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NPS Pharmaceuticals, Inc.

Q2 2010 Earnings Conference Call

August 4, 2010 17:00 E.T

Executives

Francois Nader – President and Chief Executive Officer

Luke Beshar – Senior Vice President and Chief Financial Officer

Susan Mesco – Investor Relations.

Analysts

Ryan Martins - Barclays Capital

Ann Paul – Citigroup

John Stevenson – Summer Street Research

Leah Hartman – CRT Capital Group

Alan Carr – Needham & Company

Operator

Good day ladies and gentlemen and welcome to the second quarter 2010 NPS Pharmaceuticals earnings conference call. My name is [Tekia] and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. (Operator instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to Miss. Susan Mesco, director of Investor Relations and Corporate Communications. You may proceed.

Susan Mesco

Thank you [Tekia] and welcome to today’s conference call to discuss our financial results for the second quarter of 2010. Before we start, let me remind you that today’s call will include forward-looking statements based on current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties. Please refer to our filings with the SEC, which are available from the SEC or our Website for information concerning the risk factors that could affect the company.

Joining me on today’s call are members of our management team, including our President and Chief Executive Officer, Dr. Francois Nader; and our Chief Financial Officer, Luke Beshar. To begin, it is now my pleasure to turn the call over to our Chief Executive Officer, Dr. Nader.

Francois Nader

Good afternoon and thank you for joining our second quarter conference call. I’m happy to report that 2010 has been a year of solid execution. Earlier this year we brought in over $90 million of new capital through two very successful transactions. In addition, we recently achieved a key milestone for GATTEX in short bowel syndrome with the completion of patient randomization in STEPS which puts us on track to report top line results early next year.

With two Phase 3 registration programs advancing on our stated timeline, we have delivered on our commitment and we are very well positioned to continue to achieve additional milestones in the months ahead. Turning now to GATTEX as a reminder, STEPS was designed to confirm previously stated findings that GATTEX safely reduces chronic parenteral nutrition dependence of short bowel syndrome patients.

The primary endpoint of STEPS is a 20% or greater reduction in parenteral nutrition requirement at week 20 maintained through week 24. As you recall, the STEPS study design calls for patients to be enrolled and undergo an optimization and stabilization period of up to 16 weeks before being randomized to either GATTEX or Placebo.

Through collaborative efforts between our clinical research team and the investigators, the optimization and stabilization process went better than we originally anticipated specifically with respect to the percentage of patients successfully moving to randomization. We thought a free randomization drop out rate of roughly 27% which is a significant improvement over the 4o% free randomization drop out rate that we saw in our first Phase 3 study. We also adopted a prudent approach and continued enrolling stations in STEPS until the 86th patient was randomized. Once this number was reached we closed enrollment and the additional patients who will complete the optimization and stabilization phase will go directly into our two year open day long continuation study STEP two.

We are very pleased that interest in the continuation study remains high. All of the access STEPS sites are now participating and well over 90% of patients who have completed 24 weeks of therapy in STEPS have elected to roll over into STEP 2. In our clinical studies, we are ramping up a number of activities to support a 2011 FDA regulatory submission for GATTEX in short bowel syndrome.

Manufacturing and CNC related initiatives remain a key focus, including the production of validation and commercial scale batches. The commercialization activities for GATTEX are also progressing as per plan. A key objective of commercializing us is gaining an in depth understanding about potential subscribers and influences. We are therefore focusing our efforts on physician segmentation, referral patterns and treatment objectives.

We are continuing to broaden our understanding of the impact of short valve syndrome on patients’ medical care and quality of life, with our market research results reinforcing the need for new, safe and effective treatment options and improved patient outcome.

Now I would like to turn to our second Phase 3 registration program, NPSP558 in hypoparathyroidism. As many of you know, NPSP558 is our full length recombinant parathyroid hormone 1-84 that we are developing as a hormone replacement therapy for patients with hypoparathyroidism. As a reminder, hypoparathyroidism is an orphan indication characterized by low serum calcium or hypocalcaemia that can lead to neuromuscular symptoms and bone impairment, as well as to serious complications like brittle bones, tetany, seizures or psychosis.

Since there is no approved treatment for hypoparathyroidism, the condition is currently managed palliatively with high doses of calcium and Vitamin D analog supplements. Over the long term though, calcium supplementation can lead to organ calcification and kidney failure. Therefore the primary endpoint of our registration study is maintaining normal calcaemia while reducing calcium and Vitamin D analog supplementation by at least 50%.

We have now achieved approximately 70% of our enrollment target in our 24 week Phase 3 registration study which is known as REPLACE. We remain on track for full enrollment later this year and top line data in 2011. If approved, NPSP558 would be the first hormone replacement therapy to treat the underlying cause of hypoparathyroidism.

On the commercial side, we have launched a comprehensive quantitative analysis of the market potential of 558 continuing to build upon our previous research in this orphan indication. In addition to epidemiological data, this market research will examine physician mapping, referral pattern and patient treatment flows.

So to summarize, 2010 continues to be a year of execution, setting the stage for an exciting period ahead. We have two Phase 3 registration programs that are progressing on our stated timelines and we look forward to delivering a number of key catalysts over the next 12 to 15 months. So later this year, our goal is to hit our enrollment target for replaced. Early next near we’ll report top line results from STEPS and complete patient randomization in replaced and later in 2011 we will file a new drug application for GATTEX in short bowel syndrome and report top line results for replace.

All of this will position NPS for the launch of our first product in 2012. We look forward to updating you on our progress and with that I will turn the call over to Luke to discuss our financials. Luke?

Luke Beshar

Thanks Francois and good afternoon to everybody. On a financial perspective we continued being in an excellent position for our clinical and operational goals. Due to our successful financial activities this year, we have a healthy balance sheet with more than $130 million of cash and investments and the financial runway takes us beyond top line data and other key catalysts.

I’d like to touch on a number of highlights from the quarter starting with revenue where our royalty based portfolio continues to be a valuable piece of our business. Second quarter royalties totaled $24 million versus $23 million last year. Pre-effect royalties were 2.1 million compared to 2.4 in the second quarter of 2009 due to the negative impact of foreign exchange.

On a local currency basis, pre-effect sales were essentially flat versus the prior year. REGPARA royalties continue to show strong year over year growth with the second quarter coming in at $1.3 million versus approximately $900,000 last year.

Nucnyta, which remained unencumbered asset increased to approximately $200,000 in raw pieces compared to $200,000 last year and lastly and not leastly, the largest piece of our royalties, Sensipar came in at $20.3 million for the second quarter versus 19.4 for the prior year. With respect to Sensipar, there are some additional items I’d like to report this afternoon. First, for the fifth consecutive quarter, EMG did not reserve any Sensipar royalties payable to MPS. For any new investors on the call, this relates to the ongoing patent process litigation related to Cinacalcet filed by Teva against Amgen.

Second, the final CMS dialysis bundling rule was just recently released, and the postponed inclusion of all oral-only drugs from the bundled rates until at least 2014. And lastly, the repayment of the Sensipar back series A notes and the commencement of repayments of the Series B notes remain on a near term horizon, with our current estimates indicating that the balance of the Series A notes will be fully retired either late this year or early next. As a reminder, we monetized certain of our royalty rights for Sensipar, Preotact and REGPARA as non-recourse debt. The cash flows from these royalties will return to NPS after the respective obligations are repaid.

Turning to expenses, second quarter research and development expenses increased to $15.8 million from $6.4 million last year. The increase was driven by the advancement of the GATTEX and NPSP558 Phase 3 registration studies as well as regulatory readiness and CNC related activities to ensure the timely and complete submission of two new drug applications.

G&A expenses for the second quarter improved to $4.2 million from $5 million last year mainly due to decreases in legal and other administrative costs. Our cash burn for the first half was $33.3 million and we continue to expect full year cash burn to be in the range of $75 to 90 million. Our reported cash burn excludes the $91.6 million of cash inflows related to external finance activities achieved earlier this year, namely the monetization of our REGPARA royalties and our secondary offering of common stock.

So to summarize our financial front, our royalty based portfolio continues to be a valuable piece of our business. We remain focused on actively managing cash and expenses and our balance sheet is healthy. With more than $130 million of cash, we have the financial runway to take us through key milestones in 2010 and 2011.

Consistent with our prior track record, we will continue to be opportunistic in evaluating ways to further strengthen our balance sheet in a manner that is strategic and in the best interest of our shareholders. With that I’ll turn the call over to the operator to begin our Q&A session. [Tekia], would you like to take it from here?

Questions and Answers Session

Operator

Absolutely, ladies and gentlemen, (operator instructions). Your first question is coming from the line of John Stevenson with Summer Street Research, you may proceed.

John Stevenson – Summer Street Research

Great, good quarter, a couple of questions on NPSP558, First of all, I was wondering if you could remind us where you were in terms of percent completion on enrollment as of the last quarter, and then also just kind of long, long term, assuming that the phase [inaudible] result was also positive and you were able to get this to market, is a pump version of the product something you might consider long term?

Francois Nader

John, this is Francois. I’m sorry I did not fully hear actually the second part of your question. Just to answer you first question though, we did report any specific numbers related to enrollment progression in previous calls. So this is the first time, but we say that about 70% of our enrollment target is completed and if you don’t mind repeating the second part of your question, I would really appreciate it.

John Stevenson – Summer Street Research

Yes, sure, the second part was just that I was wondering longer term assuming that the NPSP558 gets to the market; would the company consider evaluating the product in a pump formulation kind of like an insulin pump?

Francois Nader

Yeah, that is a very good question. Actually we are looking – both products actually GATTEX and 558, both of them are subcu, once a today formulation, and we are looking at different options for both, pump being an interesting option actually for either or, but there are also other alternatives that we are considering. This is an effort that we have started and started planning for but we’re certainly not start executing on until we have at the very least top line results for GATTEX and for 558.

John Stevenson – Summer Street Research

Okay and actually just a close look back on the first question, my sense is 70% completion would have been a pretty big step up from 3 or 4 months ago, is that accurate?

Francois Nader

What is accurate is the fact that we had a slow start given some of the operational challenges that we have and things have picked up quite nicely at the beginning of this year. So we are pretty much on target where we’re expected to be. We have added a few additional sites and this is why we are quite optimistic to complete our enrollment by year end.

John Stevenson – Summer Street Research

Great, I’ll jump back in the queue, thanks

Francois Nader

Okay, thank you John.

Operator

The next question is coming from the line of Alan Carr with Needham & Company, you may proceed.

Alan Carr – Needham & Company

Hi, good afternoon, thanks you for taking my question. Curious about your comments on the STEPS trial in terms of improving the rate of patients that move on to randomization, can you tell us about what sort of differences there were in this trial versus the previous Phase 3 trial?

Francois Nader

That’s a very good question and I would say the difference is in terms of trial design we can cover that. I think your question has specifically to do with the pre-randomization phase, the optimization stabilization. I think the bigger determinant that gave us this lower pre-randomization dropout rate is frankly what I just said which is a better interaction, medical interaction between our medical team here at the site and working with the CRO. The optimization stabilization is a very important phase to determine a solid baseline if you will at randomization. So our team here spends quite a bit of time and effort ensuring that the sites fully understands how to do it, how to execute the protocol and frankly be very present with the site. So there is no medical formula here as much as it is a closer interaction between our team and the clinical side.

Alan Carr – Needham & Company

Are you able to share with us the amount of time it took to stabilize patients on average this time versus in the past?

Francois Nader

I know that the protocol calls for up to 12 weeks if I’m not mistaken, so I would say on average it took a little bit less than that, but some of the patients had to be re-circulated, in other words, they were optimized and stabilized and then they felt stabilization and then they were put back in optimization. But I would say on average it was less than the intended or 4 months if you will.

Alan Carr – Needham & Company

Okay and then one last question around mucusaitis, any – I’m sorry if I missed this through your commentary, but new developments on when you might announce a timeline strategy around mucusaitis?

Francois Nader

We’re not guiding on any specifics. We guided earlier that we had what we believe is a very successful meeting with the FTA that enable us to develop or fine-tune or rather, our development plan. To be perfectly candid with you, our attention now is focused on these two indications and we also guided that we will be filing an IND for either pediatric or GIM, the GI mucusaitis at some point this year. This is still the plan and for the pediatric as we mentioned before we are working very closely with Nycomed since they have to file their fifth in Europe. So all this is work in progress and at this stage I cannot give you anything more specific Allan.

Alan Carr – Needham & Company

Alright, well thanks very much I appreciate it.

Francois Nader

Thank you

Operator

Your next question is coming from the line of Leah Hartman with CRT Capital, you may proceed.

Leah Hartman – CRT Capital Group

Hello gentlemen and Susan and congratulations on really making progress this quarter and into July, we are very excited for you. And Luke I have to ask for the breakout of the pieces of debt please.

Luke Beshar

No earnings call would be the same without it Leah. Total debt was $338 million, of that 28 million was current, that’s all the A bonds. We have about 18.4 in long term portion of debt attributable to the A bonds, the B bonds at the end of the quarter were 155. DRI Preotact bonds were $50 million and the REGPARA bonds were 36 million. So, and the other pieces, the 5.3 convert that would be 50 million. So you sum them all up, the 50 million for the convert. The A bonds is 46 million, of which 18 is long and 27 in short term, 155 for the B bonds, 50 for Preotact and for REGPARA, that should get you 337 or 338.

Leah Hartman – CRT Capital Group

All right, thank you so much and we look forward to seeing continued great progress.

Luke Beshar

Thanks very much Leah.

Operator

Your final question is a follow up question coming from the line of John Stevenson with Summer Street Research. You may proceed.

John Stevenson – Summer Street Research

Great. Just on NPSP558, could you walk us through how pricing might look and what issues might be gauging factors for the range on that product’s pricing?

Francois Nader

As you can imagine we’re not guiding on pricing strategy here too early. All I can say it’s an often indication that is not a proof treatment, that is a true and mathematical need. Currently the treatment that, actually there is no treatment but the palliative treatment of calcium and vitamin D analogue. The way we’re positioning if you will the health economics analysis for this particular indication when taken to consideration the long term effect of consuming vitamin D, notably the consification and the renal failure.

It will also position it visa a vie the approved PTH that for all practical purposes the it’s fore tale and research that was published on fore tale in this particular indication, showed that for fore tale to be, to work, to be effective would require a BID dosage at either at two or four times the approved dose. So these are if you will parameters that would get into our analysis for the, for the final pricing strategy. In addition we tested a wide range of prices with the payers actually 14 of them if I recall correctly. And the price is very much in elastic for the big part and again it has to do with the unmet medical need with the low number of patients and with, with the fact that there is no approve treatment.

Some other thing to take into consideration is hypoparathyroidism a patient as we mentioned on the call and earlier the range from mile to severe and we believe that PTH would be, I mean all patients would be eligible for PTH but we also believe that patient who are severe and have to go to the emergency room for an IV (inaudible) from time to time would be first in line to get PTH and the rest would follow.

John Stevenson – Summer Street Research

Okay and then follow up on the financial side, I was wondering if you might be able to kind of give us any idea in terms of what end do that range which is fairly wide you might be leaning towards because it, it’s, it is a pretty big range for the past half of the year.

Luke Beshar

Yeah I know, certainly I understand it’s a big range and the answer is it’s, its, there are so many moving parts Jonathan that it would be I would be doing service if I, I kind of gave you a nag one way would reach the other and, and really the moving parts are milestone based contracts with Aseros and because of the timing specifically if you think about, if you think about gas tax and either back to where you finished your enrollment that last patient will have his or her last visit just around the end of the year and when, when that falls and when the timing of (inaudible) payments kind of fall in what could flip it between December and January. So as much as we hated to put and I really did put that big of a ban in here with only six months left to do anything less than that is just too many moving parts so we have to just to stick with the $15 million range. So unfortunately I can’t give you (inaudible) more color.

John Stevenson – Summer Street Research

Okay, so, so is that the biggest driver of the wide range, is the timing of that payment?

Luke Beshar

Well if there’s a bunch of other things, that’s one example in terms of the, the timing of, of the payments related to milestone based contracts.

John Stevenson – Summer Street Research

Okay, okay. Great, let me see if I have any other questions really quickly. With Preotact, I know that Nycomed hasn’t really reported their numbers that was there, I mean it’s been a product that’s been growing historically. Is that just Apex noise you think or is there anything else going on there I mean it looks like it was a little bit lower than expected?

Luke Beshar

Well it was and you’re absolutely right I mean on the Apex was, was just the, the only, the main the reason for why the revenues were down versus prior year it was flat on a local currency basis whether, we don’t get a lot of visibility from Nycomed in terms of supply chain but as you know in this business you can have ebb and flows and quarterly variances because of either tightening or loosening of supply chain. So we haven’t had a lot of color commentary from Nycomed yet but clearly the – we know the aspects component of a loan is, is the reason with is under water versus prior year it would have been flat on the local currency basis.

John Stevenson – Summer Street Research

Okay so the way to think about this is ApEx caused to be down but then there’s the other variable of stock and de-stocking which you just don’t have insight into at this point?

Luke Beshar

That is absolutely correct.

John Stevenson – Summer Street Research

Okay great. Thanks

Luke Beshar

Thank you John.

Operator

Your next question is coming from the line of Lucy Lou with City. You may proceed

Ann Paul – Citigroup

Hi, this is actually Ann Paul in for Lucy Lou. Thanks for letting me sneak in here. Regarding your replaced trail, I’m wondering what gives you confidence that this trial will be fully involved this year. Maybe you could talk about how many sites you previously had and how many additional sites you’ve added and perhaps how these sites are actually different from the sites you started with? Thank you.

Francois Nader

Yeah the confidence is, is really based on the track record and that we, that we have experienced if you will since the late last year, early next, early this year. We are literally in daily contacts with the sites and every other week or so we, we ask sites about how many patients they think they can enroll and so we are, we have this ongoing conversation with the site which gives us a very I would say is not daily at least weekly or by weekly a chance for the enrolment patterns and the enrolment trend. With that we coupled this with the, with the drop out rate, again it’s the re-randomizations drop out rates because this is the other factor if you will.

It’s the qualitative factor because this particular number changes from months to months. So based on this two variables we have projected in number of patients that we needed to be enrolled to reach our for 110 patients randomized. And we have also planned for adding three countries with a number of stripes in each country just to make sure that we don’t run out of patient that’s very important. Just as a reminder one of the challenges of the study it is a dose ranging study, it’s a complicated algorithm but we also visit on purpose and the objective is not only to ensure that we have a solid end point but also subsequently we hope to translate if you will the protocol into a clinical care guide line. So this was the end of line cause or causes for, for having a relatively complex protocol. In addition we hope that if we have an ambiguous [inaudible] result, this one study will be sufficient for registration. So all this to say that it’s not effectorial and based on the current trend we are pretty comfortable that we’ll complete enrollment by end of year.

Ann Paul – Citigroup

Okay so what kind of discontinue pre randomization discontinuation, discontinuation rates are you seeing in this trial?

Francois Nader

Well, this is something that we did not report as of yet and I think it will be premature for us to report this number because this number frankly changes so we can’t give you a snap shot as it is today but this number will not be valid tomorrow if three patients discontinue or if three patients do not discontinue. So our report on this ones we complete randomization the same, the same way did it for the for step study.

Ann Paul – Citigroup

Okay and just last question with the steps study what do you attribute the, you, you said that the pre randomization drop out rate was 27% in this trial versus 40% in the previous based pre trial. What do you attribute to this?

As I mentioned, as I mentioned earlier there is no medical formula there or magic formula that we use I think what we did differently this, this time versus that is being very, very close to the site very close to the investigators and in a way holding their hand if you will through this optimization civilization phase. It is we have an algorithm so there is a process but some of this investigators are new to the study new to the product and we had to educate the investigators educate the 5 coordinators, educate our CRA. And for those sites who were with us the first time around. Again there was a turn over in terms of the coordinators. So all this was done to really very effective clinical operations. It has nothing to do really do with anything about that.

Okay great that’s helpful. Thank you.

Francois Nader

You are welcome.

Operator

Your next question is coming from the line of Ryan Martin with Barclays Capital. You may proceed.

Ryan Martins - Barclays Capital

Alright, thanks for squeezing me in at the end to jump in the last few minutes. I know Francois you’ve been talking about that you all have been doing some market research. I was wondering if you could give us any updates on the marker sizing for 558 and GATTEX you may have done.

Francois Nader

I think I can safely say that the market size for GATTEX in short valve syndrome is about 12 to 15,000 patients. These patients, this number was confirmed now in at least three different ways. So these are patients who are chronically dependent on parent and nutrition which in other words this are patients who have been on parental nutrition for at least a year. For 558 is still working progress we are in the process of conducting a number of market research to better size the market. But also they eluded earlier Ryan it’s to segment the market in terms of who are the patients who would need PTH first if others who might need PTH as a nice to have and we have a wide range there.

This data is does not exist actually the segmentation of patients of hypoparathyroidism patients between mild mothers and severe cannot be found anywhere. So this is the work that we are doing and we report, we report the results as soon as we have the, we have them. So for 558 all I can say is we are still sticking with the original number of 65,000 patients but we are working very diligently on fine tuning this number. Into market potential for GATTEX it will be in the $300 Million range peak sale and for 558 we’re targeting about $200 Million peak sale.

Ryan Martins - Barclays Capital

Thanks for providing that color. I had another question for Luke. Luke, are the auction rate securities still a part of your portfolio?

Luke Beshar

No we’re, we’re completely out of auction rate securities.

Ryan Martins - Barclays Capital

Okay just wanted to clarify that. Thanks.

Luke Beshar

Thanks much Ryan

Operator

So if there are no further questions at this time I would now like to turn the conference over to Doctor Nader for closing remarks. You may proceed.

Francois Nader

Thank you much and basically just to close this call today I really appreciate your questions, very passionate as usual. We’re also pleased that the NTS team is really continuing to deliver on our state of milestone and well 2010 is an important execution year for the company I’m really confident that we’re fully equipped to continue aggressively advancing our tour registration programs forward. I’ll share with you additional progresses in the future and certainly appreciate your continued support. Have a great evening.

Operator

Ladies and Gentlemen that conclude today’s conference. Thank you for your participation, you may now disconnect.

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Source: NPS Pharmaceuticals, Inc. Q2 2010 Earnings Conference Call Transcript
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