NPS Pharma shares sink after cancers reported in patients on bowel drug

NPS Pharmaceuticals gave investors a reason to run yesterday, but at least one analyst says today that the reaction was too much. The Bedminster, NJ-based developer said that three patients at sites in Poland who took its developmental drug Gattex for short bowel syndrome got cancer. Two of the patients died.

The company ($NPSP), which has previously reported upbeat late-stage data on the drug, plans to move forward with an application for FDA approval of the drug. Executives say that the cancers were not related to the firm's experimental drug, which has shown an ability to help patients with the syndrome reduce intake of IV fluids and nutritional supplements. Two of the people who developed forms of lung cancer were smokers. And the company says it has made no changes to its Gattex program as a result of the cancers.

Investors reacted to news of the cancers and two deaths, driving down NPS's share price more than 30%.

However, Leerink Swann analyst Joshua Schimmer seems to think that hasty moves away from NPS were an overreaction. "We believe the negative stock reaction was overdone," he said, in a note to investors this morning, "and [we] believe that even stripping out all value associated with Gattex could result in a valuation of $7-9/share. We maintain our Outperform rating and $14-16 valuation."

- here's the company's release
- read Bloomberg's coverage