EOT Trade Alert – September 17, 2012

| September 17, 2012

September 17, 2012

Trade Alert:

   Buy NPSP October 2012 $9.00 Calls at $1.20 or better

Company Background:

NPS Pharmaceuticals (NPSP) is a biopharmaceutical firm that develops therapeutics for osteoporosis, rare gastrointestinal disorders, endocrine disorders, and neurological conditions.  Currently, NPSP has two main things working for it.  One is Preos for osteoporosis and is in late-stage development in the US.  The company has research and development partnerships with various major pharmaceutical companies, including Amgen and GlaxoSmithKline.  The second is Gattex, which is used for short bowel syndrome.  It is also pending FDA approval.

Short-Term Catalyst:

In recent years, New Jersey-based NPSP has focused on monetizing its royalty interests in legacy products to pay off debt, as well as to invest in a clinical pipeline with two late-stage candidates.

For the moment…

NPSP’s main source of revenues has been royalties from sales of Sensipar for treatment of secondary hyperparathyroidism in patients with chronic kidney disease (CKD) on dialysis.

The drug is licensed to Amgen (AMGN) in the US and Europe, and its patents extend to the 2018-2020 timeframe in those regions.

What’s been so good about this drug is that NPSP has used the royalties, which have been around 10% of Sensipar sales, to repay non-recourse debt that the company raised backed by these royalty interests.

It is estimated that Sensipar royalties are likely to return to NPSP in 2015, following a recent agreement with Amgen that extended repayment terms.  This will allow NPSP to conserve cash over the next few years to support planned drug launches.

Let’s take a look at the drug that has real money making potential…

NPSP’s clinical pipeline is led by Gattex, which is for adults with short bowel syndrome (SBS).

SBS is a disabling condition that affects an estimated 10,000-15,000 patients in North America according to NPSP, and is marked by a dependence on parenteral nutrition or intravenous feeding.

The company estimates that parenteral nutrition can cost the health care system more than $100,000 per patient annually and significantly challenge a patient’s quality of life.  The FDA has granted orphan drug status for this indication.

The good news is…

Phase III studies for Gattex have shown patient response rates up to 91% and a significant reduction in parenteral nutrition.  In October 2011, NPSP disclosed three cases of cancer and two deaths in patients enrolled in the Gattex confirmatory study. However, the drug has been cleared as a contributing factor to these deaths, as these patients either had cancer when entering the study or were smokers and had higher cancer risk.

Here’s the real kicker…

Gattex is currently under FDA review and has an action date set for December 30, 2012.  In August 2012, the FDA delayed its action date by 90 days.

However, an FDA advisory panel review of the drug is set for October 16.

And this drug has already been approved in Europe in September 2012.  NPSP has also completed pre-clinical study on Gattex in chemotherapy-induced gastrointestinal mucositis (CIGIM), and for Crohn’s Disease, which NPSP has cited as outside its core focus and that could be explored through a partnership.  We expect Gattex’s patents to extend until at least 2020.

Bottom line…

I have a strong buy opinion on NPSP.  I see them benefiting if the FDA approves the drugs in their current and future pipeline.

And in addition, the royalties they are receiving from their partnership of AMGN.

So, with the next announcement before October expiration, it’s time to buy up some call options on this name and watch our profits climb!

Trade Details:

Underlying Stock Symbol: NPSP
Current Bid-Ask Price: $1.10 – $1.20
Option “Buy Up To” Price: $1.20
Break-Even On Stock At Expiration: $10.20
Maximum Risk Per Contract: $120

Exit Strategy:

NPSP is trading at $8.38 per share.  Resistance levels will be at $9.27 and again at $9.75.  Don’t forget, we want this stock to move higher.  Support levels will be at $7.75 and $7.25.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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