GS: NPSP (IL/N): Approval of Cinacalcet & Preos
data expected Q1/04. Revised est.
52-Week Range US$36-15
YTD Price Change 7.04%
Market Cap US$1.2bn
NPSP reported a Q4/03 loss, excluding charges, of $1.15, which was $0.02 worse than
our estimate due to slightly higher G&A expenses, and $0.09 worse than consensus.
Phase III data of Preos for osteoporosis are on track to release in Q1/04. Assuming
positive data, an FDA application will be filed in Q3/04. Management will evaluate the
benefit of a marketing partner in North America based on the data. NPSP's partner,
AMGN, should receive FDA approval of Cinacalcet for hyperparathyroidism in March.
We expect product launch in mid-2003. We maintain our In-Line rating based on
momentum from Cinacalcet and Preos (estimated $0.5B potential each) and a broad
scientific platform. The risks are failure in development, manufacturing constraints,
dependence on partners and patent disputes. Our coverage view remains Neutral.
1. Q4 LOSS OF $1.15, $0.02 WORSE THAN OUR ESTIMATE
Revenues of $2MM and R&D expenses of $31MM were in line with our estimates. G&A
expenses of $6MM were more than $1MM above our forecast due to higher non cash
compensation and consulting expenses. During Q4/03, NPS recognized a one time
$6.2MM expense related to the termination of its agreement with the Canadian
government for ALX-0600. The net loss, excluding the merger termination fee, was
$43MM or $1.15 per share.
As of September 30, 2003, NPS had $304MM in cash. The company expects operating cash burn
of $155-165MM in 2004.
2. REVISED 2004 AND INTRODUCED 2005 LOSS ESTIMATES
Partly due to the uncertainty in establishment of a marketing partnership for Preos in North
America, we have reduced our 2004 revenues by $21MM to $10MM. With the initiation of clinical
trials, we have raised our R&D expenses by $22MM to $138MM. We have also increased our
forecast on SG&A expense by $7MM to $33MM. The changes contributed to our revision of our
2004 loss estimate to $4.15 from $2.95 per share. For 2005, we have introduced our loss estimate
of $3.45 assuming end-user sales of $135MM for Cinacalcet. A summary of our quarterly estimates
is as follows:
Old New Change
====== ====== =======
Q1/04E (0.54) (1.12) (0.59)
Q2/04E (0.80) (1.01) (0.21)
Q3/04E (0.80) (1.02) (0.21)
Q4/04E (0.81) (1.01) (0.20)
2004E (2.95) (4.15) (1.20)
Old New Change
======= ======= =======
Q1/05E na (0.92) nm
Q2/05E na (0.72) nm
Q3/05E na (0.96) nm
Q4/05E na (0.86) nm
2005E na (3.45) nm
Source: Company data & Goldman Sachs research estimates
3. PIVOTAL PHASE III TOP DATA EXPECTED IN Q1/04
The TOP trial enrolled approximately 2,600 post-menopausal women who have low bone mineral
density (<= 2.5) and may have suffered a fracture, but who are not receiving drug or hormone
therapy for osteoporosis. Patients were randomized to Preos or placebo. NPS completed dosing in
the TOP trial in September 2003. In general, patients enrolled in the TOP trial are less severe than
those enrolled in the Phase III trial of Eli Lilly's Forteo (a competing product to Preos). In the
Forteo trial, 90% of women had one or more prior vertebral fractures. Based on the inclusion
criteria of TOP, the fracture rate in the placebo group should be lower than that in the Forteo
study. The primary endpoint is a reduction in the incidence of vertebral fractures. In Phase III trials,
Forteo in combination with vitamin D and calcium resulted in a 65% relative risk reduction in
vertebral fractures when compared to treatment with vitamin D and calcium alone. Assuming
positive results, NPS plans to file an FDA application in Q3/04. Assuming a 10 months review, we
expect an FDA decision in late 2005 and launch in early 2006. We estimate the worldwide sales
potential of Preos to be over $0.5B.
NPS had originally planned to seek a development and marketing partner(s) worldwide for Preos.
Management indicated recently that it may not enter into a marketing agreement for North
America. The change in position was to due to several events: (1) delay in discussions with
potential partners in 2002 after some technical issues developed in the manufacturing process
which were subsequently fixed (2) further delays in February 2003 with an attempted merger with
Enzon. The proposed merger was terminated in June 2003 (3) increased cash reserve with a
$192MM convertible debt offering in July 2003, and (4) the desire to wait for the TOP data before
finalizing a partner as NPS has funded all the clinical studies. Management will consider the
returns from a co-promotional or sales partner in North America after the TOP data are known in
2004. However, the company still expects to seek a partnership in Europe. NPS expects to begin
hiring medical-scientific liaisons in H2/04 and add sales representatives in 2005 in the U.S..
4. DATA FROM ADDITIONAL PREOS TRIALS EXPECTED IN 2004/05
a. OLES. Patients from the TOP trial have the option to enroll in the OLES trial (Open Label
Extension Study), which allows for an additional 24 months of Preos trial. Over 90% of the eligible
patients from the TOP trial have enrolled in the OLES trial. Preos therapy will continue through
Q1/05.
b. POWER. The POWER Study (Parathyroid Hormone for Osteoporotic Women on Estrogen
Replacement) is an ancillary Phase III study conducted in Europe with osteoporotic women
receiving estrogen replacement therapy. Patients in the POWER trial will receive Preos for two
years and then receive estrogen, calcium and vitamin D analogues for the third year. The first year
of dosing completed in 9/03. NPS does not expect to publicly disclose the 1 year data but will
include it in the marketing application to the FDA.
c. 2-YR DATA FROM PaTH. In 9/03, NPS presented mixed 1-year interim data from the PaTH
study of Preos in combination with Merck's Fosamax. While the data confirmed Preos' efficacy in
treating severe osteoporosis, there was no synergy between Preos and Fosamax. The findings
created some confusion about which therapy should be started first and how best to switch therapy.
Final results of the 2-year trials are expected in 2004.
5. FDA APPROVAL OF CINACALCET EXPECTED IN MARCH 2004
On November 15, 2003, Amgen announced that the FDA had granted priority review to Cinacalcet
for secondary hyperparathyroidism (SHPT) associated with renal disease, implying six- month
review time. Based on the filing date of September 8, 2003, an FDA decision may be reached in
March 2004. We estimate that Amgen will pay NPS a 10% royalty on net sales. Amgen will also
pay NPS $5-10MM in milestone fees on approval, depending on the scope of the approved
indication. There is no milestone fee for European approval. The market potential of cinacalcet in
SHPT could expand from $400MM to $500MM if predialysis is included.
6. PIPELINE UPDATE
a. Teduglutide (aka- ALX-0600). NPS expects to initiate a pivotal trial in short bowel syndrome
(SBS) in early 2004. A Phase IIa trial in Crohn's disease initiated during Q3/03. During Q4/03,
NPS terminated its agreement with the Canadian government for ALX-0600 so that there will not
be any financial obligations to the government should Teduglutide be commercialized. We
estimate the market potential in SBS and other gastrointestinal disorders to be over $0.5B.
b. Isovalerimide (aka- NPS 1776). Isovalerimide is a small molecule in development for central
nervous system diseases. A Phase IIa proof of concept trial is ongoing for migraine headaches.
I, Maykin Ho, PhD, hereby cer |
