryonic stem cell lines without destroying embryos, a breakthrough in the ethical debate surrounding the industry. Its technology platform yields over 140 cell types from human embryonic stem cells. The company owns or licenses over 380 patents and patent applications.


Genzyme Corporation and Osiris Therapeutics, Inc. In November 2008, Massachusetts-based Genzyme and Maryland-based Osiris entered into a strategic alliance for the development and commercialization of two late-stage treatments that use adult stem cells. Prochymal and Chondrogen, the two platforms, are both in clinical development. Prochymal, a preparation of mesenchymal stem cells formulated for intravenous infusion, is being evaluated in Phase III clinical trials for steroid refractory acute graft-versus-host disease (GVHD), newly diagnosed acute GVHD, and Crohn’s disease. To Osiris’ knowledge, this is the only stem cell therapeutic currently designated by the FDA as both an Orphan Drug and a Fast Track product. Additional indications of Prochymal could include repair of heart tissue following a heart attack, protection of pancreatic islet cells in patients with Type 1 diabetes, and repair of lung tissue in patients with chronic obstructive pulmonary disease (COPD). Genzyme and Osiris are also developing Prochymal as a medical countermeasure to nuclear terrorism and other radiological emergencies. Chondrogen, mesenchymal stem cells formulated for injection directly into the knee, is currently being studied in clinical trials as a treatment for osteoarthritis in the knee. Under the terms of the strategic alliance, Genzyme was responsible for an upfront payment to Osiris of $130 million plus possible future milestone and royalty payments. In exchange, Genzyme has commercialization rights in all countries other than the U.S. and Canada. The collaboration leverages Osiris’ position developing novel stem cell therapies and Genzyme’s regulatory and marketing infrastructure outside of the U.S. as well as its expertise commercializing cell therapies.


Recent Milestones 2009 � March: reported in the online edition of the Journal of Comparative Neurology that transplanted

human neural stem cells developed by the Company made synaptic contacts with the motor neurons of rats with ALS-like symptoms

� February: received the FDA’s review of the Company’s IND for a Phase I clinical trial in ALS patients

using the spinal cord cells, and subsequently placed the anticipated trial on clinical hold while Neuralstem responds to the FDA’s questions as well as the agency’s recommended modifications to the trial’s protocol

� February: announced that Mr. James Sasser (biography on page 11), a former U.S. senator and ambassador to China, joined the Company’s Advisory Board as a senior advisor on China

� January: received a U.S. Patent and Trademark Office (USPTO) Notice of Allowance for its Stable

Neural Stem Cell Lines patent application 2008 � December: completed a private placement of 1.6 million Common Shares for net proceeds of $1.76

million

� December: filed an IND to the FDA for approval of the Phase I clinical trial in ALS patients

� December: entered into a collaboration with the China Medical University Hospital in Taiwan for future clinical development of the spinal cord cells

� November: entered into a collaboration with Professor Guido Nikkah, Ph.D., with the aim of advancing the Human Neural Stem Cell technology in the HD indication

� October: licensed three inventions from the Cleveland Clinic that are designed to enable surgeons to deliver Neuralstem’s cell therapeutics and enhance the safety and efficacy of treatments for ALS as well as for other spinal cord injuries and diseases

� July: appointed Dr. Thomas Hazel as executive vice president, research to manage the upcoming ALS clinical trial and complete development of Neuralstem’s small molecule neurogenesis compound targeted to treat depression

� April: granted a European patent (EP0915968) covering the “Isolation, Propagation, and Directed Differentiation of Stem Cells from Embryonic and Adult Central Nervous System of Mammals”

� February: sold options to CJ CheilJedang for the future negotiation of exclusive licenses in Korea, Indonesia, the Philippines, Malaysia, Singapore, and Vietnam

2007 � December: entered into a Clinical Trial Research Agreement aimed at treating patients suffering from

ischemic spastic paraplegia with the Trustees of the University of Pennsylvania through the Department of Anesthesiology and Critical Care

� November: exclusively licensed the “Spinal Multisegmental Cell and Drug Delivery System,” invented by Dr. Martin Marsala at UCSD


� September: received notice that the USPTO issued its first ruling in the reexamination of the four StemCells, Inc. patents requested by Neuralstem, where the USPTO rejected on multiple grounds all of the claims StemCells attempted to assert against Neuralstem

� August: listed its Common Stock on the American Stock Exchange ([AMEX] now the NYSE Alternext US [NYSE-Alt]) under the symbol CUR and entered into an agreement with the ALS Clinic at University of Michigan Health System, directed by Dr. Eva Feldman, to provide further proof-of-principle data for the spinal cord cells in ALS patients

� May: researchers at UCSD reported in the journal Neuroscience the successful return of function in experimental animals treated with the neural stem cells in a model of ischemic spastic paraplegia

� April: strengthened the corporate governance and management by appointing Mr. Scott V. Ogilvie and Mr. William C. Oldaker as independent members of the Board of Directors and Mr. John Conron as chief financial officer (CFO)

� March: raised over $5.1 million in a private placement


Key Points to Consider � Neuralstem is using a patented process to grow neural stem cells that could treat diseases of the

central nervous system (CNS). This process, called Human Neural Stem Cell technology, encompasses the Company’s ability to identify and isolate fetal neural stem cells from areas of the developing human brain and spinal cord, expand and purify these cells in cultured dishes, and then control the differentiation of the cells into physiologically relevant human neurons and glia.

� With the Company’s technology, the isolated neural stem cells can be expanded in vitro for up to 60

doublings—a technique that creates billions of cells from each original stem cell and enables commercial stem cell quantities from a single donated tissue. To Neuralstem’s knowledge, its technology was the first to both create commercial quantities and control the differentiation of the neural stem cells into the relevant CNS cells.

� Neuralstem believes that its technology overcomes many of the concerns that have plagued the stem

cell industry and demonstrates the possibility of a stem cell company with a true product focus. At present, the Company’s chief product candidate is its line of spinal cord cells, which have been developed using Human Neural Stem Cell technology. The cells are targeted to treat CNS disorders: first amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease), subsequently traumatic spinal cord injuries, ischemic spastic paraplegia, and Huntington’s disease (HD), and ultimately, stroke.

� In preclinical studies performed with Johns Hopkins University researchers, Neuralstem’s spinal cord

cells extended the survival time of rats with ALS, extended the time before weight loss, and improved muscle strength. In separate tests conducted at the University of California, San Diego (UCSD), the cells reversed paralysis in rats with ischemic spastic paraplegia and also improved motor function.

� In December 2008, Neuralstem filed an Investigational New Drug (IND) application with the U.S.

Food and Drug Administration (FDA) for a Phase I clinical trial of its spinal cord cells in ALS. In February 2009, the FDA provided its comments, questions, and recommendations to Neuralstem, which the Company is working to address in an expeditious manner. Neuralstem seeks to evaluate the safety and feasibility of injecting its cells directly into the spinal cords of ALS patients, where these healthy, fully functional cells are expected to replace or repair missing and damaged nerve cells.

� Neuralstem maintains a global approach to product development. Six to nine months after the start of

U.S. trials, the Company aims to begin human studies at Taiwan’s China Medical University Hospital. Due to the U.S.’s lengthy regulatory process, Neuralstem can likely begin marketing its spinal cord therapies in Asia while the product is still in clinical trials in the U.S., thus allowing the Company to leverage media coverage and revenue from other countries to complete U.S. activities.

� The Company has also entered into an agreement providing CJ CheilJedang with an exclusive license (pending Neuralstem’s successful completion of a human clinical trial) in Korea, Indonesia, the Philippines, Malaysia, Singapore, and Vietnam, and a first right of negotiation in Japan. Additionally, under a collaboration with a professor of Germany’s Albert-Ludwigs-Universität Freiburg, Neuralstem aims to qualify its cells into a human clinical trial program to treat HD, based on the belief that this program is one of the most advanced of its kind in Western Europe.

� Roughly 400,000 people in the U.S. are living with a spinal cord injury. Specifically, ALS, which afflicts

30,000 patients with an average of 5,600 new diagnoses annually, is an incurable neurodegenerative disease. For most ALS patients, the mean survival time after diagnosis is only two to five years.

� Neuralstem holds rights to four issued patents with over a dozen additional patent applications

pending worldwide. Further, the Company’s experienced management team includes Dr. Karl Johe, who invented the Human Neural Stem Cell technology while at the National Institute of Neurological Disorders and Stroke (NINDS), part of the U.S. National Institutes of Health (NIH).

� At September 30, 2008, Neuralstem had cash of over $5.2 million, following an agreement with CJ CheilJedang in February 2008 that provided the Company with $2.5 million (615,309 Common Shares at $4.06 per share). Subsequently, Neuralstem raised $1.76 million in December 2008.


Historical Financial Results Tables 8, 9, and 10 provide a summary of Neuralstem’s key historical financial statements—its Statements of Operations, Balance Sheets, and Statements of Cash Flows. The source of the financial statements provided below and on pages 37-38 is Neuralstem’s Form 10-Q for the period ended September 30, 2008, that was filed to the U.S. Securities and Exchange Commission (SEC) on November 13, 2008.

2008 2007 2008 2007

Revenues $ — 45,733$ $ — 306,057$

Operating expenses:Research and development costs 1,766,040 672,101 4,598,611 2,202,670 General, selling, and administrative

expenses 1,400,795 832,348 3,802,673 2,359,515 Depreciation and amortization 17,223 22,403 46,760 48,365 Total operating expenses 3,184,058 1,526,852 8,448,044 4,610,550 Operating loss (3,184,058) (1,481,119) (8,448,044) (4,304,493)

Non-operating income (expense):Interest income 6,101 59,397 37,963 136,358 Interest expense — (298) — (968) Total non-operating income 6,101 59,099 37,963 135,390 Net loss (3,177,957)$ (1,422,020)$ (8,410,081)$ (4,169,103)$

Net loss per share, basic and diluted (0.10)$ (0.05)$ (0.26)$ (0.15)$

Average number of shares of Common Stock outstanding 32,151,300 29,372,895 32,008,533 28,370,589

(Unaudited)STATEMENTS OF OPERATIONS

Neuralstem, Inc.Table 8


Nine Months Ended Sept. 30,Three Months Ended Sept. 30,


Sept. 30, Dec. 31,2008 2007

(Unaudited)ASSETS

Cash 5,249,805$ 7,403,737$ Prepaid expenses 211,766 130,719 Total current assets 5,461,571 7,534,456

Property and equipment, net 172,283 136,920 Other assets 54,446 43,271 Intangible assets, net 162,985 111,406

Total assets 5,851,285$ 7,826,053$

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued expenses 1,270,809$ 1,016,699$

STOCKHOLDERS' EQUITY

Preferred Stock, 7,000,000 shares authorized,zero issued and outstanding — —

Common Stock, $.01 par value, 150 millionshares authorized, 32,151,300 and 31,410,566shares outstanding in 2008 and 2007 321,513 314,106

Additional paid-in capital 58,325,041 52,151,245 Accumulated deficit (54,066,078) (45,655,997) Total stockholders' equity 4,580,476 6,809,354 Total liabilities and stockholders' equity 5,851,285$ 7,826,053$

BALANCE SHEETSNeuralstem, Inc.

Table 9



2008 2007

Cash flows from operating activities:Net loss (8,410,081)$ (4,169,103)$ Adjustment to reconcile net loss to cash

used in operating activities:Depreciation and amortization 46,760 48,365 Share-based compensation 3,469,992 845,561 Changes in assets and liabilities:Prepaid expenses (81,047) (105,685) Other assets (11,175) (1,289) Accounts payable and accrued expenses 254,109 505,513

Net cash used in operating activities (4,731,442) (2,876,638)

Cash flow from investing activities:Capital outlay for intangible assets (62,247) (6,890) Purchase of property and equipment (71,454) (101,179)

Net cash used in investing activities (133,701) (108,069)

Cash flows from financing activities:Issuance of Common Stock 2,711,211 6,529,670 Payments on Notes payable — (5,825)

Net cash provided by financing activities 2,711,211 6,523,845

Net (decrease) increase in cash (2,153,932) 3,539,138

Cash, beginning of period 7,403,737 1,807,041

Cash, ending of period 5,249,805$ 5,346,179$

Nine Months Ended September 30,

STATEMENTS OF CASH FLOWSNeuralstem, Inc.

Table 10

(Unaudited)



Risks Some of the information in this Executive Informational Overview® (EIO®) relates to future events or future business and financial performance. Such statements can only be predictions and the actual events or results may differ from those discussed due to the risks described in Neuralstem’s statements on Forms 10-K, 10-Q, and 8-K, as well as other forms filed from time to time. The source of the risk statements provided in this section is Neuralstem’s Form 424B5 filed with the SEC on December 18, 2008. In addition, the content of this report with respect to Neuralstem has been compiled primarily from information available to the public released by the Company through news releases, Annual Reports, and SEC filings. Neuralstem is solely responsible for the accuracy of this information. Information as to other companies has been prepared from publicly available information and has not been independently verified by Neuralstem. Certain summaries of activities have been condensed to aid the reader in gaining a general understanding. For more complete information about Neuralstem, please refer to the Company’s website at www.neuralstem.com. Investors should carefully consider the risks and information about Neuralstem’s business described below. Investors should not interpret the order in which these considerations are presented as an indication of their relative importance. The risks and uncertainties described below are not the only risks that the Company faces. Additional risks and uncertainties not presently known to Neuralstem or that the Company currently believes to be immaterial may also adversely affect its business. If any of the following risks and uncertainties develops into actual events, the business, financial condition, and results of operations could be materially and adversely affected, and the trading price of the Company’s shares could decline. RISKS RELATING TO THE COMPANY’S STAGE OF DEVELOPMENT Since the Company has a limited operating history and has significantly shifted its operations and strategies since inception, its limited historical performance cannot be relied upon to make an investment decision. Since inception in 1996 and through September 30, 2008, the Company has raised in aggregate, $58,646,554 of capital and recorded accumulated losses totaling $54,066,078. On September 30, 2008, the Company had a working capital surplus of $4,190,762 and stockholders’ equity of $4,580,476. Net losses were $7,063,272 and $3,147,488 for 2007 and 2006, respectively. Net loss for the nine-month period ended September 30, 2008, was $8,410,081. Neuralstem had no revenues for the nine months ended September 30, 2008. The Company’s ability to generate revenues and achieve profitability depends upon its ability to complete the development of its stem cell products, obtain the required regulatory approvals, and manufacture, market, and sell its products. In part because of the Company’s past operating results, no assurances can be given that Neuralstem will be able to accomplish all or any these goals. Although the Company has generated some revenue to date, it has not generated any revenue from the commercial sale of its proposed stem cell products. Since inception, Neuralstem has engaged in several related lines of business and has discontinued operations in certain areas. For example, in 2002, the Company lost a material contract with the U.S. Department of Defense (DoD) and was forced to close its principal facility and lay off almost all of its employees in an attempt to focus the Company’s strategy on its stem cell technology. This limited and changing history may not be adequate to enable investors to fully assess the Company’s current ability to develop and commercialize its technologies and proposed products, obtain approval from the U.S. Food and Drug Administration (FDA), achieve market acceptance of its proposed products, and respond to competition. No assurances can be given as to exactly when, if at all, the Company will be able to fully develop, commercialize, market, sell, and derive material revenues from its proposed products in development.


Neuralstem will need to raise additional capital to continue operations, and failure to do so will impair its ability to fund operations, develop technologies, or promote products. The Company has relied almost entirely on external financing to fund operations. Such financing has historically come primarily from the sale of Common and Preferred Stock, the exercise of investor Warrants, and, to a lesser degree, from grants, loans, and revenue from license and royalty fees. Based on current proposed plans and assumptions relating to its operations (including the timetable of, and costs associated with, new product development) and financings undertaken prior to September 30, 2008, the Company anticipates that its current working capital will be sufficient to satisfy contemplated cash requirements for approximately nine months. This assumes that Neuralstem does not engage in an extraordinary transaction or otherwise face unexpected events or contingencies, any of which could affect cash requirements. As of September 30, 2008, the Company had cash and cash equivalents on hand of $5,249,805. Presently, Neuralstem has a monthly cash burn rate of approximately $600,000. Accordingly, Neuralstem will need to raise additional capital to fund anticipated operating expenses and future expansion. Among other things, external financing will be required to cover further development of its technologies, products, and other operating costs. The Company cannot assure investors that financing, whether from external sources or related parties, will be available if needed or on favorable terms. If additional financing is not available when required or on acceptable terms, the Company may be unable to fund operations and planned growth, develop or enhance its technologies, take advantage of business opportunities, or respond to competitive market pressures. Any negative impact on operations may make capital raising more difficult and may also result in a lower price for the Company’s securities. Neuralstem may have difficulty raising needed capital in the future as a result of, among other factors, the Company’s limited operating history and associated business risks. The Company’s business currently generates limited amounts of cash, which will not be sufficient to meet its future capital requirements. Neuralstem’s management does not know when this will change. The Company has expended and will continue to expend substantial funds in the research, development, and clinical and preclinical testing of its stem cell technologies and products with the goal of ultimately obtaining FDA approval. The Company will require additional funds to conduct research and development, establish and conduct clinical and preclinical trials and commercial-scale manufacturing arrangements, and to provide for marketing and distribution. Additional funds may not be available on acceptable terms, if at all. If adequate funds are unavailable from any available source, the Company may have to delay, reduce the scope of, or eliminate one or more of its research, development, or commercialization programs, product launches, or marketing efforts, which may materially harm its business, financial condition, and results of operations. The Company’s long-term capital requirements are expected to depend on many factors, including those listed as follows: � continued progress and cost of its research and development programs; � progress with preclinical studies and clinical trials;

� time and costs involved in obtaining regulatory clearance;

� costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims;

� costs of developing sales, marketing, and distribution channels and ability to sell stem cell products;

� costs involved in establishing manufacturing capabilities for commercial quantities of its products;

� competing technological and market developments;

� market acceptance of its stem cell products;

� costs for recruiting and retaining employees and consultants; and

� costs for educating and training physicians about its stem cell products.


The Company may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. Neuralstem may seek to raise any necessary additional funds through the exercise of Warrants, Options, equity or debt financings, collaborative arrangements with corporate partners, or other sources, which may be dilutive to existing stockholders or otherwise have a material effect on the Company’s current or future business prospects. If adequate funds are not available, Neuralstem may need to significantly reduce or refocus its development and commercialization efforts. The Company relies on stem cell technologies that it may not be able to commercially develop, which will prevent Neuralstem from generating revenues, operating profitably, or providing investors any return on their investment. The Company has concentrated its research on its stem cell technologies, and its ability to generate revenue and operate profitably will depend on it being able to develop these technologies for human applications. These are emerging technologies with, as yet, limited human applications. Neuralstem cannot guarantee that it will be able to develop stem cell technologies or that such development will result in products or services with any significant commercial utility. The Company anticipates that the commercial sale of such products or services and royalty/licensing fees related to its technology will be its primary sources of revenues. If the Company is unable to develop its technologies, investors will likely lose their entire investment. Inability to complete preclinical and clinical testing and trials will impair the Company’s viability. Neuralstem is in the development stage and is in the process of applying for approval by the FDA to conduct clinical trials. Even if the Company successfully files an Investigational New Drug (IND) application and receives approval from the FDA to commence trials, the outcome of preclinical, clinical, and product testing of its products is uncertain. If Neuralstem is unable to satisfactorily complete such testing, or if such testing yields unsatisfactory results, the Company will be unable to commercially produce its proposed products. Before obtaining regulatory approvals for the commercial sale of any potential human products, the Company’s products will be subjected to extensive preclinical and clinical testing to demonstrate their safety and efficacy in humans. No assurances can be given that the clinical trials of the Company’s products, or those of licensees or collaborators, will demonstrate the safety and efficacy of such products at all, or to the extent necessary to obtain appropriate regulatory approvals, or that the testing of such products will be completed in a timely manner, if at all, or without significant increases in costs, program delays, or both, all of which could harm the Company’s ability to generate revenues. In addition, the proposed products may not prove to be more effective for treating disease or injury than current therapies. Accordingly, Neuralstem may have to delay or abandon efforts to research, develop, or obtain regulatory approval to market its proposed products. Many companies involved in biotechnology research and development have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Failure to adequately demonstrate safety and efficacy of a therapeutic product in development could delay or prevent regulatory approval of the product and could harm Neuralstem’s ability to generate revenues, operate profitably, or produce any return on an investment in the Company. Additional financing requirements could result in dilution to existing stockholders. At present, Neuralstem is not able to finance its operations because it does not sell any products. Accordingly, the Company will be required to secure additional financing. If the Company is able to obtain such additional financings, such financing may be dilutive to current shareholders. The Company has the authority to issue additional shares of Common Stock and Preferred Stock, as well as additional classes or series of Capital Stock or debt obligations that may be convertible into any one or more classes or series of capital stock. Neuralstem is authorized to issue 150,000,000 shares of Common Stock and 7,000,000 shares of Preferred Stock. Such securities may be issued without the approval or other consent of the Company’s stockholders.


RISKS RELATING TO INTELLECTUAL PROPERTY AND GOVERNMENT REGULATION The Company may not be able to withstand challenges to its intellectual property rights, such as patents, should contests be initiated in court or at the U.S. Patent and Trademark Office (USPTO). Neuralstem relies on its intellectual property, including its issued and applied-for patents, as the foundation of its business. Its intellectual property rights may come under challenge, and no assurances can be given that, even though issued, the Company’s current and potential future patents will survive claims commencing in the court system alleging invalidity or infringement of other patents. For example, in 2005, the Company’s Human Neural Stem Cell technology was challenged in the USPTO. Although the Company prevailed in this particular matter upon re-examination by the USPTO, these cases are complex, lengthy, and costly, and could potentially be adjudicated adversely to Neuralstem, removing the protection afforded by an issued patent. The viability of the Company’s business would suffer if such patent protection were limited or eliminated. Moreover, the costs associated with defending or settling intellectual property claims would likely have a material adverse effect on the Company. At present, there is new litigation with StemCells, Inc. that is in its initial stages and any likely outcome is difficult to predict. It is not known when nor on what basis the litigation with StemCells will be concluded. Neuralstem may not be able to adequately protect against piracy of intellectual property in foreign jurisdictions. Considerable research in the area of stem cell therapies is being performed in countries outside of the U.S., and a number of the Company’s competitors are located in those countries. The laws protecting intellectual property in some of those countries may not provide protection for Neuralstem’s trade secrets and intellectual property adequate to prevent its competitors from misappropriating the Company’s trade secrets or intellectual property. If Neuralstem’s trade secrets or intellectual property are misappropriated in those countries, the Company may be without adequate remedies to address the issue. The Company’s products may not receive FDA approval, which would prevent Neuralstem from commercially marketing its products and producing revenues. The FDA and comparable government agencies in foreign countries impose substantial regulations on the manufacture and marketing of pharmaceutical products through lengthy and detailed laboratory, preclinical, and clinical testing procedures, sampling activities, and other costly and time-consuming procedures. Satisfaction of these regulations typically takes several years or more and varies substantially based upon the type, complexity, and novelty of the proposed product. The Company cannot accurately predict when or whether any such IND application that it might submit would be granted on a timely basis, if at all. Nor can the Company assure investors that it will successfully complete any clinical trials in connection with any such IND application. Further, the Company cannot yet accurately predict when it might first submit any product license application for FDA approval or whether any such product license application would be granted on a timely basis, if at all. As a result, the Company cannot promise that FDA approvals for any products it develops will be granted on a timely basis, if at all. Delay in obtaining, or failure to obtain, such approvals could have a material adverse effect on marketing of the Company’s products and its ability to generate product revenue. Development of Neuralstem’s technologies is subject to, and restricted by, extensive government regulation, which could impede the Company’s business. Research and development efforts, any future clinical trials, and the manufacturing and marketing of any products Neuralstem may develop could be subject to, and restricted by, extensive regulation by government authorities in the U.S. and other countries. The process of obtaining FDA and other necessary regulatory approvals is lengthy, costly, and uncertain. FDA and other legal and regulatory requirements applicable to the development and manufacture of the cells and cell lines required for Neuralstem’s preclinical and clinical products could substantially delay or prevent the Company from producing the cells needed to initiate additional clinical trials. Neuralstem or its collaborators may fail to obtain necessary approvals to commence clinical testing or to manufacture or market potential products in reasonable time frames, if at all. In addition, the U.S. Congress and other legislative bodies may enact regulatory reforms or restrictions on the development of new therapies that could adversely affect the regulatory environment in which Neuralstem operates or the development of any products it may develop.


Neuralstem bases its research and development on the use of human stem cells obtained from human tissue. U.S. federal and state governments and other jurisdictions impose restrictions on the acquisition and use of human tissue, including those incorporated in federal Good Tissue Practice (GTP) regulations. These regulatory and other constraints could prevent the Company from obtaining cells and other components of its products in the quantity or of the quality needed for their development or commercialization. These restrictions change from time to time and may become more onerous. Additionally, Neuralstem may not be able to identify or develop reliable sources for the cells necessary for its potential products—that is, sources that follow all state and federal laws and guidelines for cell procurement. Certain components used to manufacture its stem and progenitor cell product candidates will need to be manufactured in compliance with the FDA’s Good Manufacturing Practices (GMP). As such, Neuralstem will need to enter into supply agreements with GMP manufacturers of these components. There is no assurance that the Company will be able to enter into any such agreements. Noncompliance with applicable requirements both before and after approval, if any, can subject Neuralstem, its third-party suppliers and manufacturers, and its other collaborators to administrative and judicial sanctions, such as, among other things, warning letters, fines and other monetary payments, recall or seizure of products, criminal proceedings, suspension or withdrawal of regulatory approvals, interruption or cessation of clinical trials, total or partial suspension of production or distribution, injunctions, limitations on or the elimination of claims the Company can make for its products, refusal of the government to enter into supply contracts or fund research, or government delay in approving or refusal to approve New Drug Applications (NDAs). Because the Company or its collaborators must obtain regulatory approval to market its products in the U.S. and other countries, Neuralstem cannot predict whether or when it will be permitted to commercialize its products. Federal, state, and local governments and agencies in the U.S. (including the FDA) and governments in other countries have significant regulations in place that govern many of the Company’s activities. The Company is or may become subject to various federal, state, and local laws, regulations, and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals, and the use and disposal of hazardous or potentially hazardous substances used in connection with its research and development work. The preclinical testing and clinical trials of the products that the Company or its collaborators develop are subject to extensive government regulation that may prevent Neuralstem from creating commercially viable products from its discoveries. In addition, the sale by the Company or its collaborators of any commercially viable product will be subject to government regulation from several standpoints, including manufacturing, advertising, marketing, promoting, selling, labeling, and distributing. If, and to the extent that, the Company is unable to comply with these regulations, its ability to earn revenues will be materially and negatively impacted. RISKS RELATING TO COMPETITION The Company’s competition includes both public and private organizations and collaborations among academic institutions and large pharmaceutical companies, most of which have significantly greater experience and financial resources than the Company. The biotechnology industry is characterized by intense competition. Neuralstem competes against numerous companies, many of which have substantially greater financial and other resources than it. Several such enterprises have initiated cell therapy research programs and/or efforts to treat the same diseases targeted by the Company. Although not necessarily direct competitors, companies such as Geron Corporation, Genzyme Corporation, StemCells, Inc., Advanced Cell Technology, Inc., and Aastrom Biosciences, Inc., as well as others, may have substantially greater resources and experience in the Company’s fields than Neuralstem. As well, any of the world’s large pharmaceutical companies represent a significant actual or potential competitor with vastly greater resources than the Company. Overviews of some of Neuralstem’s potential competitors are provided on pages 30-32 in the Competition section of this EIO®.


RISKS RELATING TO THE COMPANY’S RELIANCE ON THIRD PARTIES Neuralstem’s outsource model depends on collaborators, non-employee consultants, research institutions, and scientific contractors to help develop and test proposed products. Neuralstem’s ability to develop such relationships could impair or delay its ability to develop products. The Company’s strategy for the development, clinical testing, and commercialization of its proposed products is based on an outsource model. This model requires that Neuralstem enter into collaborations with corporate partners, research institutions, scientific contractors, licensors, licensees, and others in order to further develop its technology and develop products. In the event that the Company is not able to enter into such relationships in the future, its ability to develop products may be seriously hindered or it would be required to expend considerable resources to bring such functions in-house. Either outcome could result in Neuralstem’s inability to develop a commercially feasible product or in the need for substantially more working capital to complete research in-house. Also, Neuralstem is currently dependent on collaborators for a substantial portion of research and development. Although collaborative agreements do not impose any duties or obligations on the Company other than the licensing of its technology, the failure of any of these collaborations may hinder Neuralstem’s ability to develop products in a timely fashion. By way of example, the collaboration with Johns Hopkins University School of Medicine yielded findings that contributed to the Company’s patent application entitled “Transplantation of Human Cells for Treatment of Neurological Disorder.” Had the collaboration not existed, Neuralstem’s ability to apply for such patent would have been greatly hindered. The Company currently has several key collaborations. Neuralstem’s maximum obligation to provide additional funding under any of these collaborations is $100,000. Its primary risk is that no results are derived from their research. The Company intends to rely upon third-party FDA-approved manufacturers for its stem cells. Should these manufacturers fail to perform as expected, Neuralstem will need to develop or procure other manufacturing sources, which would cause delays or interruptions in product supply and result in the loss of significant sales and customers. Neuralstem currently has no internal manufacturing capability and will rely extensively on FDA-approved licensees, strategic partners, or third-party contract manufacturers or suppliers. The Company currently has an agreement with Charles River Laboratories International, Inc. for the manufacturing and storage of its cells. In the event Charles River fails to provide suitable cells, Neuralstem would be forced to either manufacture the cells itself or seek other third-party vendors. Should the Company be forced to manufacture stem cells, it cannot provide any assurance that it will be able to develop an internal manufacturing capability or procure alternative third-party suppliers. Moreover, it cannot give any assurance that any contract manufacturers or suppliers it procures will be able to supply its product in a timely or cost-effective manner or in accordance with applicable regulatory requirements or the Company’s specifications. GENERAL RISKS RELATING TO THE COMPANY’S BUSINESS The product development programs are based on novel technologies and are inherently risky. The Company is subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of these therapies creates significant challenges with regard to product development and optimization, manufacturing, government regulation, third-party reimbursement, and market acceptance. For example, the pathway to regulatory approval for cell-based therapies, including Neuralstem’s product candidates, may be more complex and lengthy than the pathway for conventional drugs. These challenges may prevent the Company from developing and commercializing products on a timely or profitable basis or at all.


The manufacture of cell-based therapeutic products is novel, highly regulated, critical to the Company’s business, and dependent upon specialized key materials. The manufacturing of cell-based therapeutic products is a complicated and difficult process, dependent upon substantial know-how, and subject to the need for continual process improvements in order to be competitive. Neuralstem depends almost exclusively on third-party manufacturers to supply its cells. In addition, suppliers’ ability to scale-up manufacturing to satisfy the various requirements of planned clinical trials, such as GTP, GMP, and release testing requirements, is uncertain. Manufacturing irregularities or lapses in quality control could have a serious adverse effect on Neuralstem’s reputation and business, which could cause a significant loss of stockholder value. Many of the materials used to prepare Neuralstem’s cell-based products are highly specialized, complex, and available from only a limited number of suppliers or are derived from a biological origin. At present, some of the material requirements are single sourced, and the loss of one or more of these sources may adversely affect the Company’s business if it is unable to obtain alternatives or alternative sources at all or on acceptable terms. Ethical and other concerns surrounding the use of stem cell therapy may negatively affect regulatory approval or public perception of the Company’s product candidates, which could reduce demand for its products or depress stock price. The use of stem cells for research and therapy has been the subject of debate regarding related ethical, legal, and social issues. Negative public attitudes toward stem cell therapy could result in greater governmental regulation of stem cell therapies, which could harm Neuralstem’s business. For example, concerns regarding such possible regulation could impact the Company’s ability to attract collaborators and investors. Existing and potential U.S. government regulation of human tissue may lead researchers to leave the field of stem cell research or the country altogether, in order to ensure that their careers will not be impeded by restrictions on their work. Similarly, these factors may induce graduate students to choose other fields less vulnerable to changes in regulatory oversight, thus exacerbating the risk that Neuralstem may not be able to attract and retain the scientific personnel it needs in the face of competition among pharmaceutical, biotechnology, and healthcare companies, universities, and research institutions for what may become a shrinking class of qualified individuals. Neuralstem may be subject to litigation that is costly to defend or pursue with uncertain outcome. The Company’s business may bring it into conflict with its licensees, licensors, or others with which it has contractual or other business relationships or with its competitors or others that have different interests than the Company. If Neuralstem is unable to resolve those conflicts on terms that are satisfactory to all parties, the Company may become involved in litigation brought by or against it. That litigation is likely to be costly and may require a significant amount of management’s time and attention at the expense of other aspects of the Company’s business. The outcome of litigation is always uncertain, and in some cases could include judgments against Neuralstem that require the Company to pay damages, enjoin it from certain activities, or otherwise affect its legal or contractual rights, which could have a significant adverse effect on its business. By way of example, in May 2008, Neuralstem filed a complaint against StemCells, Inc., alleging that U.S. Patent No. 7,361,505 (the “505 patent”), allegedly exclusively licensed to StemCells, is invalid, not infringed, and unenforceable. On the same day, StemCells filed a complaint alleging that Neuralstem had infringed, contributed to the infringement of, and/or induced the infringement of two patents owned by or exclusively licensed to StemCells relating to stem cell culture compositions. At present, the litigation is in its initial stages and any likely outcome is difficult to predict. The Company may not be able to obtain third-party patient reimbursement or favorable product pricing, which would reduce its ability to operate profitably. The Company’s ability to successfully commercialize certain of its proposed products in the human therapeutic field may depend to a significant degree on patient reimbursement of the costs of such products and related treatments at acceptable levels from government authorities, private health insurers and other organizations, such as health maintenance organizations (HMOs). The Company cannot guarantee that reimbursement in the U.S. or foreign countries will be available for any products it may develop or, if available, will not be decreased in the future, or that reimbursement amounts will not reduce the demand for, or the price of, its products with a consequent harm to the Company’s business. The


Company cannot predict what additional regulation or legislation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future or what effect such regulation or legislation may have on the Company’s business. If additional regulations are overly onerous or costly or if healthcare-related legislation makes business more costly or burdensome than anticipated, Neuralstem may be forced to significantly downsize business plans or completely abandon its business model. The Company’s products may be costly to manufacture, and they may not be profitable if the Company is unable to control the costs to manufacture them. Neuralstem’s products may be significantly more costly to manufacture than most other drugs currently on the market due to a fewer number of potential manufacturers, greater level of needed expertise, and other general market conditions affecting manufacturers of stem cell-based products. The Company would hope to substantially reduce manufacturing costs through process improvements, development of new science, increases in manufacturing scale, and outsourcing to experienced manufacturers. If the Company is not successful in these and other initiatives, and depending on the pricing of the product, its profit margins may be significantly less than that of most drugs on the market today. In addition, the Company may not be able to charge a high enough price for any cell therapy product it develops, even if they are safe and effective, to make a profit. If Neuralstem is unable to realize significant profits from its potential product candidates, its business would be materially harmed. To secure market share and generate revenues, proposed products must be accepted by the healthcare community, which can be slow to adopt or unreceptive to new technologies/products. The Company’s proposed products and those developed by its collaborative partners, if approved for marketing, may not achieve market acceptance since hospitals, physicians, patients, or the medical community in general may decide not to accept and utilize these products. The products that the Company is attempting to develop represent substantial departures from established treatment methods and will compete with a number of more conventional drugs and therapies manufactured and marketed by major pharmaceutical companies. The degree of market acceptance of any of Neuralstem’s developed products will depend on a number of factors, including the following: (1) establishment and demonstration to the medical community of the clinical efficacy and safety of its proposed products; (2) the Company’s ability to create products that are superior to alternatives currently on the market; (3) the Company’s ability to establish in the medical community the potential advantage of its treatments over alternative treatment methods; and (4) reimbursement policies of government and third-party payors. If the healthcare community does not accept the Company’s products for any of the foregoing reasons, or for any other reason, the Company’s business would be materially harmed. Neuralstem depends on two key employees for continued operations and future success. A loss of either employee could significantly hinder its ability to move forward with its business plan. The loss of either of Neuralstem’s key executive officers, Mr. Richard Garr, J.D., president, chief executive officer (CEO), and general counsel, or Dr. Karl Johe, scientific founder and chairman, would be significantly detrimental to the Company. Neuralstem currently does not maintain key person life insurance on the life of Mr. Garr. As a result, the Company will not receive any compensation upon the death or incapacity of this key individual. Neuralstem currently does maintain key person life insurance on the life of Dr. Johe. As a result, the Company will receive approximately $1,000,000 in the event of his death or incapacity. In addition, the Company’s anticipated growth and expansion into areas and activities requiring additional expertise, such as clinical testing, regulatory compliance, manufacturing, and marketing, will require the addition of new management personnel and the development of additional expertise by existing management personnel. There is intense competition for qualified personnel in the areas of the Company’s present and planned activities, and there can be no assurance that Neuralstem will be able to continue to attract and retain the qualified personnel necessary for the development of its business. The failure to attract and retain such personnel or to develop such expertise would adversely affect the Company’s business.


Neuralstem has entered into long-term contracts with key personnel and stockholders, with anti-termination provisions that could make future management changes difficult or costly. Mr. Garr and Dr. Johe have entered into employment agreements with the Company that expire on November 1, 2012, and that include termination provisions stating that if either employee is terminated for any reason other than a voluntary resignation, then all compensation due to such employee under the terms of the respective agreement shall become due and payable immediately. These provisions will make replacing either of these employees very costly to Neuralstem, and could cause difficulty in effecting a change in control. Termination prior to full term on the contracts would cost Neuralstem up to $1,800,000 per contract and immediate vesting of all outstanding Options held by Mr. Garr and Dr. Johe. The Company has no product liability insurance, which may leave it vulnerable to future claims that it will be unable to satisfy. The testing, manufacturing, marketing, and sale of human therapeutic products entails an inherent risk of product liability claims, and the Company cannot guarantee that substantial product liability claims will not be asserted against it. Neuralstem has no product liability insurance. In the event that it is forced to expend significant funds on defending product liability actions and if those funds come from operating capital, Neuralstem will be required to reduce business activities, which could lead to significant losses. The Company cannot guarantee that adequate insurance coverage will be available in the future on acceptable terms, if at all, or that, if available, the Company will be able to maintain any such insurance at sufficient levels of coverage or that any such insurance will provide adequate protection against potential liabilities. Neuralstem has limited commercial insurance policies. Any significant claim would have a material adverse effect on its business, financial condition, and results of operations. Insurance availability, coverage terms, and pricing continue to vary with market conditions. The Company endeavors to obtain appropriate insurance coverage for insurable risks that it identifies; however, the Company may fail to correctly anticipate or quantify insurable risks, may not be able to obtain appropriate insurance coverage, and insurers may not respond as Neuralstem intends to cover insurable events that may occur. The Company has observed rapidly changing conditions in the insurance markets relating to nearly all areas of traditional corporate insurance. Such conditions may result in higher premium costs, higher policy deductibles, and lower coverage limits. For some risks, Neuralstem may not have or maintain insurance coverage because of cost or availability. RISKS RELATING TO THE COMPANY’S COMMON STOCK Neuralstem’s Common Shares are sporadically or thinly traded. Investors may be unable to sell at or near ask prices, or at all, if they needed to sell shares to raise money or otherwise desired to liquidate the shares. Neuralstem’s Common Shares have historically been sporadically or thinly traded, meaning that the number of persons interested in purchasing the Common Shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the facts that Neuralstem is a small company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if the Company came to the attention of such persons, these persons tend to be risk-averse and would be reluctant to follow an unproven development-stage company such as Neuralstem or purchase or recommend the purchase of Neuralstem’s shares until such time as the Company becomes more seasoned and viable. As such, there may be periods of several days or more when trading activity in Neuralstem’s shares is minimal or non-existent versus a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without a material reduction in share price. Neuralstem cannot give any assurance that a broader or more active public trading market for its Common Shares will develop or be sustained or that current trading levels will be sustained. Due to these conditions, it can give no assurance that investors will be able to sell shares at or near ask prices or at all.


The market price for Neuralstem’s Common Shares is particularly volatile given its status as a relatively unknown company with a small and thinly traded public float, limited operating history, and lack of revenues or profits to date. These factors could lead to wide fluctuations in its share price. The price at which investors purchase Common Shares may not be indicative of the price that will prevail in the trading market. Investors may be unable to sell Common Shares at or above the purchase price, which may result in substantial losses. The volatility in Neuralstem’s Common Share price may subject the Company to securities litigation. The market for Neuralstem’s Common Shares is characterized by significant price volatility when compared to seasoned issuers, and the Company expects that its share price will continue to be more volatile than that of a seasoned issuer. The volatility in its share price is attributable to a number of factors. First, as noted on page 47, its Common Shares are sporadically or thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by shareholders may disproportionately influence the price of those shares in either direction. The price for shares could, for example, decline precipitously in the event that a large number of Common Shares are sold on the market without commensurate demand. A seasoned issuer could better absorb sales without a material reduction in share price. Secondly, Neuralstem is a speculative or risky investment due to its limited operating history, lack of significant revenues to date, and uncertainty of future market acceptance for its products if successfully developed. As a consequence of this enhanced risk, more risk-adverse investors may be, under the fear of losing all or most of their investment in the event of negative news or lack of progress, more inclined to sell shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Additionally, in the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. Neuralstem may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources. The following factors may add to the volatility in the price of Neuralstem’s Common Shares: (1) actual or anticipated variations in quarterly or annual operating results; (2) government regulations; (3) announcements of significant acquisitions, strategic partnerships, or joint ventures; (4) capital commitments; and (5) additions or departures of key personnel. Many of these factors are beyond the Company’s control and may decrease the market price of its Common Shares, regardless of operating performance. Neuralstem cannot make any predictions or projections as to what the prevailing market price for its Common Shares will be at any time, including as to whether the Common Shares will sustain their current market prices or as to what effect the sale of shares or the availability of Common Shares for sale at any time will have on the prevailing market price. The Company faces risks related to compliance with corporate governance laws and financial reporting standards. The Sarbanes-Oxley Act of 2002 as well as related new rules and regulations implemented by the SEC and the Public Company Accounting Oversight Board require changes in the corporate governance practices and financial reporting standards for public companies. These new laws, rules, and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting (“Section 404”), will materially increase the Company’s legal and financial compliance costs and make some activities more time consuming and more burdensome. The Company has never paid a cash dividend and does not intend to pay cash dividends on its Common Stock in the foreseeable future. Any payment of cash dividends will depend upon the Company’s financial condition, results of operations, capital requirements, and other factors and will be at the discretion of the Board of Directors. Neuralstem has never paid cash dividends and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. Furthermore, the Company may incur additional indebtedness that may severely restrict or prohibit the payment of dividends. Accordingly, any return on investment will be as a result of stock appreciation.


Neuralstem’s issuance of additional securities could dilute proportionate ownership and voting rights and negatively impact the value of investments. Neuralstem is entitled under its amended and restated certificate of incorporation to issue up to 150,000,000 Common and 7,000,000 “blank check” Preferred Shares. As of September 30, 2008, the Company has issued and outstanding 32,151,300 Common Shares, 19,833,749 Common Shares reserved for issuance upon the exercise of current outstanding Options and Warrants, 400,341 Common Shares reserved for issuance of additional grants under the 2005 incentive stock plan, and 950,000 shares reserved for issuance of grants under the 2007 stock plan. Accordingly, Neuralstem will be entitled to issue up to 96,664,610 additional Common Shares and 7,000,000 additional Preferred Shares. Its Board may generally issue those Common and Preferred Shares, or Options or Warrants to purchase those shares, without further approval by shareholders based upon such factors as the Board of Directors may deem relevant at that time. Any Preferred Shares the Company may issue shall have such rights, preferences, privileges, and restrictions as may be designated from time to time by the Board, including preferential dividend rights, voting rights, conversion rights, redemption rights, and liquidation provisions. It is likely that Neuralstem will be required to issue a large amount of additional securities to raise capital to further development and marketing plans. It is also likely that Neuralstem will be required to issue a large amount of additional securities to directors, officers, employees, and consultants as compensatory grants in connection with their services, both in the form of stand-alone grants or under various Stock Option plans, in order to attract and retain qualified personnel. The Company cannot give any assurance that it will not issue additional Common or Preferred Shares, Options, or Warrants to purchase those shares, under circumstances it may deem appropriate at the time.


Recent Events Neuralstem has been featured in many news venues, including BusinessWeek, Maryland’s The Business Gazette, Yahoo.com, the Wall Street Journal, CNNMoney.com, and the Washington Business Journal, among many other outlets. Summaries of these articles and interviews are available on the Company’s website at www.neuralstem.com under the News section. Over the past year, Neuralstem has also issued many press releases, as overviewed below, announcing significant Company events. 03/09/2009—Neuralstem, Inc. announced that transplanted human neural stem cells developed by the Company made synaptic contacts with the motor neurons of rats with symptoms similar to amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease). This data was reported in a paper published in the current online edition of the Journal of Comparative Neurology. This constitutes evidence that the transplanted cells integrated into the nervous system of the host. The rats had a genetic mutation called SOD-1 G93A, which gives them a disease similar to ALS in humans. 02/20/2009—Announced that its spinal cord stem cell trial to treat ALS was on clinical hold and that the U.S. Food and Drug Administration (FDA) had provided the Company with specific comments, questions, and recommendations for modifications to its protocol. 02/12/2009—Announced that Mr. James Sasser (biography on page 11), former senator (D-Tennessee) and former U.S. ambassador to the People’s Republic of China, joined the Neuralstem Advisory Board to serve as senior advisor on China. 02/02/2009—Announced that Mr. Richard Garr (biography on page 9), president, chief executive officer (CEO), and general counsel, was scheduled to present at the 11th Annual BIO CEO & Investor Conference held on February 9-10, 2009. 01/26/2009—Received an official Notice of Allowance for its patent application, number 10/047,352, for Stable Neural Stem Cell Lines from the U.S. Patent and Trademark Office (USPTO). 12/18/2008—Announced that it filed an Investigational New Drug (IND) application with the FDA to begin a clinical trial in ALS. 12/02/2008—Entered into a collaboration with the China Medical University Hospital in Taiwan to advance development of the human spinal cord neural stem cell therapies. The collaboration is anticipated to focus on ALS with Dr. Shinn-Zong Lin as principal investigator. 11/18/2008—Entered into a collaboration with Professor Guido Nikkah, Ph.D., of Germany’s Albert-Ludwigs-Universität Freiburg, to advance development of Neuralstem’s human neural stem cell therapies. The collaboration with Professor Nikkah is expected to focus on Huntington’s disease (HD). 11/14/2008—Reported financial results for the three and nine months ended September 30, 2008. For the third quarter 2008, the Company reported a net loss of $3,177,957, or ($0.10) per share, versus a net loss of $1,422,020, or ($0.05) per share, for the comparable 2007 period. Net loss attributable to Common Stockholders for the first nine months of 2008 was $8,410,081, or ($0.26) per share, versus $4,169,103, or ($0.15) per share, for the comparable period in 2007. The increase in year-to-date net loss was due to an increase in non-cash stock-based compensation expense, salaries, and legal fees. The Company used $1.7 million of cash in the third quarter and $4.9 million in the first nine months of the year. The cash balance at the end of the first nine months was $5.2 million. 10/14/2008—Announced that it licensed rights to three inventions from the Cleveland Clinic pertaining to targeted spinal cord therapeutics delivery. All three inventions were developed by Dr. Nicholas Boulis, formerly of Cleveland Clinic and now at Emory University.


09/08/2008—Announced that Mr. Garr was scheduled as a featured panelist discussing stem cells and ALS at the 2008 World Stem Cell Summit in Madison, Wisconsin, on September 22, 2008. In a presentation prior to the panel, Mr. Garr spoke about Neuralstem’s plans for an ALS trial and gave an update of the Company’s filing status with the FDA. 08/14/2008—Reported financial results for the three and six months ended June 30, 2008. For the second quarter 2008, the Company reported a net loss of $2,957,672, or ($0.09) per share, versus a net loss of $1,798,911, or ($0.06) per share, for the comparable 2007 period. Net loss attributable to Common Stockholders for the first six months of 2008 was $5,232,124, or ($0.16) per share, versus $2,748,153, or ($0.10) per share, for the comparable period in 2007. The increase in net loss year to year was due to an increase in non-cash stock-based compensation expense, salaries, and legal fees. The Company used $1.4 million of cash in the second quarter and $3.2 million of cash in the first half of the year. The cash balance at the end of the first half was $6.9 million. 07/30/2008—Announced that Dr. Thomas Hazel (biography on page 10) rejoined the Company as executive vice president, research. 05/15/2008—Reported financial results for the three months ended March 31, 2008. For the first quarter 2008, the Company reported a net loss of $2,274,452, or ($0.07) per share, versus a net loss of $949,242, or ($0.04) per share, for the comparable 2007 period. The increase in net loss was due to an increase in non-cash stock-based compensation expense of approximately $1,019,000. 05/12/2008—Responded to the two new patent infringement suits filed against the Company by StemCells, Inc., saying that Neuralstem believes the suits, and the earlier claims by StemCells against the Company, to be baseless. The Company further alleged that StemCells engaged in a pattern of harassment and anti-competitive behavior. 05/07/2008—Filed suit against StemCells stating, among other things, that StemCells intentionally withheld crucial information highly material to the patentability of StemCells’ patent (U.S. #7,361,505) and that this was done with the intent to deceive the USPTO in order to get the patent allowed. As a result, Neuralstem asked for a declaratory judgment that the patent is unenforceable. The suit was filed in the U.S. District Court for the District of Maryland Southern Division. 05/06/2008—Announced that it filed a motion to re-open the infringement lawsuit with StemCells and to have the stay lifted, so that the case can be disposed of on summary judgment as soon as possible. 04/28/2008—Announced that the European Patent Office granted Neuralstem a European patent (EP0915968) covering the “Isolation, Propagation, and Directed Differentiation of Stem Cells from Embryonic and Adult Central Nervous System of Mammals.” The European patent was validated in several countries, including France, Germany, Ireland, Spain, Sweden, Switzerland, and the UK. 04/16/2008—Became a sponsor of the National Veterans Wheelchair Games, the largest annual wheelchair sports competition of its kind in the world, co-presented by the Paralyzed Veterans of America and the Department of Veterans Affairs (VA), in Omaha, Nebraska, July 25 to 29, 2008. 04/15/2008—Responded to an earlier press release by StemCells by stating that StemCells completely mischaracterized the meaning of the USPTO’s most recent action. 04/01/2008—Announced that Mr. Garr was scheduled to present at BIO-Europe Spring® 2008, in Madrid, Spain, April 7-9, 2008. BIO-Europe Spring®, a counterpart to the BIO-Europe conference in the fall, brings together biotechnology leaders for company presentations and panel discussions. Neuralstem gave an update on the Company’s clinical trials program.


03/28/2008—Reported financial results for the year ended December 31, 2007. Revenues for the year ended December 31, 2007, were $306,057 versus $265,759 for 2006. Revenues for 2007 consisted of grant reimbursements in the amount of $275,057 and sales of the Company’s cells (tissue products) of $31,000 for the year ended ending December 31, 2007. All revenue in 2006 was from grant reimbursements. For 2007, the Company reported a net loss attributable to shareholders of $7,063,272, or ($0.24) per share, versus $3,147,487, or ($0.13) per share, for the comparable 2006 period. Cash, cash equivalents, and short-term investments were in aggregate $7,403,737 at December 31, 2007, versus $1,807,041 at December 31, 2006. 02/25/2008—Announced that AllPennyStocks.com Media, Inc. (www.AllPennyStocks.com) released an article discussing the biotechnology/medical sector, as well as some small-capitalization companies that were making inroads in this sector. Companies mentioned in the report included Cannasat Therapeutics Inc. (CTH-TSX.V), Aethlon Medical, Inc. (AEMD-OTC.BB), and Neuralstem. 02/20/2008—Announced that Korean conglomerate, CJ CheilJedang Corporation, purchased an option to negotiate for the exclusive license to Neuralstem’s stem cell products and technology. As part of the agreement, CJ purchased $2.5 million worth of Neuralstem stock at $4.063 per share. The terms of the license are to be negotiated after the first successful human trial. CJ’s exclusive markets will likely include Korea, Indonesia, the Philippines, Malaysia, Singapore, and Vietnam, with a first right of negotiation for Japan.


Glossary Amyotrophic Lateral Sclerosis (ALS or Lou Gehrig’s Disease)—A chronic, progressive disease marked by gradual degeneration of nerve cells in the central nervous system (CNS) that control voluntary muscle movement. The disorder causes muscle weakness and atrophy and usually results in death. Aortic Aneurysms—Weakened and bulging areas in the aorta, which is the major blood vessel that feeds blood to the body. Autologous—Derived or transferred from the same individual’s body, such as an autologous blood donation or an autologous bone marrow transplant. Blastocyst—An early stage embryo comprising 30 to 150 cells. The blastocyst consists of a sphere made up of an outer layer of cells, a fluid-filled cavity, and a cluster of cells in the interior (the inner cell mass from which stem cells may be derived). Bone Marrow Transplants—Procedures where a section of bone marrow is taken from one person and transplanted into the same or a different individual. It is used to replace bone marrow that has been damaged or diseased. Cauda Equina—A bundle of spinal nerve roots that arise from the bottom end of the spinal cord. The cauda equina comprises the roots of all the spinal nerve roots below the level of the first lumbar (L1) vertebra, namely the sacral and coccygeal nerves. It is so named because it resembles the tail (Latin, cauda) of a horse (Latin, equus). Cell Line—A distinct family of cells grown in culture. Cell Therapy—A treatment in which cells are administered to patients to repair damaged or depleted tissues. Crohn’s Disease—An inflammatory disease of the gastrointestinal tract that may have both genetic and environmental causes. Cryopreserved—Biological materials stored in a constant steady state at extremely cold temperatures. The biological material is combined with a cryoprotectant substance formulated to protect the cells from damage during the freezing and subsequent thawing cycles. The cells remain frozen at -196°C (-321°F) until needed. Deoxyribonucleic Acid (DNA)—The genetic material of all living organisms (except for RNA-carrying viruses, such as HIV). DNA is a double-stranded, helical molecular chain found within each cell. DNA contains the information necessary for cells to produce proteins, which enable cells to reproduce and carry out their functions. Differentiation—The process by which cells or tissues undergo a change toward a more specialized form or function, especially during embryonic development. Doublings—Increases by a factor of two. Expands—Increases the number of cells. Fast Track—An FDA status reserved for products that demonstrate the potential to treat a serious or life-threatening condition that has unmet medical needs. Fast Track designation, which was mandated by the FDA Modernization Act of 1997, can potentially facilitate development and expedite the review of Biologics License Applications (BLAs).


GABAergic—Pertaining to the action of gamma aminobutyric acid (GABA) or to neural or metabolic pathways in which it functions as a transmitter. Glia—Also neuroglia, the tissue that surrounds and supports neurons in the CNS. Glial and neural cells together compose the tissue of the CNS. Good Manufacturing Practices (GMP)—The quality system regulation overseen by the FDA, which includes requirements related to the methods used in and the facilities and controls used for designing, manufacturing, packaging, labeling, storing, installing, and servicing of medical devices intended for human use. Graft-Versus-Host Disease (GVHD)—A disease in which immunologically competent donor T-cells react against an immunologically depressed recipient. A significant problem with allogeneic transplantation (taken from a different individual) is the prevention and control of GVHD, which can occur after a bone marrow transplant. Growth Factors—Substances made by the body that function to regulate cell division and cell survival. Some growth factors are also produced in the laboratory and used in biological therapy. Hippocampus—An area buried deep in the forebrain that helps regulate emotion and memory. Homeostasis—Encompasses physiological processes that allow an organism to maintain internal equilibrium. Huntington’s Disease (HD)—A hereditary disorder with mental and physical deterioration leading to death. Although characterized as an adult-onset disease, it can affect children as well. In Vitro—In the laboratory (outside the body). In Vivo—In the body. Investigational New Drug (IND)—The application by which a manufacturer requests that the U.S. Food and Drug Administration (FDA) allow human testing of its drug product. Ischemic Spastic Paraplegia—A form of spinal cord paralysis that causes permanent, and to date, untreatable, damage to motor function in the lower part of the body. Ischemia is a decrease in blood supply to a bodily organ, tissue, or part caused by constriction or obstruction of the blood vessels. Laminectomy—Removal of most of the bony arch, or lamina, of a vertebra. Lysine—An essential amino acid found in proteins. A dietary essential amino acid, lysine is present in many proteins and is necessary for optimal growth in childhood. Mesenchymal Stem Cells—A type of adult stem cell found in bone marrow that can differentiate into a variety of non-hematopoietic cells, such as bone, cartilage, muscle, and neural cells. Mitotic—Of or relating to mitosis, which is cell division where the nucleus divides into nuclei containing the same number of chromosomes. Motor Evoked Potentials (MEPs)—The electrical responses evoked in a muscle or motor nerve by electrical or magnetic stimulation. Multiple Myeloma—A malignancy of the plasma cells that affects multiple sites within the bone marrow. Multipotent—Multipotent stem cells can give rise to several other cell types, but those types are limited in number. Hematopoietic cells are an example of multipotent cells.


Myelin—A white fatty substance that forms a medullary sheath around the axis cylinder of some nerve fibers. Neural Stem Cells—A stem cell (an undifferentiated or “blank” cell that retains the ability to self-divide and self-renew for extended periods of time) that can give rise to the different types of cells of the nervous system. Neural stem cells are found in certain areas of the adult brain, in embryos, fetuses, newborns, and juveniles. Neurogenesis—The development of nerve tissues. Neurons—Nerve cells that send and receive electrical signals over long distances within the body. A neuron may send electrical output signals to muscle neurons (called motor neurons or motoneurons) and to other neurons. A neuron may receive electrical input signals from sensory cells (called sensory neurons) and from other neurons. A neuron that simply signals another neuron is called an interneuron. Neuronal Ceroid Lipofuscinoses (NCLs)—Also called Batten disease, NCLs are a group of neurodegenerative disorders. They are considered the most common of the neurogenetic storage diseases with a prevalence of 1 in 12,500 in some populations. They are associated with variable yet progressive symptoms, including seizures, dementia, visual loss, and/or cerebral atrophy. Notice of Allowance—A notification to the applicant that it is entitled to a patent under the law and requesting payment of a specified issue fee (and possibly a publication fee as well) within three months (non-extendable) from the mailing date of the Notice of Allowance. Oligodendrocyte—A type of cell in the CNS. The oligodendrocytes surround and insulate the long fibers (the axons) through which the nerves send their electrical messages. Orphan Drug—A designation given to a product that treats a rare disease affecting fewer than 200,000 people in the U.S. The Orphan Drug Act was signed into law on January 4, 1983. Since then, over 100 Orphan Drugs and biological products have been brought to market. The intent of the Orphan Drug Act is to stimulate the research, development, and approval of products that treat rare diseases, which is accomplished through several mechanisms: (1) sponsors are granted seven years of marketing exclusivity after approval of the Orphan Drug product; (2) sponsors are granted tax incentives for clinical research they have undertaken; (3) the FDA’s Office of Orphan Products Development coordinates research study design assistance for sponsors of drugs for rare diseases; (4) the Office of Orphan Products Development also encourages sponsors to conduct open protocols, allowing patients to be added to ongoing studies; and (5) grant funding is available to defray costs of qualified clinical testing expenses incurred in connection with the development of Orphan products. Pelizaeus-Merzbacher Disease (PMD)—A rare, progressive, degenerative CNS disorder in which coordination, motor abilities, and intellectual function deteriorate. The disease is one of a group of gene-linked disorders known as the leukodystrophies, which affect growth of the myelin sheath (the fatty covering that wraps around and protects nerve fibers in the brain). Pluripotent—Having the ability to develop into all three embryonic tissue layers, which in turn, can form all the cells of the body’s organs. Proliferate—To reproduce or multiply in similar forms, especially as cells. Stereotactic Injection—A procedure in which a computer and a three-dimensional scanning device are used to create three-dimensional images and locate specific areas of the body. Totipotent—Having the ability to give rise to unlike cells. A totipotent cell has the capacity to form an entire organism.

Executive Informational Overview

Jeffrey J. Kraws and Karen B. Goldfarb

Phone: (609) 306-2274 Fax: (609) 395-9339

Email: [email protected] Web: www.crystalra.com

Legal Notes and Disclosures: This report has been prepared by Neuralstem, Inc. (“Neuralstem” or “the Company”) with the assistance of Crystal Research Associates, LLC (“CRA”) based upon information provided by the Company. CRA has not independently verified such information. In addition, CRA has been compensated by the Company in cash of thirty-eight thousand, five hundred dollars and fifty thousand Warrants/Options for its services in creating this report, for updates, and for printing costs. Some of the information in this report relates to future events or future business and financial performance. Such statements constitute forward-looking information within the meaning of the Private Securities Litigation Act of 1995. Such statements can be only predictions and the actual events or results may differ from those discussed due to, among other things, the risks described in Neuralstem’s reports on 10-K, 10-Q, press releases, and other forms filed from time to time. The content of this report with respect to Neuralstem has been compiled primarily from information available to the public released by the Company. Neuralstem is solely responsible for the accuracy of that information. Information as to other companies has been prepared from publicly available information and has not been independently verified by Neuralstem or CRA. Certain summaries of scientific activities and outcomes have been condensed to aid the reader in gaining a general understanding. For more complete information about Neuralstem, the reader is directed to the Company’s website at www.neuralstem.com. This report is published solely for information purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any state. Past performance does not guarantee future performance. Free additional information about Neuralstem and its public filings, as well as free copies of this report, can be obtained in either a paper or electronic format by calling (301) 366-4841.

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