Stock Analysis: NPS Pharmaceuticals (NPSP)

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Today NPS Pharmaceuticals shared the results of their second quarter 2014 earnings.  The CEO was "very pleased" with the results.  From an investor's point of view, I'd say the quarter was solid.  They beat one cent earnings estimates by a penny and revenues came in at $56.2 million.  Of this, their Gattex/Revestive drug accounted for $22 Million of the total, over a 350% increase from last year and a 18% increase from last quarter.  They reiterated their guidance of $100 - 110 Million in sales of the drug by the end of the year, though that range was lowered last quarter from $110 - 120 Million.  Over the last quarter, the company has expanded the sales team, which increases expenses, but appears to be helping with sales as well as prepares them for continued global expanse into Europe and Asia.  There is still a very large total addressable market in the globe and they appear to still be in the early innings.  While over 50% of their revenue is in royalties that will be slowly winding down over the next few years, sales of their own drug is increasing and there's potential that NPSP has reached a point where they can maintain positive earnings and earnings growth as we go forward.

On the earnings side, I was generally please with the results.  They beat expectations, but they didn't raise guidance.  In fact, if I see risk, it tends to be their guidance.  I'm aware that sales of Gattex/Revestive is about to have more expansion from the US as they enter some European markets, but we're not half way through the year and only have about 40% of the lower end of guidance.  To be able to meet their goals, sales will have to increase at a rate of 25% quarter over quarter for the rest of the year.  That puts my Gattex/Revestive sales goals for the third quarter at about $27.5 Million.  Ideally, I'd like to see the company hit near or past the high end of their guidance to show they continue to be conservative with their estimates and progress.  This would mean needing to need to hit more into the range of $30 -32 Million in sales next quarter.  Based on the last 2 quarters, I don't feel I have absolute conviction that this can be made.  The leadership team hasn't given me reason to doubt them, but this is something I'll be keeping a close eye on.  In the world of speculative stocks like this, if a company misses, they get slaughtered.

On the pipeline front, everything for Natpara seems to be on schedule with meetings with the FDA still set for September 12 and October 24.  They'll enter a silence period on August 18 for the September 12 meeting.  If approved on October 24, it will take them 4-6 weeks to prepare for commercial sale.  That will put them into the holiday season, though, so they really don't expect much for sales until after January 1.  Additionally, just before the quarter release, they also moved forward to phase 2a with NPS795 which is a potential treatment for Autosomal Dominant Hypocalcemia (ADH).  It's good to see their pipeline making progress and the company seems to be very thorough with their process to FDA approval.  At the same time, it is disappointing to continue to see or hear nothing new entering the pipeline.  In the conference call, the company speaks of an aggressive "10 in 10" plan, which is a plan to release ten drugs in 10 years.  They admit this is a very aggressive plan they feel they can make, yet we see nothing new entering the pipeline.  If the company is going to prove to have long-lasting strength, we're going to need to start seeing new possibilities.

Overall, I liked the quarter, but I don't see a lot to really move the stock until September 12, at the earliest, given current news.
NPSP Pennant
Pennant Formation
NPSP
 From a look at the charts, it seems the stock is forming a "pennant" (lower highs, higher lows) since February.  This is usually a good path towards creating a new base to lift off of.  Currently the range formed is from about $27 - $32, so if you want to trade, I'd watch those ranges.  I rank the stock a 2 right now with a $40 price target over the longer term.  I am expecting any announcements around September 12 or October 24 to be an explosive game-changer in either direction.  That's what you get when investing in drug stocks like this where the FDA can make or break you.  I don't have room to add more stock at this time, however, if I did, I'd consider buying the stock close to $27.  You could also have a position to trade around as I wouldn't be surprised to see the stock bounce in this range a time or two before a game-changing event occurs.