Small Caps | Oct 21 2011
– Neuren developing compound for treating Traumatic Brain Injury
– Market is attractive as currently no suitable treatments
– Neuren also developing other potentially attractive compounds
– Bell Potter initiates coverage with a Spec Buy rating
By Chris Shaw
Junior biotech Neuren Pharmaceuticals ((NEU)) is developing the NNZ-2566 compound, aimed at treating Traumatic Brain Injury (TBI). Development of NNZ-2566 is now in Phase II and is on track for FDA approval and marketing by 2017.
As Bell Potter notes in its initiation of coverage on Neuren, the core NNZ-2566 compound is a synthetic analogue of amino acids. The view is administering such a compound in the hours after a TBI would prevent the subsequent death of brain cells that result in permanent brain damage.
An advantage of such a drug is the molecular cascade that follows a TBI opens up various points for a drug-based intervention. There is currently no such drug available on the market as products developed by the likes of AstraZeneca and Ono Pharma of Japan have failed clinical tests.
The current Phase II trial should be completed by late next year notes Bell Potter, a development that could lead to a single pivotal Phase III trial in the US under Fast Track and SPA procedures. At present the drug is available only by infusion, with Neuren also working on an orally-available formulation. This could potentially open up the compound to other uses such as aiding in stroke recovery and in treating Rett Syndrome, which is an autism spectrum disorder.
The market for such a treatment is significant, Bell Potter noting in the US there are around 1.7 million TBIs annually. At present there are no treatments considered neuro-protective, which suggests a potential market in the US alone of around US$2 billion for mild TBIs and a further US$2 billion for moderate to severe TBIs.
The Phase II trial underway at present is being funded by the US army, reflecting a strong interest in developing neuro-protective drugs given around 25,000 cases among active personnel in 2010. The US army has provided US$22.8 million for development of NNZ-2566, Bell Potter noting this is enough to cover the Phase II trial.
In 2008 Neuren's Glypromate product failed in a Phase III trial measuring the ability of the drug to prevent cognitive decline following Coronary Artery Bypass Graft. But in the view of Bell Potter this failure reflected a poor choice of trial structure, the data indicating NNZ-2566 may have a better chance of a positive outcome, especially as evidence to date indicates NNZ-2566 delivers positive results.
This supports Bell Potter's view Neuren is undervalued at current levels, based on the potential for NNZ-2566 alone. The broker's forecasts support this, as base case assumptions suggest a valuation of 12c per share, while more optimistic assumptions imply a valuation of 21c per share.
These assumptions include Neuren raising an additional $20 million in working capital to fully develop its product pipeline and a 15% chance of clinical success for all products currently under development.
These other products include Phase II development for Motiva, a cognition-enhancement drug acquired in 2007 that is expected to be used for treating Apathy Syndrome in patients recovering from strokes. Also in the development pipeline of Neuren are NNZ-2591 for the treatment of Parkinson's Disease and peripheral neuropathy, while a subsidiary is working on antibodies for breast and other cancers.
The base case valuation of Bell Potter implies significant potential share price upside for Neuren, as the share price at present is a little above the 2c mark. This underpins the broker's Spec Buy rating.
At current levels Neuren is capitalised at less than $20 million, meaning little coverage from the broader market. None of the eight brokers in the FNArena database offer research on Neuren.
Shares in Neuren today are unchanged with a last sale of 2.4c. Over the past year the stock has traded in a range of 1.3-2.9c.
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