Why NPS Pharmaceuticals Inc. Shares Surged Yet Again

NPS Pharmaceuticals shares shoot to the moon for a second straight day as the rumor mill kicks into high gear.

Jun 2, 2014 at 2:03PM

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), a biopharmaceutical company that develops therapies to treat rare diseases, soared as much as 22%, its second consecutive day of double-digit gains, as the rumors build around a potential bid for the company from Shire (NASDAQ:SHPG).

So what: As a quick refresher, a move higher by as much as 26% occurred on Friday following word from FT Alphaville via its uncited but purportedly reliable sources that Shire was preparing to make a bid of as much as $40 per share for NPS Pharmaceuticals, which would value the company at more than $4 billion. Over the weekend, U.K.-based publication, The Times, added to the speculation by reporting that Shire had lined up a $5 billion credit facility with Citigroup to finance a takeover of NPS Pharmaceuticals. According to The Times, NPS had originally rejected Shire's attempt to woo its board of directors per insiders familiar with the matter, but is in discussion with Shire for the time being. Investors are also enjoying the "$5 billion" credit facility remark which could allow Shire to make a bid of up to $47, which is markedly higher than the $40 figure which FT Alphaville threw around on Friday.

Now what: Again, as a reminder, it's generally not in your best interests to chase a stock being rung through the rumor mill higher. More often than not rumors turn out to be nothing more than hot air and you can quickly find yourself in the losing column if you've been trading on your emotions rather than long-term common sense. With that being said, I do fully understand the reasoning behind a bid for NPS Pharmaceuticals if Shire is planning to follow through with an offer. NPS' only approved drug, Gattex, for short bowel syndrome is an orphan therapy with a hefty price tag that's protected from generic competition for a long time. In other words, NPS could generate instant EPS accretion for whomever buys it. I like NPS the company and it's a situation worth monitoring, but I wouldn't suggest chasing it higher here.

NPS Pharmaceuticals may have soared yet again, but even it's unlikely to be able to keep pace with this top stock over the long haul
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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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