Small Caps | May 25 2012
– Neuren Pharma continues to develop drug for treating traumatic brain injury
– Oral version of compound an attraction for potential licensees
– Any licensing deal likely to see Neuren re-rated
– Bell Potter retains a Buy rating
By Chris Shaw
Late last year FNArena highlighted Neuren Pharmaceuticals ((NEU)) on the back of a report by Bell Potter indicating Neuren could be the only company offering a treatment for traumatic brain injuries (TBI) via its NNZ-2566 compound (See: Neuren Pharma Could Be The Only One).
At the time Bell Potter noted the TBI market was potentially worth as much as US$2 billion. Over the past six months Neuren has made progress in developing NNZ-2566, with an IV version of the drug now in Phase II trials for treating moderate-to-severe TBI.
The US Army is investing US$23 million in the trial and Bell Potter expects data will become available in 2013. Bell Potter expects if Phase II is successful only a single Phase III trial will be required for Neuren to file for regulatory approval.
At the same time Neuren is working on an oral version of NNZ-2566 and is currently in Phase I, with a Phase II trial planned for mild TBI. The oral version of the compound should also open up other opportunities in the view of Bell Potter, as the broker suggests the drug could also be useful in the treatment of Rett Syndrome, a disorder of the nervous system that leads to developmental reversals.
This has the potential to open up a larger market in Autism Spectrum Disorders and leads Bell Potter to suggest the oral version of NNZ-2566 is likely to be the key driver of growth for Neuren as the company should be able to get orphan designation for the drug. Given the drug would fill a previously unmet need premium pricing should be achievable.
An oral version of the compound also increases the attractiveness for a licensee, so any subsequent licensing deal for NNZ-2566 is likely to act as a catalyst for the Neuren share price in Bell Potter's view.
Neuren is also developing Motiva, which is a drug for treating Post Stroke Apathy. Enrolment for a Phase IIb trial should be completed by the end of 2013 and funding is coming via a grant from the Australian government. Bell Potter notes trials to date have shown the compound to be safe and efficient.
Other potential developments being pursued by Neuren include a strong pre-clinical pipeline for NNZ-2591, a compound for treatment of Parkinson's and peripheral neuropathy. A subsidiary of Neuren, Perseis Therapeutics, is also working on anti-cancer antibodies.
Given the growth potential from NNZ-2566 in particular but also Neuren's product pipeline in general, Bell Potter sees the stock as undervalued at current levels. The broker's price target of 17c, up from 12c previously, reflects this as it is a substantial premium to the current share price of around 2.3c.
Supporting this view is the fact Neuren is well funded for its current stage of clinical development, as Bell Potter points out with the US and Australian governments funding the company's two lead molecules cash burn has been less than $300,000 per month over the past year.
Post its latest review Bell Potter retains a Buy rating on Neuren, with price target set in line with a base case valuation on Neuren of 17c per share. This valuation rises to 20c per share when more optimistic assumptions are factored into the broker's model.
Shares in Neuren closed yesterday at 2.3c, which compares to a range over the past year of 1.3c to 3.7c. At current levels Neuren has a market capitalisation of around $27 million.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
