Readers of Blue Lake Invest will know full well that this stock is a favourite of mine. Not only do they have a solid pipeline of work they continue to achieve postive results from late stage clinical trials. But despite this the market has been hesitent to come to the party.
The title hints at this. Neuren Pharmacuticals (ASX:NEU) has proven to be an unstable, and unpredictable beast. I got on board this stock and shared it with you back in October 2015. Since the article it has soared 20%. But for me it remains a little dissapointing.
You see since then the group has had a barrage of positive news including successful clinical trails for phase two testing, they have received funding from US health groups and filled enrolment for further trials. Right now NEU have three treatments in the pipeline with a significant market value, FDA support and patents covering much of the globe.
The below graph shows the flacutations NEU have endured over the past 6 months, and was taken from my Nabtrade account. Unfortunately I was a little too late for the 34.83% gains others have enjoyed.
Now let’s have a look at why the stock hasn’t realised its market potential.
- Firstly, the volatile market that has welcomed in the New Year has shaken investor confidence. The unpredictable nature of the Chinese economy coupled with the economic activity here in Australia investors are hoarding more cash than they traditionally have.
- Secondly the above graph suggests the stock price is being manipulated by ‘day traders’. Investors and looking at short term wins and cashing out their gains. I myself could have cashed out a 30%+ gain but I see good longer term value
- Thirdly, the market is scared of pharmaceutical stocks. Like tech, investors who can’t see a track record of sales and profit are not confident to invest. The low risk appetite is frustrating but creates opportunity. It also suggests that any payday will likely be a takeover bid rather than investors buying up the stock.
I mention above that I see this as a longer term hold. This is as the company has solid management, 3 strong prospects on the go and market potential that would get any capitalist excited.
Trofinetide is the drug in question (previously referred to as NNZ-2566). It is designed to treat the brain and has been proved to both reduce inflammation and improve cognitive function. I must confess that I lack medical qualifications, but I will give my laments view on the potential of this drug.
Trofinetide is currently being tested to treat mild head injuries (think concussion). This is an area which has arguably been undertreated in the past and dismissed as a simple knock on the head. However what I have noticed is that professional sport bodies are examining this closely and will be seeking out treatments just like Trofinetide should it be approved. This could prove to be a massive market.
Another treatment for Trofinetide is described as ‘over-activation of microglia’. This is caused by infection and injury, and creates an imbalance in the brain. In testing Neuren has been able to demonstrate improved memory, anxiety, hyperactivity and social behaviour following the injury/infection. While it hasn’t been widely discussed, reading between the lines Trofinetide could absolutely play a role in treating mental health, a condition tipped to get significant government funding all around the world.
The third treatment centres on what is called ‘synapses’. This is basically how the brain communicates with your body via nerves. It plays a role in cognitive function and memory. Neuron are testing this with those that have neurological disorders and intellectual disabilities. So far Trofinetide has been successful in improve cognitive function in treating these trial participants.
From an investor stand point there is value in these treatments, as the rate in which children born with autism is increasing, there is greater awareness and desire to treat brain injuries and we continue to see increasing rates of memory deterioration. Neuren have highlighted multiple sclerosis and Parkinson’s as other potential treatment.
As a purely speculative view, one wonders what the broader implications of a treatment like this can be. If it can be used to improve cognitive function in those that have suffered brain injuries, what can the drug do for a ‘healthy’ brain. Could it be used as a (hopefully legal) performance enhancing drug where people like you and I could improve cognitive function, memory and general brain health? That would make this market pretty far reaching.
And with that said, I will be following this stock for a while. We can expect to see more announcements in the first quarter this year, which if positive will hopefully get some broader investor interest and drive up the stock value. Want to be first to get Blue Lake Invest’s future thoughts on ASX:NEU? Then subscribe today using the below box.