NPS Pharma: Important Catalyst Coming Next Week

Sep. 3.14 | About: NPS Pharmaceuticals, (NPSP)

Summary

NPS Pharmaceuticals has been very volatile this year and the stock is almost flat since the year started.

Gattex sales are ramping up and Q2 revenue was ahead of estimates.

The AdCom meeting is coming up next week and should serve as a big catalyst for the share price.

NPS Pharmaceuticals (NASDAQ:NPSP) has been quite volatile this year. The stock rose to almost $40 at the beginning of the year but the big selloff in the biotech sector has pushed it down to as low as $22 in April. NPS then quickly recovered and spiked higher on acquisition rumors in June and the stock has traded lower since. I wrote about NPS in February and in June, and the situation has not changed much since, although the share price has moved significantly in both directions in the meantime. The Q2 report was better than expected as Gattex sales are ramping up, and the upcoming Advisory Committee meeting on September 12 should serve as a big catalyst for the share price, but the direction will be dependent on the recommendation of the Committee. I am optimistic and expect that Natpara should get a positive recommendation next week, which should lead to a higher share price.

Q2 highlights

NPS reported Q2 earnings and revenue ahead of analyst estimates. The revenue beat was largely due to higher than expected royalty revenues, while Gattex sales were mostly in line with expectations. Gattex revenue in Q2 was $22 million, a 22% sequential increase. The company reaffirmed full-year revenue guidance for Gattex between $100 million and $110 million. I expected more from the guidance side, and the results failed to spark optimism as the share price went down after the report. On the other hand, the increased sales force and a higher price for Gattex should drive top line growth in the second part of the year. The company added 11 people to its sales force by July and increased the price of Gattex by 9.4% (also in July), and we should see higher sequential growth in the second half of the year.

What to expect from the Advisory Committee meeting?

The AdCom meeting is scheduled for September 12 and the release of the briefing documents by the FDA is anticipated on the morning of September 10. This should be a highly volatile event, since there is always uncertainty in these kinds of situations. Some analysts have chimed in with their assessments:

- Cannacord Genuity expects a positive FDA panel for Natpara, but the analyst thinks that suspect quality of life discussions will drive FDA's interpretation of the panel vote. Cannacord has a buy rating on NPS with a $42 price target.

- FBR Capital is cautious about the volatility heading into the panel, and expects the FDA to seek guidance about whether the label should limit duration of usage. FBR's analyst Andrew Berens thinks that this might lead to volatility as investors "have not considered the implications of a restrictive label but have been more concerned about a black box warning highlighting carcinogenic risk." FBR has an outperform rating with a $34 price target.

On the other hand, NPS' CEO Francois Nader said the following on the Q2 conference call: "We are very fortunate because if you look at the safety database, Natpara is a product with a very large safety data for an orphan indication. And we frankly have the benefit of the development program that we had with previous patients and patients with osteoporosis. And we have also the safety database of the Natpara development in hypoparathyroidism." He also stated that the company is "getting into this AdCom and through this review process very confident that Natpara will be approved."

If Natpara is approved on October 24, the company plans to launch within four to six weeks after approval, so we might see some revenue contribution in the fourth quarter.

So, there are risks that the company might face at the AdCom meeting, but I am optimistic about the panel given the comments of the CEO and the potential benefits for patients suffering from hypoparathyroidism. Natpara has the potential to significantly boost revenue growth and bring NPS closer to profitability, since there are 180,000 patients suffering from hypoparathyrodism worldwide, and the previously discussed annual price tag of $50,000 would result in significant revenue growth with just a 10% worldwide penetration rate.

Conclusion

The approval of Natpara will be the most important event for NPS' shareholders in the next couple of months. Gattex sales should ramp up in the second part of the year, but Natpara should be the center of attention. I am optimistic about the AdCom meeting, and the Committee should recommend approval, although there might be some negative surprises, as some analysts expressed concerns about restricted labeling. I am reaffirming my $58 price target, which translates into 90% upside from the current price. However, investors should be aware of the potential volatility that the AdCom meeting might cause next week. The company was also rumored to be an acquisition target, and that story might also not be over, and might serve as a catalyst for a higher share price in the coming months.

Disclosure: The author is long NPSP.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article reflects the author's personal opinion and should not be regarded as a buy or sell recommendation or investment advice in any way.