Brainstorm Cell Therapeutics, Inc.       (OTC BB: BCLI)
March 23, 2006
52-WEEK RANGE: $0.40 - $3.40
FLOAT: 3.7 million

Brainstorm Cell Therapeutics, Inc., headquartered in New York City and with main R&D operations in Israel, is a development stage biotechnology company focused on developing innovative autologous adult stem cell therapies for highly debilitating incurable neurodegenerative disorders (NDDs), such as Parkinson’s disease (PD), Amyotrophic Lateral Sclerosis (ALS), sometimes called Lou Gehrig's disease, and Multiple Sclerosis (MS), among others. Since October 2004, the Company operates primarily through BrainStorm Cell Therapeutics Ltd, a wholly-owned subsidiary with 6,500 square feet of office and laboratory space in Israel. The Company’s patent-pending NurOwn™ technology is licensed from Ramot at Tel Aviv University Ltd, the technology transfer company of Tel Aviv University and enables in-vitro differentiation of bone marrow stromal stem cells into neural-like cells. NurOwn™ is based on discoveries made at the Felsenstein Medical Research Center of Tel Aviv University by a team of two world-renown scientists, a prominent neurologist Prof. Eldad Melamed, Head of Neurology at Rabin Medical Center and key advisor to Michael J. Fox Foundation, and Dr. Daniel Offen, an expert cell biologist. Using NurOwn™, the Company developed three approaches to generate functional neurons, astrocytes and oligodendrocytes for NDD transplantation treatments. The Company is currently sponsoring pre-clinical animal trials confirming the safety and efficacy of first two of its treatment approaches. Trading on the Over-the Counter Bulletin Board under the symbol BCLI, the Company is positioned to become a leader in adult stem cell transplantation for neurodegenerative diseases.

Deterioration of neurons and other cells of the central nervous system characteristic of all neurodegenerative diseases (NDD) lead to brain dysfunction that results in impairment of motor movement and/or cognitive abilities. Affecting primarily the growing group of aging people, these disorders are expected to increase in incidence and significantly raise treatment costs in the coming years. With life expectancy inching up to 78 years in the U.S., people 65 and older constitute nearly 13% of the domestic population, according to figures presented at the 2005 White House Conference on Aging last December. Absorbing the wave of baby boomers, from 2010 to 2030 the 65+ population is projected to spike by 75% to over 69 million people, and then reach 79 million by 2050. According to a recent report available at, the U.S. constitutes the world's largest market for NDD products, worth nearly $2.3 billion in 2004, or about 40% of the worldwide sales total of $5.7 billion, a figure that doubled since 2000. Global NDD product sales are expected to double again to over $10 billion by 2013. According to the World Health Organization (WHO) calculations, NDDs as a category will become the world's second leading cause of death by the year 2040, overtaking cancer.

Parkinson's disease, also known as paralysis agitans, is a chronic, progressive disorder affecting nerve cells that produce dopamine, a neurotransmitter in the substantia nigra, an area in the basal ganglia of the brain, which directs and controls movement. As the world's second most common NDD, behind Alzheimer’s, PD affects over four million people in developed countries, with the U.S. alone accounting for about 1.5 million of the diagnosed population. 85% of those diagnosed are over the age of 65, but there clearly is no minimum age for the disease onset. The classic symptoms of PD, which usually begin asymmetrically in the upper extremities, are tremors, or shaking, muscle rigidity and slow movement, or bradykinesia. A person with fully developed PD may also have a stooped posture, a blank stare or fixed facial expression, speech problems and difficulties with balance or walking. Named for James Parkinson, who first documented the symptoms in 1817, the disease continues to be extensively studied and the cause of it, despite identifying associated biochemical changes in the brain in the 1960s and certain related gene defects more recently, remains unknown.

Current therapies for PD focus on treating the symptoms of the disease, relying on dopamine replacement with either levodopa, the standard and most potent PD treatment, or dopamine agonists, synthetic drugs that mimic dopamine’s effects, as well as administration of drugs that inhibit dopamine’s breakdown. Levodopa, also called L-dopa, is a neutral amino acid found naturally in plants and animals, which taken orally is absorbed into the small intestine, successfully crosses the blood-brain barrier, a membrane that filters blood reaching the brain impenetrable by dopamine itself, and is converted to dopamine in the brain. However, because levodopa requires gradual dosage increases leading to eventual resistance and often has debilitating side effects with long-term use, including serious motor response complications, dykinesia or involuntary movements and tics, as well as hallucinations, the pressure to develop a cell therapeutic curative approach to restore the neural function by replacing the dysfunctional dopaminergic cells with healthy, dopamine-producing cell transplants is immense. In fact, PD is the first neurodegenerative disease for which cell transplantation has been attempted in humans, first with adrenal medullary cells and, later, with tissue grafts from fetal brain, demonstrating limited benefit mainly in younger patients.

Prescription drugs to treat PD currently generate sales of over $1 billion and the market is expected to grow to approximately $2.3 billion by 2010, driven by the increase in size of the elderly population and the introduction of new PD therapies that carry higher price tags. These costs are dwarfed when compared to the total economic burden of the disease, including medical treatment, caring, facilities and other services, as well as loss of productivity of both patients and caregivers, which has been estimated by the National Institute of Neurological Disease to exceed $27 billion each year.

Amyotrophic lateral sclerosis, sometimes called Lou Gehrig's disease, is a rapidly progressive, invariably fatal neurological disorder that attacks motor neurons, the nerve cells responsible for controlling voluntary muscles of the body. Motor neurons reach from the brain to the spinal cord and from the spinal cord to the muscles throughout the body. As motor neurons degenerate, they cease sending impulses to the muscle fibers that normally result in muscle movement. Early symptoms of ALS often include increasing muscle twitching, or fasciculations, weakness and/or stiffness, especially involving the arms and legs, speech, swallowing or breathing. With voluntary muscle action progressively affected, patients often develop muscle atrophy and may become completely paralyzed in later stages of the disease. However, because ALS affects only motor neurons, in most cases mental faculties are not affected. While no cure has yet been found for ALS, Riluzole, believed to reduce damage to motor neurons by decreasing the release of glutamate, is the first drug treatment approved for ALS. ALS most commonly affects people between 40 and 60 years of age, but younger and older people also can develop the disease. Approximately 5,600 people in the U.S. are diagnosed with ALS each year. It is estimated that as many as 30,000 Americans may have the disease at any given time, with 100,000 across the western world. Consequently, the total estimated cost of treating ALS patients is approximately $1.25 billion.

Another prevalent NDD, Multiple Sclerosis, first described in Holland by a 14th century physician, is a chronic inflammatory disease resulting in degeneration of the myelin sheath, a fatty matter that covers axons, or elongated fibers of nerve cells. While healthy myelin provides insulation, improves the conduction of electrical impulses along the nerves and is otherwise important for maintaining good condition of the nerves, MS related inflammation seriously interferes with nerve pathways. By forming hardened plaques of scar tissue throughout the central nervous system, MS deteriorates oligodendrocytes, the cells that produce myelin, and to a lesser extent the axons and neurons themselves. The symptoms of MS, occurring in progressive, relapsing-remitting or acute-attack forms of different severity, include muscular weakness and fatigue, speech and sensory disturbances, bladder or bowel dysfunction, problems with sexual function and loss of coordination, called ataxia, varying in part depending on the location of plaques in the brain and/or spinal cord. In the worst case, MS can result in permanent paralysis. According to the National Multiple Sclerosis Society, approximately 400,000 Americans acknowledge having MS, and every week about 200 more people are diagnosed with the disease. Worldwide, MS may affect 2.5 million individuals. The usual age of onset is within the third and fourth decades of life, although the disease can begin in childhood and also above the age of 60 years. Characteristically for NDDs, there is no cure for MS, but two types of immunomodulatory agents, interferon beta and glatiramer acetate, have been primarily used since the 1990s to slow the underlying degenerative processes. Exhibiting the fastest growth among NDDs markets, the MS drug treatment market is expected to reach an average annually compounded growth rate of 19.8% in the 2002-2009 period, according to a 2005 report by LeadDiscovery, a U.K. life science market research firm.

Cell therapy aims to restore diseased tissue function by the replacement or replenishment of damaged cells with healthy cell transplants. Using non-specialized stem cells, which have the ability to undergo asymmetric division such that one of the two daughter cells retains the properties of the stem cell, while the other begins to differentiate into a more specialized cell type, medical researchers are continually developing capabilities to produce cells for use as implants in treatment of various diseases, especially those that cannot be treated effectively with systemic drug delivery. Severe immune deficiency diseases, blood cell disorders and cancers, such as leukemia, lymphoma and multiple myeloma, have for years been successfully treated by transplantations of hemopoietic, or blood-forming, stem cells found in bone marrow, where differentiation of stem cells into specialized blood cells occurs naturally.

The Company’s core technology, NurOwn™, which has been licensed under an exclusive agreement with Ramot at Tel Aviv University Ltd, enables the processing, expansion and differentiation of multi-potential stem cells derived from adult bone marrow. Capable of in vitro growth and multi-potential differentiation into muscle, bone, fat, skin, nerve and other tissue cells, bone marrow offers the most preferred source of mesenchymal stem cells. Although embryonic stem cells (ESCs) isolated from the inner mass of few day old embryos are easier to grow and differentiate, they suffer from increased tumorogenic risk in transplants and are surrounded by a copious ethical controversy. Furthermore, by sourcing mesenchymal bone marrow stem cells from the patient himself through a relatively simple aspiration procedure, the treatment is autologous, obviating donor matching issues, circumventing rejection and other immunological mismatch risks, and eliminating the need for immunosuppressive therapy. As such, the Company’s curative approach to NDD treatment, which is comprised of extraction of bone marrow from a patient, expansion of the mesenchymal stem cells, in vitro differentiation of the expanded stem cells into appropriate functional neural-like cells and implantation of the differentiated cells into the same patient’s brain, promotes functional and structural survival and integration of transplanted cells, which replace and/or support the degenerated neurons, as demonstrated in the Company’s pre-clinical trials.

NurOwn™ has been proven successful in differentiating bone marrow derived mesenchymal stem cells into functional dopaminergic neurons, astrocytes and oligodendrocytes, all with typical morphology, electrophysiology and type-specific markers, representing three separate but synergistic platforms for development of NDD treatments. The first most advanced approach focuses on differentiation of dopaminergic neuronal-like cells, which successfully produce and secrete dopamine, the chemical that enables restoration of motor movement in PD treatment. The intended procedure for the replacement of the degenerated dopaminergic neurons with healthy functional dopaminergic cells derived by differentiation of bone marrow is among the earliest successes of stem cell technologies and could be the starting point for penetrating a massive market potential in the area of autologous transplantation. The Company’s second potential approach centers on differentiation of astrocyte-like cells with the capacity of producing significant levels of glial derived neurotrophic factor (GDNF), a unique potent protein required for survival and growth of dopaminergic and motor neurons. Given GDNF’s capacity to protect a variety of brain cells and induce neural sprouting, the GDNF expressing cells hold promise for treatment of many neurodegenerative diseases, including PD, MS, ALS, and are currently being evaluated in independent clinical trials on humans. The pre-clinical research on rats and mice with damaged dopaminergic cells sponsored by the Company demonstrated that stem cells derived from human bone marrow and implanted in animal brains exhibit long term engraftment, survival and function. More importantly, the cell transplants markedly improve motor function in model animals within 8-12 weeks. It was demonstrated that the characteristic rotational movement disease behavior was reduced up to 50% in the transplanted animals and their paw reaching capacity significantly increased. The study also shows significant advantage of the Company's cell differentiation technology over the use of undifferentiated bone marrow derived stem cell implants. Finally, the Company recently announced that in Company sponsored research, the research team at Tel Aviv University’s Felsenstein Institute had successfully utilized NurOwn™ to derive myelin-producing oligodendrocyte-like cells as a potential therapy for MS, representing a third potential application of its technology for NDD treatment.

The Company holds rights to develop and commercialize the NurOwn™ technology and the results of related research sponsored by the Company at Tel Aviv University’s Felsenstein Medical Research Center, through an exclusive, worldwide royalty-bearing Research and License agreement signed in July 2004 with Ramot at Tel Aviv University Ltd., the university’s technology transfer company. The NurOwn™ technology to differentiate dopamine-producing neuron-like cells is covered by a patent application filed in November 2003 under Patent Cooperation Treaty (PCT) and published in June 2004. In addition, provisional patent applications have been filed covering the differentiation of GDNF-producing cells and oligodendrocyte-like cells in June 2005 and December 2005, respectively. In consideration for the license, the Company paid an up front license fee of $100,000 and five-year warrants to purchase 10.6 million shares of its common stock, obligating itself to royalties of 5% on net product sales and 30% on any sublicensing receipts. The Company also agreed to fund further research relating to the licensed technology in the amount of $570,000 per year for an initial period of two years, and for an additional two-year period if certain research milestones are met. By funding further NurOwn™ related research at the Felsenstein Medical Research Center, the Company has continuing access to the work and associated results of a world-class R&D team led by NurOwn™’s inventors, Prof. Melamed and Dr. Offen, and comprising about a dozen scientists, including molecular and cell biologists, pharmacologists and animal model experts.

The Company has not yet begun the process of seeking regulatory approval from regulatory agencies and is currently directing its efforts at further development of its proprietary lab technology through optimization of its bioprocesses and analytical methodologies, in order to begin human clinical trials within twelve to eighteen months. The development process is conducted in parallel with rodent studies designed to demonstrate the safety of cell expansion and differentiation, including methods for freezing, thawing, transporting and storing the mesenchymal stem cells and differentiated neural-like cells, according to FDA guidelines for Good Tissue Practice (GTP) and Good Manufacturing Practice (GMP). In preparation for IND submission for conducting clinical trials on humans, the Company may also conduct feasibility studies on non-primate animal models to further evaluate cell engraftment and survival of the cell implants, using monkeys injected with MPTP, a neurotoxin causing PD symptoms.

Moving toward advanced clinical development and commercialization, the Company will likely seek cooperation with a strategic marketing partners, such as a private hospital chain and/or major pharmaceutical firm, in order to leverage established distribution channels, market credibility and proven ability to provide service and support across a large and geographically spread target markets, facilitating a more rapid and broader penetration. The Company plans to operate by setting up centralized facilities responsible for processing bone marrow extracted from patients and production of cells required for transplantation treatments of PD, and later ALS and MS. Transplantations would be performed by an expanding base of hospitals and medical centers throughout the U.S., Europe, Japan and the Pacific Rim, with revenues shared with the Company on an agreed basis.

In its efforts to develop effective treatment for NDD, the Company faces significant competition from other cell therapies and treatment technologies under development, as well as drugs currently used to slow the effects of PD and other NDDs. Among companies developing cell therapies, some are involved in the controversial fetal cell transplant or ESC-derived cell therapy, and others are developing adult stem cells, such as StemCells, Inc. (NASDAQ: STEM), which also focuses on many NDDs, or Aastrom BioSciences, Inc. (NASDAQ: ASTM) or Geron Corporation (NASDAQ: GERN), which concentrate in other segments of the stem cell therapy market. Other companies developing traditional chemical compounds, new biological drugs and other treatments for NDDs include giants such as AstraZeneca plc (NYSE: AZN), Novartis AG (NYSE: NVS) or Sanofi-Aventis SA (NYSE: SNY), as well as smaller public companies like Pharmos Corp. (NASDAQ: PARS), Cortex Pharmaceuticals, Inc. (AMEX: COR) or Aeolus Pharmaceuticals, Inc. (OTC BB: AOLS).

The Company’s Interim-CEO and COO, Yoram Drucker joined the Company in November 2004. Since 1998, Mr. Drucker has been an independent consultant regarding business development, finance, strategy, and operations. From 1997 to 1998, Mr. Drucker managed a real estate brokerage firm. From 1995 through 1996, Mr. Drucker managed his own promotion company and created and designed marketing and promotion concepts for various Israeli Companies. From 1990 through 1995, Mr. Drucker served as manager of the production department of one of Israel's largest diamond factories. Mr. Drucker has also served as director of Pluristem Life Systems, Inc.

Dudy Stolick, CPA, CFO, joined the Company in February 2005. From 1995 to 2005, Mr. Stolick was Corporate Controller of M-Systems Flash Disk Pioneers Ltd., (NASDAQ: FLSH). In 1994 he served as Deputy Controller of Electronics Line Ltd., an Israeli publicly traded Company, and from 1991 until 1994 he was Audit Manager at Goldstein, Sabbo, and Tebet Accountants. Mr. Stolick holds a B.A. in Economics and Accounting from Ben-Gurion University. He has been qualified as a certified accountant in Israel since 1993.

Prof. Eldad Melamed, M.D, Chief Medical Advisor, is a world renowned expert in the field of neurodegenerative diseases, especially PD. Prof. Melamed has served as head of the Neurology Department at the Rabin Medical Center and Tel Aviv University since 1987. Throughout his career, he has specialized in neurology, holding senior positions at the Hebrew University, Bispebjerg Hospital in Copenhagen, National Hospital in London and at the Laboratory of Neuroendocrine Regulation in Massachusetts. He is a former president of the Israel Neurological Association and director of the National Parkinson Foundation in the U.S. Prof. Melamed is a member of the Scientific Committee of the Michael J Fox for Parkinson's Research.

Daniel Offen, Ph.D, Chief Scientist, enjoys a worldwide reputation in neuroscience research. Since 1993 he has been head of the Neuroscience Laboratory at Tel Aviv University (TAU), School of Medicine. He has lectured extensively, both at TAU and in many scientific conferences, and supervised a large number of Ph.D. students. He has published over 70 original scientific papers and several patents, and is a recipient of prizes from the National Parkinson Institute in Miami in recognition of his achievements in the area of PD research. Dr. Offen is a member of the Scientific Committee of the Israel Society for Neuroscience.

Dr. Avinoam Kadouri, Chief Technology Advisor, is one of the leading scientists in industrial biotechnology with world wide reputation. He has 15 years of experience as R&D Director and worldwide Process Development Director in Serono International, Switzerland. Currently, Dr. Kadouri is the Chairman of ACTIP (Animal Cell Technology Industrial Platform), an important European organization of the major biotech companies. He is a member of several Scientific Advisory Boards of biotech companies in the U.S., Europe and Israel. In his career, Dr. Kadouri has been an Associate Professor, spending many years in leading research institutes and universities.

As an early development stage Company, no revenues have been generated to date. For the nine months ended December 31, 2005, the Company reported a net loss of $2,701,800, or $0.12 per share, consisting of $770,766 in R&D expenses and $711,380 in G&A expenses, exclusive of costs attributable to issuance of shares, warrants and options granted to employees and service providers, which constituted the majority of the remaining loss. Total net cash used in operating activities for the nine months ended December 31, 2005 was $843,322. According to the NurOwn™ licensing agreement, the Company is obligated to pay quarterly research funding payments of $142,500 until April 2006, of which the last two have been deferred per subsequent agreement with the licensor.

The Company’s operations in the past 18 months have been financed primarily through private placement of equity and loans. Since October 2004, sales of units of common stock with associated warrants, most recently offered at $0.80 per unit, resulted in proceeds of approximately $2 million. In February 2006, the Company issued a 2-year $500,000 10% Convertible Promissory Note to a private investor, improving its net working capital deficit, which as of December 31, 2005 was at $584,287.

As the BCLI stock price has declined, in March 2005 the Company entered into lock up agreements with Ramot at Tel Aviv University Ltd. and other shareholders owning a total of 15.2 million shares and $0.01 warrants issued in the licensing transaction, preventing transfer of the securities without prior consent of the Company's Board of Directors. Pursuant to the agreements, only 15% became exercisable and were free of transfer restrictions, while the remaining 85% is locked up until July 2006. As a result, there are approximately 3.7 million publicly trading shares in the float, with management and directors owning about 2.7 million of the outstanding remainder and investors and affiliates accounting for 16.4 million. Float for purposes of this report is defined to include only those shares of outstanding stock that are freely tradable, without restriction, on the date hereof.

At current levels, the shares may present a highly speculative buying opportunity for long-term investors willing to accept the general high risks associated with early stage development companies in exchange for potential significant benefits of commercialization of novel therapeutics for previously incurable diseases. The Company’s operations may be affected by the political, economic and military conditions in Israel. Other risks specifically pertaining to the Company include future dilution, the lack of liquidity and price volatility, lack of revenues and earnings, resulting substantial losses, as well as the auditor’s going concern opinion, shareholders’ deficit, working capital deficit and potential default risk on the licensing agreement and other commitments. The Company is dependent on attracting new external financing to meet its ongoing obligations and to achieve a positive working capital and liquid position. Assuming the Company’s financing efforts are successful and sufficient to result in commercialization of its technology, the Company could experience high rates of revenue growth and may eventually become profitable operationally in the long term. In the mid term, the Company’s valuation could improve upon achievement of significant milestones in technology development, progress of pre-clinical trials, or especially strategic partnerships with other companies with greater resources. Near term additional financing could improve the current balance sheet and working capital position of the Company enabling it to continue its research and development activities. In such case, the share valuation could command a premium for the Company’s promising technology, the overall attractiveness of the stem cell research sector and the long term outlook for growth.

Alan Stone, Managing Director
Copyright © March 2006. All Rights Reserved.


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