Why NPS Pharmaceuticals Inc. Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of NPS Pharmaceuticals (NASDAQ: NPSP.DL  ) , a biopharmaceutical company focused on developing therapies to treat rare diseases, skyrocketed as much as 26% after rumors surfaced that it could be the target of a buyout.

So what: According to a report from FT Alphaville, which cited familiar sources, Shire (NASDAQ: SHPG  ) has held internal talks and has been working with its advisors to possible arrange an all-cash offer for NPS Pharmaceuticals of around $40 per share. If Financial Times' blog is accurate, it would represent a valuation in excess of $4 billion for NPS and place a premium of roughly 50% on the company compared to yesterday's closing price. As of this writing, no comment has been issued by either Shire or NPS concerning the matter.

Now what: First off, let me point out that it's rarely ever a good idea to chase a stock higher because of a rumor. Often these rumors turn out to be nothing more than false leads and you could get stuck owning a company at a very disadvantageous price. That aside, I've long felt that NPS Pharmaceuticals would make a good fit for a larger pharmaceutical company. Gattex, NPS' short bowel syndrome therapy, has a free and clear path for all SBS patients and it comes with a monstrous orphan-protected price tag that should sustain profits for years to come. With the possibility of also bringing Naptara, its hypoparathyroidism drug, to market very soon, NPS could deliver an immediate EPS accretive boost to most big pharma players. In other words, I wouldn't place too much credence in FT Alphaville's rumor mill, but I would, if these rumors don't prove true, suggest you consider giving NPS a closer look on the likely pullback in its share price.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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Related Tickers

12/31/1969 7:00 PM
NPSP.DL $0.00 Down +0.00 +0.00%
NPS Pharmaceutical… CAPS Rating: ****
SHPG $235.96 Up +3.00 +1.29%
Shire plc (ADR) CAPS Rating: ****