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Executives

Francois Nader - President & CEO

Analysts

David Friedman - Morgan Stanley

NPS Pharmaceuticals, Inc. (NPSP) Morgan Stanley Global Healthcare Conference September 12, 2012 1:00 PM ET

David Friedman

All right. Great. Thanks everyone for joining us. Dave Friedman, one of the biotech analysts here. And in terms of disclosures you can look up morganstanley.com/researchdisclosures for any personal or more of Morgan Stanley disclosures. And again thanks everyone for joining us. I am joined by Francois Nader from NPS president and chief executive officer. And we’re very happy to have you here and we love for this to be an interactive session. So if anyone has any question at any point, please feel free to raise your hand and let us know. And we’ll make sure we get your question asked.

So maybe if we can start with a couple minute overview of the company and then we’ll dive right into the Q&A.

Francois Nader

Okay. Thank you, David and good afternoon. It’s pleasure to be here. And these are indeed very exciting times for NPS. As you might know we are in the process of active review of our lead product GATTEX that we’re developing for short bowel syndrome. We have a panel that is scheduled for October 16, so coming up very shortly with a target PDUFA date of December 30. So we’re very very busy preparing for the panel.

In parallel though we have our second product, which is advancing also in a very diligent way, and our second product is NATPARA which is a product that we are developing for hypoparathyroidism. And we are planning to file NATPARA as a BLA mid next year 2013. And behind those two products, we have Calcilytics. These are products that we are developing for a very rare, actually ultra-ultra rare condition ADHH - autosomal dominant hypocalcemia with hypercalciuria. This is why we call them only ADHH, so much easier. This product should be in active development next year once we go over the hump of the GATTEX approval and the NATPARA filing. And all this is surrounded by very, very active efforts around preparing to market GATTEX and preparing to market NATPARA.

So all this is to say that we are very busy at NPS but good busy. We’re definitely looking forward to the next few months here.

Question-and-Answer Session

David Friedman

And anyone have any questions before we get started? Okay. So if we can start with GATTEX since that's the most proximal for you guys. So it’s an innovative drug targeting disease where there are no other therapies. So maybe if you can just talk about the mechanism, why it works in the disease you’re testing it in, and what the opportunity is for these patients?

Francois Nader

Sure. So GATTEX or teduglutide is a GLP-2 analog, and GLP-2s actually native hormones, 33-amino acid that comes into two verse, one when we eat and again after we eat. And the main role of the GLP-2 is to enhance absorption of nutrients and fluid. Problem with the GLP-2 is they have a very short half-life about seven minutes or so. So it was very important for us once we found those GLP-2 is to extend if you will the half-life. And we did it by simply switching one amino acid and we took the half-life to 2 hours. And we call it teduglutide.

So teduglutide is an interesting compound because its pharmacological properties first of all mimic the properties of GLP-2s and it could be summarized as enhancing the absorption of nutrients and fluids. It’s intestinotrophic, so it expands the mucus. It increased the portal blood flow and enhances the intestinal barrier. So if you took all these characteristics and think of all the different applications, short bowel syndrome is an ideal candidate as an indication - reason being that the short bowel syndrome patients have because of significant rejection of their small bowel, they lost the ability to absorb their nutrients and fluids. And therefore many of these patients have to rely on artificial nutrition that is given IV. And these patients are chronically dependent on parental nutrition.

Problem with parental nutrition is the fact that it’s given IV very slowly. So these patients are on – they are hooked to their line about 10 to 12 hours a day and on average 6 to 7 days a week. Not only that but parental nutrition is associated with a number of complication. So when we studied GATTEX, actually our objective – key objective was that to reduce the dependence on parental nutrition, and we achieved this objective. Actually in two ways: one, patients who are on GATTEX reduced their dependence by 50% when they are on GATTEX for about a year. But more importantly we have over 7% of our patients who are completely wind off from parental nutrition knowing that patients have been on parental nutrition for at least 2 years up to 25 years. So for these patients this is certainly a life sentence (indiscernible).

David Friedman

And you mentioned the intestinotrophic portion of this and one of the questions was this probe always been – has a growth vector, is it – does it have rest from cancer or in the colon, a sort of just plastic follow up perspective. So maybe if you can just address what you’ve seen in your clinical studies and why you guys are comfortable that this drug does not have that as a overriding risk?

Francois Nader

I mean when we look at GATTEX as with any other biological, we always look at the clinical benefit filtration. I summarized in a couple of words the benefit. Now when we look at the risk, GATTEX is intestinotrophic, so one of the first thing – first thing we thought about in the drug development process is to ensure that this benefit risk ratio is very much present and is positive. And therefore we’ve conducted the pre-clinical work that is need to ensure that we fully understand the drug, but also we’re very mindful in terms of patients who are enrolled in the study to make sure that these patients, for example, were cancer free for at least five years. And we made sure that these patients underwent a colonoscopy. So if there were polyps, these polyps would be removed.

And we have followed these patients for many, many years. Interestingly enough, now when we look at this body of evidence that we have it’s probably one of the largest clinical development for an orphan indication. I mean we have 600 patients or so who has been treated with GATTEX. We have about 200 patients here on GATTEX, patients have been on GATTEX now for up to actually 33-34 months. And we filed originally and then added about 90 patients – 90 plus patients, 97 patients who have been on GATTEX for at least one year. Okay.

So when you take all this body of evidence we have a very, very large, very comprehensive program. Now this being said we are very mindful of the rest, and one of the things that we filed with as well is the ramps (ph). I am not at liberty to talk about the specific because this is frankly a negotiation – ongoing negotiation with the FDA but it’s very important for us to make sure that the product is used when it should be used in the appropriate patients. And that’s extremely important.

David Friedman

So maybe if we can talk a little bit about the phase 3 data. First question is in terms of the benefit that that you’ve tended to see in STEPS and STEPS 2 and whatever you are seeing from STEPS 3. Does the benefit tend to on average continue or is verified so at some point and then on the more patient specific level, obviously is there anything that helps to predict whether a patient will have continued benefits or are there certain patient characteristics that would say this is the best they’re going to get?

Francois Nader

So that’s a very good question because it ties very nicely with the benefit risk profile of the product but also with the safe use of the product. So when we looked at the patients we were very mindful in our clinical development program to make sure that we addressed two very important hurdles that any sponsor actually faces when developing orphan drugs. Usually you go to the FDA with one study. The study has to have at least two characteristics – one, the notion of generalized ability and the notion of replicability.

The notion of generalized ability is important because we need to make sure that the patient population within the clinical study we happened to have two. But we need to make sure that these patients represent the short-bowel syndrome population and they do. So we can check this box because we have a wider presentation of short bowel syndrome patients in terms of agiology and demographics. So we can check this box. The second box is a notion of replicability and frankly, we were able to replicate the 0.05 mg per kilo per day in the first study and the second study. And the expansions to both and the results are very, very similar. So we can check these boxes.

The third element that we are mindful of is when does the drug start working, and in our studies, we demonstrated that GATTEX starts working in a significant way compared to placebo as early as four weeks. The other question is we know at its start, when should we determine that the drug does not work in this one patient for example? And this is something that is left to the discretion of the prescribing physician and it might into the label but we know, for example, that if a patient is on GATTEX for a number of months without tangible results, then probably this patient should not continue to be on GATTEX. This being said, we have about 90% of our patients in the study who responded, and the threshold was at least 20%. Then when you take the responsive general it’s 90%. So most of the patients responded.

Now over the long run, can you predict which patient will respond more? I don’t know. And the reason we don’t know is because our samples by the large, if you will, development program by orphan drug standard is not huge. And therefore we’ll need to wait for post marketing registry and surveying to give us some indication. But if I take two references, and this has to do with patients who are completely wind off. Okay. Well 8 of the 10 patients had the colon and continued it – which makes sense because once the colon is there, there is a higher degree of absorption. 8 of the 10 patients also had parental nutrition less than 7 liters per week. But these are wind off. Whether these would be indications of or indicators rather of success, we don’t know. But only time will say when we will accumulate more data.

David Friedman

And then obviously there is only so much you can say about the upcoming panel. Are there any topics that you would imagine are more likely to be addressed? Is it a lot of the same issues that we’ve discussed or are there other things that you think people need to be aware of in terms of understanding what’s to come?

Francois Nader

Well, difficult to predict because you never know, a) we don’t yet who are dependant members and what’s their specific areas of interest. That’s very important. But second, probably the way we are thinking about the panel is we will compress in one day the work that we have done is 10 years. So all the question that you have been asking us over the last 10 years will be compressed in questions that the panel will ask us in one day. Remember that the panel will its focus attention on benefit risk, on the safety and efficacy. So it’s mainly driven by clinical but we also know that the panel could take any different directions that they ought – that they think is appropriate.

So we don't think based on where we are here now that there'll be surprises. But we also know and having the experience of panel at the time we had this panel member who decides to go down deep in one area. All I can tell you is we are prepared. We are very, very well prepared. We started the preparation for the panel about 10 months ago now. We are working with the consulting group and this is their line of business, that’s all they do. And they have about 60 panels under their belt. And we had internally mock panels and we rehearse with this mock panel. And the mock panel has the same setup as the original one but also the panel members that we invited to join us for many of them were actually GDAC panel members and former chairs. So we did our part and I know that we will be very ready on October 16 to defend GATTEX.

David Friedman

And then maybe if we can just move to the commercial opportunity here. How do you think you will be able to address this market in terms of how expensive will it be to address it, is this a large sales force, large marketing effort type of drug? And what is your estimate of the size of the addressable market?

Francois Nader

So we spent quite a bit of time learning about others experience. Obviously each orphan drug is unique but there are some common denominators when it comes to thinking about the commercialization and – more at least successful commercialization. And frankly, you can boil it down to few very important strategic if you will priorities. The first one is find acute patients. So you think of a population of 320 million, you have to find those few thousand patients that would be eligible for GATTEX. Yes, truly it’s an unmet medical need, no question about it. But you have to physically reach these patients one at a time. And this takes time and effort and it is a multi-pronged approach. So you have the traditional route using the sales organization. But also we are leveraging the advocacy group, we are leveraging the social media. We are leveraging every touch point that these patients would. We are leveraging our network with what we call the centers of excellence. So finding the patient is our number one priority by far.

Second priority is market access, we don’t take this for granted because we know that it’s a tough market out there and reimbursement is a challenge specifically when you are at the ultra-orphan space of expensive drugs. So we have taken this very, very seriously and have engaged the payers now for some time and develop our economic model and we are in the process of finalizing our AMCP dossier. We don’t need one but we have one just in case. And it’s very important to characterize the value proposition of the payers.

The third aspect frankly is handholding the patients. So these patients are sick patients. They have their original agiology, whether it’s Crohn’s or cancer or vascular disease and then (indiscernible) on top of the short-bowel syndrome, because of the rejection and then the uilayer (ph) on top of the parental nutrition. These are sick patients and therefore we need to offer these patients all the support we can to navigate the reimbursement process but also to know to learn how to use GATTEX, to learn how to reduce the parental nutrition, to know and understand the expected outcome, to learn and understand the expected side effects. So we are establishing an internal help and we are or we'll be offering these patients a very personalized service one on one where each patient will have a clinical care coordinator who will be an NPS employee helping them with their GATTEX, helping them with their parental nutrition.

The other aspect of this is distribution, this is a very targeted distribution, and just because of what I just said the post marketing experience which is critically important, it will be a very, very narrow, very specialized distribution network. Last but not certainly the least is the networking with the patient advocacy groups and you know the traditional market preparation. So it’s a very, very integrated approach and in the case of short bowel syndrome, there are multiple players. It’s a teamwork because the team is the gastroenterologists, it’s the nutrition, it’s the home healthcare person, it is the pharmacy, many of those bags are actually compounded locally. So it’s a teamwork. And we need to engage if you will all the team players so that we have a successful experience with GATTEX. But more importantly the patient has a very successful experience with our drug.

David Friedman

And in terms of sales force size, what would you estimate is the right size to start out at least –

Francois Nader

It will be a very small sales organization. Sales is one of the components and certainly not the most important. It is critical but it’s not the most important. So we are thinking – we are using the field organization because we will have the tradition sales organization which will be very, very small. We’ll have the account managers to deal with the payers. We will have the medical science liaison who are already deployed since last August actually and in house we will have the care coordinators. So this is the team that will, if you will, completely support the patients and the prescribers.

David Friedman

And the drug recently was approved in Europe for your partner. So can you just quickly review for people what -- anything you can comment on from Europe but also just what your state is in European market?

Francois Nader

We’re very, very pleased, actually delighted that GATTEX, actually it’s called Revestive, teduglutide is called Revestive in Europe was approved. It was the same file that was submitted in the US and in Europe and we are really very pleased with the approval in the Europe. Ex-North America, Takeda is our partner, and we are also very pleased with having Takeda because it’s a global company with reach far beyond Europe. Originally we were with Nycomed, as you know Takeda acquired Nycomed, also now we have a much larger geographic footprint.

The label is not yet public, it’s going through the translation. But we are pleased with the way the European label would read. It is a very fair, I would say and it’s striking the right balance related to the benefit risk. Now the biggest challenge obviously in Europe as you know is reimbursement, and given the situation of the individual countries in Europe, tough times to have an ultra-orphan product reimbursed at the appropriate level. So this is what Takeda will be engaged into doing starting as soon as now that they have the approval. When it comes to NPS, we will get a milestone once Revestive will be launched in the first major European country and then we will get net to NPS a low double digit royalty on sales.

David Friedman

Any questions on GATTEX? So maybe if we can move to NATPARA, you guys have relatively recently said your phase 3 data for that drug. So maybe if you can just discuss what you saw as the one or two key points that people should understand from the data as they are trying to understand the value of that drug?

Francois Nader

Right, so NATPARA is indicated in hypoparathyroidism and this is the condition where patients lack the parathyroid hormone. What we are offering them is the replica of the native parathyroid hormone, it’s 84-amino acid. And these patients suffer from hypocalcemia and all the consequences of hypocalcemia on their neurological system, psychiatric disorders, bone and muscular. So it is a complicated condition. Unfortunately the physicians do not have much to offer these patients currently. All they can offer is an artificial boost of hypocalcemia with calcium and vitamin D, that’s all they can do.

Problem with that is the fact that the patients require very significant quantities of calcium and vitamin D just to be above water if you will. This is a condition that is highly symptomatic, so you will see patients walking around with pills of calcium and vitamin D in their pocket that they have to take all day long, then sometime all night long because calcemia fluctuates every hour, every two hours day and night. And these patients need to maintain this level of calcemia and as a consequence, not only it’s unconstable for the patient but also they have to endure, if you will, the consequences of high quantities of calcium and vitamin D over their lifespan. So many of the patients end up with perianal disease because the calcium deposits in the kidney or heart problems or epilepsy or other conditions.

What we are offering these patients is a replacement and our development program had to focus on very simple primary end point – tough but simple at the same time. We had to meet a triple primary end point: one, maintain normal calcemia while reducing calcium intake by 50% and reducing vitamin D intake by 50%. So it was a triple end point and we were very pleased to see that in our study 53% of patients met this primary end point while being on NATPARA versus only 2% who were on placebo. I cannot tell you how many zeros that are after the point 0. It’s highly, highly significant finding. What was also very interesting is 43% of the patients on NATPARA were wind off from calcium and vitamin D versus only 5% on placebo.

The drug is very safe, it has been used for many years in Europe in osteoporosis but it’s a hormone replacement. And it’s self injected with a pen once a day. So the patients really love the drug and the compliance is outstanding. I think the compliances are 98% which is unheard of when you have an injectable. So there is also a really phenomenal and we are quite pleased and now we are in the process, as I said, of finalizing our submission which will be a BLA (indiscernible) and file it by mid next year.

David Friedman

And just recently you guys had an announcement about some additional work you need to do around the pen. So maybe if you can just touch on what you can talk about that you may need to do in the timeframe to get done?

Francois Nader

Right, so the delay was very unfortunate because the FDA came back to us, wanted us to redo a user study which means just to teach the patient how to use the pen. So we are redoing our instruction for use and rerunning a user study. Again there is nothing wrong with the product, there is nothing wrong with the pen. It’s simply how patients are using the pen, which is little bit frustrating frankly because we have to delay now the filing by until mid-next year and this is something that I hope we could have avoided. But it is what it is and it doesn’t detract anything from the value of the product, obviously it’s just a delay and we are really working on meeting this deadline.

David Friedman

And is there any concern in your mind that you’d need to create a new device for this or is this purely about instructions –

Francois Nader

No, no, fortunately no because creating a new device could take a long time. No, the device we are using, actually the pen has been used for many years with other products. So it’s not a new pen, it’s a new application with NATPARA. No, it’s simply redoing a user study and that’s what we have to do. So rewriting the instructions for use and making sure that it is all for practical purposes to get free, in other word, anyone can use it which is something that we are actively working on.

David Friedman

Maybe in the last minute, you can just touch on the size of the hypoparathyroidism market and the unmet need given that some people are probably okay with calcium and vitamin D.

Francois Nader

Sure. 80,000 to 100,000 patients that you ask suffer from hypoparathyroidism. Now if you talk to the physicians, they estimate that only 20% of the patients they manage are considered severe hypoparathyroidism patients. Interestingly enough, if you ask these patients the same question, 37% of them consider themselves as severe. So there is a little bit of a dichotomy between the patients suffering from this condition and they feel it and out of their body. And the physician frankly is taking it little bit lightly because they don’t have a treatment for this condition. So we see this as a hormone replacement. It should become the clinical care practice because it not only actually takes care of the symptom, that’s what the calcium and vitamin D does, takes care of the symptom, that actually it treats the underlying condition of the disease and probably the best corollary, remember (indiscernible) when we did not have insulin, you would engage the patient reducing their sugar intake. While that’s fine but it doesn’t treat anything. And it is anyway similar situation where NATPARA is the insulin like or thyroid replacement hormone for these patients, so critically important.

David Friedman

Well, I think we’re out of time. So thank you very much for joining us and thanks everyone for joining the session.

Francois Nader

Thanks.

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