short term multibagger here

I'll keep this short and crude!

Here's an interesting stock, Neuren Pharmaceuticals (neu). They have a drug in development that I really like, but they are only a really good buy now in my opinion.

The reason for this is Neuren never raised any cash when their share price was high (50c+) some years ago. Then came the credit crunch, and they were savaged some more. Then, like a number of speccie stocks, they had to turn to a company called Springtree. Simply put, Springtree give cash in return for cheaper shares that the company issues. Springtree then sell those share (which puts downward pressure on the share price). Then the cycle happens again and again.

So any companies that have gone with Springtree end up with a much lower share price and loads more shares on issue. Another problem is that when a deal with the likes of Springtree is done, buyers are scared off because they know what happens. I never buy into companies that have such deals.

But luckily things are looking up in the biotech sector, so the Springtree deal has been terminated. Some cash has been raised through a placement with the much respected Lang Walker ($2m at 1.3c) and an spp is happening at 1.3c a share. Hopefully they will raise a few more millions there.

Neuren has two drugs in phase 2 clinical trials. One is called Motiva, which is quite interesting and might be worth a fortune. But it's a drug called nnz2256 which I am most excited about. It is for traumatic brain injury. It's basically a peptide that humans already produce naturally after a head injury. So it is proven to work & be safe for humans.

The boffins at Auckland Uni realised humans don't produce enough of this peptide after moderate to severe brain injuries. The thinking is that in the natural world, if you had a major brain injury you were doomed anyway, as you had probably fallen from a cliff or were mauled by a bear or something. But these days we can keep people alive after really terrific incidents.

I'll not waffle too much about the drug here, you can check out their website or asx releases if you want to know more.

One interesting thing is that the US army are paying for the trials of nnz2256, in return for use of the drug by themselves. All commercial rights are retained by Neuren. The Motiva trials are funded by another body, so these two trials are free to neuren.

There has been a number of valuations and guestimates for what nnz2256 is worth to Neuren. But I'll lean on the conservative side, where it's estimated that nnz2256 will generate $250m profit a year for Neuren.

Just to put this in context, Neuren's market cap is currently $8m at 1.3c a share (which is what I think you should buy at). They have about $3.3m in the bank - so that's an enterprise value of sub $5m. Bear in mind that they have TWO phase 2 trials running at the moment and they are both pretty much funded by other parties.

Now the spp will mean more shares will be issued, but also more cash generated. So if $4.5m is raised, then the market cap will still only be $12.5m (and they will have a nice $7m plus in the bank).

ok, back to the old $250m a year profit for the nnz2256 drug. I really like the science behind this drug. With the model testing so far, I actually think there's a good chance it is going to work. But if we call it 50:50, well (keeping it very crude here) Neuren have a 50:50 chance of becoming a $250m a year profit company. If we give them a p/e of 10, well that's $2.5b or....... 200 times more than the $12.5m market cap mentioned earlier.

Now, I'm not suggesting here that one should buy because we are going to see a 200 fold increase (which might actually happen), but buy because the market will not leave a possible 200 bagger alone.

The biotech sector is the hot place to be at the moment, and normally a company with neu's potential would be worth at least $125m. So we are talking of a 10 fold increase at least, just to get a valuation similar to their peers.

The spp has just finish, but there will be a window to buy in cheap for a while.

There is often a post-Springtree rise with companies too.

So I suggest buy and hold.

cheers