Seeking Alpha
Profile| Send Message|
( followers)  

NeurogesX (OTCPK:NGSX) announced positive top-line Phase III results Tuesday for its NGX-4010 pain patch that treats post-herpetic neuropathy [PHN] (Read the press release). The stock jumped as much as 18% on the news to $8.38.

The stock has shed some of that gain, back to around $8, which is still up more than $1 since last Thursday. Despite the quick run-up, I don't think we've missed the boat just yet on NGSX. I believe now is just as good of a time to get in as last week, because the data release gives investors more confidence and there still isn't much ownership in this stock.

The data from the Phase III trial met both primary and secondary goals, which should give investors even more confidence that NGX-4010 will receive regulatory approval (the company plans on filing for approval in Europe in the fourth quarter and in the United States during the second half of 2008). With NGX-4010 moving into the application stage, it becomes much more valuable to the company because there is a much greater chance of the drug earning money for the company.

According to my calculations, the PHN market is now worth $8.50 to the company. That alone is above the current share price. Also, NeurogesX expects to complete its Phase III trial of NGX-4010 for the treatment of HIV-related neuropathy by the end of the year, with top-line results due in the first half 2008. I believe that this market could be worth another $2 for the company and add in the possibility of NGX-4010 treating painful diabetic neuropathy (worth another $1), I think the firm is now worth $11.50, which is now above my previous price target.

I think this stock hasn't really made its run yet because it isn't well-known on Wall Street. I don't expect a small biotech to be known when it doesn't have revenues or earnings, but now that NeurogesX has a significant opportunity to earn money, the stock should start receiving more recognition on the Street. Currently, only 16% of shares are held by institutions, and nobody holds more than 5% of the company, according to Yahoo! Finance. This number should increase as we get closer to regulatory approval, which will give the stock a boost.

I have a buy rating on NGSX, with a price target of $11, and I think this is a great chance to own this stock. The stock's risk has lowered some now that its top-line data has been released. I also think that the company will have a better chance in finding a commercial partner. Also, I like the fact that the stock remains undervalued and under the radar. Once NGSX gets picked up by some of the big boys it should move fast because it is undervalued, especially now that NGX-4010 has moved into the new drug approval stage.

Disclosure: I own shares in NGSX, however, at the time of writing this article I did not.

NGSX 3-mo chart:

Source: Now's The Time To Hop Aboard NeurogesX