3 Things to Watch With NPS Pharmaceuticals

Even a little good news doesn't seem to be helping NPS Pharmaceuticals (NASDAQ: NPSP  ) .

The biotech announced on Wednesday that the Food and Drug Administration accepted its supplemental New Drug Application, or sNDA, for a label change to Gattex. This news was shrugged off by the market, as NPS shares slipped 2% in early trading.

Many investors are likely still unhappy with the company's good-but-not-good-enough fourth-quarter projections. The stock dropped 15% following NPS' earnings release last week. Could a rebound now be in store? Here are three things for investors to watch.

1. Ongoing U.S. Gattex roll-out
Although Gattex gained FDA approval for treating short bowel syndrome, or SBS, at the end of last year, NPS still makes more money from royalties on other drugs. In the third quarter, the company received $25.4 million from Amgen (NASDAQ: AMGN  ) resulting from sales of Sensipar/Mimpara. Amgen continues to see success with the calcium-reducing drug franchise, giving NPS a 10.4% year-over-year increase in royalty revenues from its license agreement with the big biotech.

Gattex is gaining traction in the U.S., though. Sales have exceeded NPS' expectations so far in 2013. The company recorded $11 million in sales for the drug in the third quarter.

Key things for investors to keep their eyes on with the continued launch of Gattex domestically include compliance and discontinuations. Early numbers look really great, with a patient compliance rate of 86% and a discontinuation rate below 10%. But NPS expects future results won't be as good. The company projects compliance will probably slip to between 70% and 80% with discontinuation rates of as high as 30%.

What this means is that NPS will need more new prescriptions as an offset to these declines. That should be easily achievable. There are currently 235 patients using Gattex. Around 1,000 SBS patients have already been identified by the company's partners. NPS estimates the U.S. market size to be at least 3,000 patients.

2. International launches of Revestive
An even larger potential market exists in the rest of the world. NPS is targeting a launch of Revestive -- the brand name for Gattex outside of the U.S. -- in 30 countries.

Europe will be key. NPS thinks that somewhere between 3,000 and 6,000 SBS patients in several European nations could benefit from Revestive. The company plans to start out in Germany then expand to the U.K. and Denmark. This launch could be relatively slow at first, though. NPS doesn't expect significant sales until the latter half of next year.

The biotech also plans commercialization of the drug in Latin America. NPS anticipates some red tape in Latin American countries, including Brazil, Argentina, and Colombia, so sales will probably be slow to materialize there also.

3. Natpara approval process
Last, but certainly not least, investors should keep tabs on the regulatory approval process for Natpara. NPS submitted a Biologics License Application, or BLA, for the drug in October. The company plans to file for regulatory approval for Natpara in other countries in 2014.

The odds of U.S. approval for Natpara seem to be pretty good. NPS' phase 3 study found that 53% of patients taking the drug reduced doses of oral calcium and active vitamin D by 50% or more, compared to only 2% of patients taking placebo. Natpara's safety profile also looked positive.

If approved, Natpara could become the standard of care in treating hypoparathyroidism, a rare disease where the body produces insufficient levels of parathyroid hormone. Leerink analyst Joseph Schwartz thinks the drug could eventually become an even bigger success for NPS than Gattex.

Looking ahead
NPS Pharmaceuticals should continue to reap the benefits from its licensing deal with Amgen. There's always the possibility of more success from out-licensed products as well. GlaxoSmithKline (NYSE: GSK  ) bought the rights to ronacaleret in 2011. Glaxo has a phase 2 study in progress for the drug in helping with stem cell transplants.

It won't be long, though, before sales of Gattex make those licensing arrangements less important for NPS. If the company wins U.S. regulatory approval for Natpara next year, the stock could really take off.

The biggest concern right now for NPS is that the market has already priced a lot of this anticipated future success into the stock. Its market cap stands at over $2.5 billion. With total revenue of only $101 million so far this year, that valuation banks on big wins from Gattex and Natpara.

But NPS is still nearly 30% below its high from early last month. Good news from commercialization of Gattex/Revestive could help the stock recapture those levels. NPS Pharmaceuticals remains a stock for investors to keep on their watchlists.

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