NPS Pharmaceuticals: The Next Orphan-Drug Powerhouse?

| About: NPS Pharmaceuticals, (NPSP)

NPS Pharmaceuticals (NASDAQ:NPSP) is an FDA run-up candidate and possibly one to tuck away for a long-term hold.

Quick facts

  • Two products gearing up for approval to help diversify risk (two catalysts as opposed to one).
  • Gattex - NDA already submitted with a PDUFA date of September 30th 2012.
  • Natpara - Expecting to file NDA this year.
  • Actively recruiting an MSL team, expanding medical affairs team and growing their marketing teams. A positive sign of the company's confidence in their FDA discussions.
  • Have already brought 5 products to the market so have a track record of approvals and have consistently attracted good partners including Amgen (NASDAQ:AMGN), Nycomed, Ortho (J&J) (NYSE:JNJ) and GSK (GSK).
  • Possible take over target.

Gattex is their first drug up for FDA approval and is for devastating orphan diseases. Generally rare orphan disease drugs provide for a lower regulatory hurdle (although it is important to note that FDA did not give an accelerated review). Rare orphan disease drugs also have the ability to command premium prices, higher likelihood of reimbursement given the defined small patient population and possibly significantly lower than average operating costs. Depending on pricing (rare diseases generally command very high prices - e.g. liposomal storage disorders, Genzyme (GENZ)) along with the potential to be effective in treating other GI disorders, Gattex could potentially sell much more than the $350M NPS have predicted.

When assessing a long-term hold it is important to look at the management team as any company needs both great products and great people. The team assembled is impressive and the CEO has a blend of both capital and pharma experience.

In their recent conference call following their 10k the CEO, Francois Nader, stated,

In 2011 we met all of our stated objectives. We completed two positive Phase 3 registration studies, filed a New Drug Application for Gattex in adult short bowel syndrome and added two clinical-stage calcilytic compounds to our product pipeline. In 2012, as we continue our transformation into a premier orphan drug business, we expect to deliver several significant value-drivers including securing approval of Gattex in the U.S. and Europe and submitting a U.S. Biologics License Application for Natpara in hypoparathyroidism. Our royalty-based pipeline continues to deliver significant value. We are encouraged by the recent performance of Sensipar, which has been and continues to be a key asset that we expect to greatly enhance our cash flows beginning in 2013.

Mean analyst price target is $12.75 and median $14.00 suggesting considerable room for upward movement from the deeply undervalued current price of $6.60. Reviewing their chart there is support at $6.40 and stock has reached as high as $10.75 in the last 12 months. NPS Pharma is rated as a buy by leading analysts.

Gattex's primary indication is for short bowel syndrome (SBS), a life crippling disorder which compromises the body's ability to absorb food and thus vital nutrients. Patients with SBS need to have parental nutrition (PN) along with IV fluids to survive. Gattex is a recombinant analogue of glucagen 2, a naturally occurring peptide that repairs the GI tract and thus reduces the need for parental nutrition. Gattex patients achieved significantly greater reduction in PN/IV volume and infusion days per week than placebo. NPS stock was hit by a scare as 3 patients developed cancer, however looking at this in more detail it was apparent that all 3 cases were very early in the study and attributed to events prior to enrollment. Let's also remember this is not an obesity drug like Vivus (NASDAQ:VVUS) or Arena (NASDAQ:ARNA) where the safety hurdle is significantly higher. Strikingly 97% of patients enrolled in the phase III study elected to continue treatment and enroll into an extension study.

Two things important to note in relation to the extension study:

1. Gattex demonstrated strong efficacy and a significant improvement in quality of life. If NPS seek a premium price, then improvement in quality of life is very important for reimbursement ex-US.

2. The study showed a high compliance rate (97% continuation is a very positive indicator). In order to build a $350 - $500 million-dollar drug patients have to be on therapy year on year (like Novartis's (NYSE:NVS) Glivec, a $4bn drug).

Given the mechanism of action, Gattex has applicability to other GI diseases where the GI tract has been damaged, e.g. Crohn's disease. This is important as future multiple indications can ensure future growth that can propel a stock to new highs year on year.

The second 2012 major catalyst for NPSP is Natpara, an incredibly clever bio-engineered replica of human parathyroid hormone. Hyoparathyroidism is an orphan disease where the body does not produce enough parathyroid hormone. This hormone is responsible for regulating calcium and phosphorus, both of which can lead to a devastating sequel of end organ damage.

2012 catalyst summary is impressive with many events to boost the stock:

  1. CHMP (European version of the FDA) opinion on Gattex (Revestive ex-US) - May 2012.
  2. CHMP Gattex Revestive decision - June or July 2012.
  3. FDA decision on Gattex - September 29th 2012.
  4. Completion of Sensipar E.V.O.L.V.E. phase 3 trial - September 2012.
  5. Submission of BLA for Natpara - 4th Quarter.

In summary, NPSP has a very high chance of having 2 life changing orphan drugs approved within the next 12-18 months. I expect a strong rally heading into these events.

Disclosure: I am long NPSP.