NPS Re-Jiggers Glaxo Partnership, Finds Value in Ultra-Orphan Diseases

8/9/11Follow @arleneweintraub

On August 2, NPS Pharmaceuticals (NASDAQ: NPSP) announced that it had updated an 18-year-old licensing agreement with GlaxoSmithKline (NYSE: GSK), allowing NPS to regain rights to two experimental treatments. It wasn’t the sort of news likely to induce panting on Wall Street, as Bedminster, NJ-based NPS is developing the compounds to treat orphan diseases—those that affect small populations of patients. But NPS’s CEO Francois Nader says taking back the drugs from GSK complements NPS’s overall strategy. “We are in endocrinology and we are in orphan disease, so these compounds are in our sweet spot,” he says.

The GSK deal instantly doubles the size of NPS’s pipeline—quite an accomplishment considering that the company had to reinvent itself just four years ago in order to survive. NPS initially tried to develop one of its drugs, now called NPSP558, to treat osteoporosis, but the FDA turned it down in 2006. So Nader and his team slashed the company’s workforce from 400 to 19, began outsourcing everything they could, and made a commitment to finding new remedies for rare diseases.

NPS’s focus on orphan diseases turned out to be prescient. Over the past two years, Big Pharma companies ranging from Pfizer (NYSE: PFE) to Sanofi (NYSE: SNY) have made major investments in orphan disease research. But NPS’s pipeline is certainly shaping up to be competitive with those larger rivals. NPS has a Phase 3 compound called teduglutide (Gattex) to treat a digestive condition called short bowel syndrome. It has repurposed the osteoporosis compound NPSP558 and advanced it into Phase 3 trials for hypoparathyroidism. And the two drugs NPS acquired from GSK—NPSP790 and NPSP795—are in the early stages of development for rare, calcium-related disorders.

Over the past 18 months, NPS’s stock has nearly doubled to $7.28 on hopes for its lead compound, teduglutide. Short bowel syndrome only affects about 15,000 patients in the U.S., but because the FDA has granted the drug orphan status, NPS will have market exclusivity. The company estimates the sales opportunity to be $350 million a year.

At a meeting with the FDA in May, FDA regulators and NPS executives agreed that in order to ensure teduglutide is safe for patients to take chronically, NPS’s application should include data on a certain number of patients who had been on the drug for at least a year. During the company’s second-quarter earnings call on August 2, NPS disclosed that it had reached that number. The company expects to file for approval by the end of the year.

NPS is also making progress with NPSP558. NPS has been studying the compound in hypoparathyroidism, which affects about 60,000 patients in the U.S. The most commonly used treatments are Vitamin D and calcium, but at least 20 percent of patients cannot control their disease adequately with the supplements, Nader says. In the fourth quarter of this year, NPS will release top-line data from a study designed to determine whether patients on NPSP558 can reduce their reliance on Vitamin D and calcium.

After NPSP558 failed in osteoporosis, Wall Street analysts didn’t pay much attention to it—until recently. In an August 1 report, Leerink Swann analyst Joshua Schimmer notes that an independent scientist in Europe already performed a trial of the drug against calcium and Vitamin D, and results bode well for NPS’s upcoming study. In the European study, which was published recently in the Journal of Bone and Mineral Research, 22 percent of patients were able to stop taking calcium and Vitamin D completely. Even though NPS’s own research won’t be revealed until late in the year, Schimmer wrote, “we conclude that the study is highly likely to succeed and represents a compelling risk-reward opportunity for investors.” He has a price target of $14 to $16 on the stock.

As for the GSK deal, Nader says it can be seen as history repeating itself. Like NPSP558, the two GSK compounds are in a class of drugs that were initially thought to be promising as osteoporosis treatments. GSK licensed a family of these compounds, known as “calcilytics,” from NPS and took one of them through Phase 2 development for osteoporosis. But the trial results were disappointing. NPS saw potential of developing calcilytics as treatments for rare diseases, but needed to revise the agreement first.

NPS plans to start by examining the two calcilytics it took back in a rare disorder caused by a genetic mutation. Patients who have the mutation suffer a shortage of parathyroid hormone, which causes calcium levels in their blood to drop. That results in kidney disease, neurological problems, bone weakness, and other problems. “The only option is to give these patients calcium and Vitamin D, but that damages their kidneys even more,” Nader says. “So the standard treatment is no treatment. It’s very sad.” Nader estimates only 4,000 people have the condition—making it an “ultra-orphan disease—but with a lack of alternatives on the market, it represents a good opportunity, he says. Calcilytics work by blocking the faulty cellular receptors.

NPS pulled off three secondary offerings in the last 18 months, raising a total of $204 million. The company finished the quarter with $202 million in cash—enough to carry it through the launch of teduglutide, Nader says. Leerink Swann’s Schimmer estimates that if all goes well, NPS will turn a profit in 2013 and will be bringing in more than $500 million in sales by 2018.

Nader was one of the first pharmaceutical CEOs to embrace a virtual business model—an approach that becomes more challenging as NPS gets closer to becoming a commercial organization, he says. NPS has grown its ranks from 65 to 80 since the beginning of the year and, says Nader, “We have to hire more on the commercial side in the months ahead.” But every request for additional headcount is heavily scrutinized. “The question I ask myself and my team every time we want to recruit someone is ‘Is this person core to our business model?’” Nader says. “If not, why are we doing it? What we need in-house is our core expertise. The rest can be contracted out.”

With plenty of financial runway, NPS is starting to look for other rare diseases where teduglutide might be useful. NPS has convened an advisory panel and is in the process of evaluating their recommendations, Nader says. In the meantime, the company plans to request fast-track approval for teduglutide, which would guarantee an answer from the FDA within six months of the filing.

NPS’s progress is especially gratifying for Nader, who still talks about that day four years ago when he literally scribbled a game plan for NPS’s reinvention on a piece of paper. “I truly believe in the virtual model,” he says. “We had to go through improvements, tweaks, changes. But now it is a very exciting time for us.”

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