NPS Pharma’s Not-So-Excellent Wall Street Adventure

11/3/11Follow @arleneweintraub

On Monday morning, the phones were ringing off the hook at NPS Pharmaceuticals’ (NASDAQ: NPSP) Bedminster, N.J. headquarters, but no one could hear them. The freak autumn snowstorm over the weekend knocked out the company’s phone lines. And CEO Francois Nader and other top executives had lost power at their nearby homes, so they couldn’t charge their cell phones. The timing of this mini natural disaster couldn’t have been worse: At 9 a.m. Monday, the company released results from a pivotal trial of its lead drug to treat a rare intestinal disorder—data that revealed that three patients in the trial developed cancer, and two of them died.

The stock market opened and NPS’ stock took a harrowing free fall, plummeting 33 percent to $5.17 a share. That fact that this was all happening on Halloween only added to the spookiness of the situation. That afternoon, Nader and Bo Joelsson, who is leading the development of the drug for NPS, spent about an hour on a conference call trying to soothe the frayed nerves of Wall Street analysts. “It was a perfect storm,” Nader told them—a phrase he repeated in a phone interview the next day with Xconomy.

This morning, NPS will be releasing its third-quarter financial report and holding another conference call with analysts, during which Nader expects to field some additional questions about the cancer cases in the trial. “We’re working internally to determine whether there’s more we can say to dispel any misunderstanding,” Nader (who recently joined our ranks of Xconomists) said on Tuesday.

NPS is developing the drug, called teduglutide (Gattex), to treat short bowel syndrome, a disease that affects about 15,000 patients in the U.S. The three patients who developed cancer—two had lung cancer and one a gastrointestinal tumor—were participating in the trial at sites in Poland. Both lung cancer patients had been long-time smokers.

Unbeknownst initially to NPS, the clinic where the two lung cancer patients were treated had a staggeringly bad track record: a rate of lung cancer among short-bowel-syndrome patients that’s 66 times higher than that which occurs in the general population. Nader suspects that the incidence of lung cancer at that site is indicative of a larger trend in Poland, where smoking is still common.

The lead investigator at the Polish site, Nader says, is a well-known expert in short bowel syndrome who was more than qualified to participate in the study—but not in hindsight. “If we knew the 66-times statistic, this site would not have qualified,” he says. “And we might have looked for an alternative country.”

As for the third cancer case, Nader says that patient never should have been allowed in the trial under the existing study protocol. The patient had a history of Hodgkin’s disease that had been treated with chemotherapy and radiation. And a CT scan taken before he started the trial showed an enlarged liver and a lesion of undefined origin. “We are careful not to have patients with cancer on the drug,” Nader says. “This patient was particularly sick. If the CT scan had been read correctly, it should have raised a question mark.”

During the conference call on Monday, several analysts raised concerns about whether the deaths in the trial represent what’s known in regulatory parlance as “a cancer signal.” That signal occurs when regulators or review boards that monitor clinical trials suspect there’s a link between the experimental drug and the cancer cases—a suspicion that can greatly delay, if not halt, the drug’s development path. But Nader says the company scrutinized the cancer cases and couldn’t find anything that suggested a link to the drug. “The bottom line is that there has to be a certain degree of causality, and we do not have that.”

Some analysts also wondered about reports of abdominal pain and other gastrointestinal issues—side effects that may have caused nine patients to pull out of the study. Nader says the company has made it clear that pain might be a side effect of the drug. “The mechanism of action is to grow the gut,” he explains. “We believe that adverse event is totally predictable,” and studies show it often wanes over time, he adds.

What’s more, the clinical trials don’t perfectly reflect how the drug would be administered in the real world, Nader says. Patients in the arms of the study where the withdrawals occurred, says Nader, were given the drug and then sent home for three months. “There was no medical management,” he says. If the drug is approved, NPS plans to establish a “proactive, extensive, patient-centered strategy,” which will include setting up a call center staffed with nurses, Nader says. “They will explain to patients that side effects are normal and will go away over time,” he says. The call center “will be a one-stop shop—a concierge service that every patient will have access to,” he says.

Wall Street is still cautious—shares closed Wednesday at $5.25, just slightly above where they closed Monday. Analyst Joshua Schimmer of Leerink Swann thought investors were missing a buying opportunity. In the wake of the bad news, he hosted a call with a physician who treats intestinal disorders. “The specialist’s opinion on the drug was not materially impacted by the news yesterday and she did not expect to alter her potential use of [teduglutide] based on the news,” he wrote in a report. He went on to declare that even if all the potential value associated with the drug were stripped out, the stock would be worth at least $7 a share.

It’s no wonder investors are still skittish, though. NPS is expected to release key data on a second drug candidate in its pipeline—a therapy for hypoparathyroidism—this quarter. And it’s unclear how the FDA will respond when NPS files for approval of teduglutide later this year. Nader isn’t worried. “The studies are continuing as planned,” he says. “We are in good shape.”

By Tuesday, the power was back in Nader’s home and the phones were back online at NPS. Nader was relieved—and doubly determined to regain investors’ confidence in teduglutide. The drug, he says, “could significantly improve the lives of patients. It would be unfortunate if we have hindered it from getting approved.”

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