NPS Pharmaceuticals: Buy If There Is A Dip

| About: NPS Pharmaceuticals, (NPSP)

NPS Pharmaceuticals, Inc. (NASDAQ:NPSP) shares were up nearly 20% on news that the FDA briefing document may favor approval of Gattex.

On Mad Money Friday (October 12, 2012), Cramer said investors should not be greedy and should ring the register on NPS. He also added his classic lines referring to what happens to livestock that don't sell. Cramer listed NPS as a buy on September 18, 2012 and it has appreciated about 30%, but is he right on selling this time?

From Yahoo Finance:

Chart forNPS Pharmaceuticals, Inc.

Gattex (teduglutide), which is a potential treatment for Short Bowel Syndrome (SBS), usually stems from resection of some or all of the small or large intestine teduglutide. Gattex is an analog human glucagon-like peptide-2 (GLP-2) that has an amino acid change that makes it resistant to proteolysis (breakdown). The mechanism, according to the FDA briefing document, is

Teduglutide increases villus height and crypt depth of the intestinal epithelium. The applicant proposes that teduglutide accelerates intestinal adaption and enhances barrier function in the small intestine, thus enhancing absorption of fluids, electrolytes and nutrients, and reducing fecal fluid loss. Based on this mechanism of action, the applicant proposes that teduglutide would be supportive treatment for patients with SBS who are dependent on parenteral nutrition (PN).

The briefing document noted that Gattex did significantly reduce parenteral nutrition requirements in patients with Short Bowel Syndrome. The FDA briefing document also note that the upcoming advisory panel (October 2012) will address whether it is clinically significant, while noting that the

European Medicines Agency expert group meeting of the CHMP (May 8, 2012) experts concluded that reduction in parenteral fluid requirements was clinically meaningful in this population. The CHMP issued a positive opinion for granting Marketing Authorization on June 21, 2012 and the Commission adopted this decision on August 30, 2012 granting marketing authorization for "Revestive-teduglutide", and an orphan medicinal product for human use.

So Gattex may warrant approval based on efficacy. What about safety? From the report, the three risks with teduglutide 1) acceleration of neoplastic growth and enhancement of colon polyp growth, 2) gastrointestinal obstruction, and 3) biliary and pancreatic disorders did not seem like they would lead to disapproval and indeed, could be dealt with the NPS' proposed Risk Evaluation and Mitigation Strategy (REMS).

But the issues that the FDA has asked the advisory panel to address in the upcoming meeting, from the FDA briefing document, are

lssues for Committee
The following are preliminary questions for your consideration as you review the AC materials.
1. Are the efficacy results (>20% reduction in PN/I.V.) clinically meaningful in patients with short-bowel syndrome?
2. Is there a group of patients who might benefit from treatment for longer than 24 weeks, since some patients were weaned off PN/I.V. during the extension study after more than 24 weeks of therapy? How long should teduglutide be administered?
3. What considerations should be given to the potential tumor promoting effects of teduglutide?
a. colon/GI track,
b. other sites
4. How do you view the hepatobiliary and pancreatic safety of this drug? Non-clinical studies revealed hyperplastic and/or hypertrophic effects of teduglutide on intrahepatic and extrahepatic bile ducts, gall bladder, and pancreatic ducts.
5. Please comment on the relevance of the presence of ADA and cross-reactivity with endogenous GLP-2.
6. Considering the benefits and risks for Gattex described above would you recommend approval?
7. Regarding the safety profile of Gattex: if Gattex is approved, please comment whether additional measures beyond professional labeling, including a Medication Guide, will be necessary to ensure the benefits outweigh the risks.
8. Please comment on the applicant's Communication Plan.
9. Would you recommend additional studies for safety or efficacy be conducted?

Approval does seem likely, perhaps with a REMS and even post marketing trials. If approved, what is the potential revenue and predicted impact on NPS share price? If Gattex is approved, NPS' president expects revenue of $350 million, according to Bloomberg. The market size is about 10,000 patients. Keep in mind, with a small patient population and only 2 years of treatment, US sales will grow rapidly and peak. News is favorable indicating possible approval of NPS' other late stage product, Naptara, which could add revenues of $250 million along with around the current $100 million. Current annual losses are about 37 million. So if Gattex is approved, NPS should soon be in the black, perhaps with revenue as high as 500 million and with only 86 million shares outstanding, that could lead to earnings of $1 to $2 per share and the current PE of less than 10. If both are approved, in retrospect, NPS shares will have seemed very attractive at only $11 per share.

So is Cramer right? Probably not with respect to the odds, which are NPS goes higher in the coming months (maybe a brief correction at some point). But this is a speculative stock and Cramer is absolutely correct that most recent investors (last 5 years) that sell now will lock in a reasonable return given the historic price of NPS.

From Yahoo Finance:

Chart forNPS Pharmaceuticals, Inc. (<a href=

Companies with recent drug approvals, Arena (NASDAQ:ARNA) and Vivus (NASDAQ:VVUS), did have share appreciation all the way through approval. But the risk of Gattex not being approved may be less in comparison from the available information. It may be advantageous that Cramer has a large audience, in that there may be a dip in share price Monday or even Tuesday during the meeting. A dip could also be the result of the near 20% gain on Friday. Then it is quite reasonable to buy NPS shares. But it also would not be very surprising if NPS share price just continues to climb. The meeting is scheduled for 8:00 a.m. ET on Tuesday, October 16, 2012. Odds are this speculative stock goes higher.

Disclosure: I am long ARNA, VVUS and I may initiate a long position in the next 72 hours in NPSP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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