NPS Pharmaceuticals: Fairly Valued, For The Moment

NPS Pharaceuticals' (NPSP) Gattex was approved by the FDA last month for the treatment of adult patients with short bowel syndrome (SBS), it is to be priced at an eye-watering $295,000 per patient-year, significantly higher than expected. However, estimated applicable patient numbers in the US are considerably lower at 3,000-5,000 (than previous guidance of 10,000-15,000). These two effects balance out and Gattex’s peak sales remain guided at $350m/year, suggesting one-third of market penetration, at the lower end of the new market size.

How NPS justifies the high price
NPS justifies the high price for Gattex on the basis that the 3,000-5,000 patient pool makes SBS an “ultra-orphan” condition, while the drug is its first non-surgical treatment. Gattex offers a high clinical benefit with 63% of patients (vs 30% for placebo) achieving between 20-100% reduction in weekly parenteral nutritional support (PS) volume after 24-weeks, with 15% of patients completely weaned off PS altogether. NPS also cites the high cost of treating SBS (PS can alone costs $100k/year) and its market research suggests there is a willingness to pay.

Will it fly?
While ultra-orphan drugs are typically priced at $200,000-400,000 per patient-year, most, if not all, have shown profound clinical benefit in a substantial portion of patients treated. Gattex’s indication is specifically for treatment of SBS patients who are dependent on PS, and not the disease itself. In the context of such a high price, Gattex’s clinical benefit may be controversial and thus is likely to be closely scrutinised by insurers. Edison anticipates that payors will put in place restrictions, such as duration of use or contingency of use, which are likely to limit a quick ramp up as well as curtail significant market expansion.

Valuation: Fairly valued for the moment
In our view, the shares are fairly valued and may come under pressure until NPS can show that Gattex is not facing significant insurer restrictions and/or is being used by the 1,000 patients that are assumed in the guided revenue.

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