Shares of NPS Pharmaceuticals (Nasdaq:NPSP) have traded as high as $7.11 on Wednesday and it continues to attract attention from institutional investors such as hedge fund managers and mutual fund managers (a.k.a. the “smart money”) ahead of key Phase III trial data.
On Monday, when the stock was down to $6.34, we told our premium subscribers that Cannacord analyst George Farmer, Ph.D. had just reiterated his BUY rating on the downward trending NPSP which develops specialty therapeutics for gastrointestinal and endocrine disorders with high unmet medical needs. He believes that new data bodes well for success in the Phase III REPLACE trial of NPSP558 for hypoparathyroidism (HPT).
In a March press release, the company announced that the company looked forward to reporting top line results sometime this quarter. The PHASE III REPLACE trial is a double-blind, placebo-controlled study evaluating the use of NPSP558 as hormone replacement therapy in adult patients with hypoparathyroidism. A total of 135 patients were randomized in Phase III study.
In his brand new report dated Sept 19th, Farmer stated:
- We see further signals of NPSP558 promise as investigator sponsored trial data reported at ASBMR showed four-year longterm safety and efficacy for PTH(1-84), a drug identical to NPSP558. This supports positive results recently seen from a randomized study of PTH(1-84) that showed significant reductions in calcium and vitamin D supplementation, in line with goals of the Phase III REPLACE trial of NPSP558. Allowance for dose titration in REPLACE supports chances for even more compelling efficacy and tolerability outcomes, in our view. Top-line REPLACE data is expected by year-end and a potential NPSP558 filing in mid-2012.
- Relatively low HPT prevalence clouds estimates of ultimate NPSP558 market potential, but we believe clinical data to date is underappreciated by the Street at current valuation. On modest penetration assumptions, we estimate ~$140M in sales by 2016.
- NDA filing for lead candidate GATTEX for treatment of short bowel syndrome is expected by year-end. On compelling data to be reviewed and possibly expanded upon at Oct. 28-Nov. 2 ACG meeting, we see a strong likelihood of FDA approval in H2/12.
- Valuation and risks. Our $14 price target is based on a DCF assuming $65k GATTEX pricing, estimated NPV for unencumbered Sensipar royalties, and risk-adjusted NPSP558 success. Risks include regulatory setbacks and clinical trial failures. Model changes correct for previous misinterpretation of debt restructuring impact.
A look at the BioMedReports FDA calendar shows three upcoming milestone entries for NPSP, whose shares have been trading sideways at discounted levels (currently 40% off their 52-week high) since August:
|| Medical Indication
||Parenteral Nutrition Dependent Short Bowel Syndrome
||Phase III trial result
There are currently 4.5 million shares short in the stock with approximately 4.7 days left to cover (Short Interest Ratio). Our recommendation would be to watch shares for a bounce from today's levels. If the price breaks the current down-trend, it may be worth taking closer look at the shares. Until then, we recommend patience and a watchful eye as speculators may begin to take positions. Remember that there are currently no approved treatments for hypoparathyroidism, a disease that can cause serious bone, muscular and neurological symptoms. Current treatment approaches are palliative and can lead to long-term health risks. As a replica of natural parathyroid hormone 1-84, NPSP558 has the potential to address the unmet need by treating the underlying cause of the disorder rather than just managing the symptoms.
The Company's research and development pipeline includes: GATTEX (teduglutide) indicated for Short Bowel Syndrome; the previously mentioned NPSP558 (parathyroid hormone 1-84 [rDNA origin] injection) indicated for Hypoparathyroidism; PREOS (parathyroid hormone 1-84 [rDNA origin] injection) indicated for Osteoporosis; Teduglutide indicated for Crohn's Disease, Pediatric Indications and GI Mucositis; Glycine reuptake inhibitors indicated for CNS; etc.
NPSP's partnered product folio includes: 1) Sensipar® (cinacalcet HCI), indicated for the treatment of secondary hyperparathyroidism in patients with Chronic Kidney Disease on dialysis; 2) REGPARA® (cinacaclet HCl) used for the treatment of hyperparathyroidism; and 3) Preotact® used for the treatment of osteoporosis in post-menopausal women.
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