Washington Editor

NPS Pharmaceuticals Inc.'s stock fell Thursday after Merrill Lynch downgraded the company due to a manufacturing problem related to a drug for severe osteoporosis.

NPS's stock (NASDAQ:NPSP) closed Thursday at $22.72, down $8.71, or 27.7 percent.

The drug, Preos (formerly ALX1-11), a recombinant human parathyroid hormone, is being studied in 2,600 patients enrolled in a Phase III trial.

Merrill Lynch apparently reached its decision to downgrade Wednesday night after Salt Lake City-based NPS included in its 10-Q a statement saying it doesn't have enough product to meet clinical trial requirements.

Specifically, the statement says, "We have sufficient supplies of Preos to meet our clinical needs into the third quarter of 2002. However, our current manufacturer of finished clinical supplies is not currently able to produce clinical supplies that meet our release specifications."

The problem relates to the manufacture of the carpule, a dual chamber glass tube being made at Vetter Maschinenfabrik GmbH & Co. in Germany. David Clark, NPS's vice president, operations, told BioWorld Today that half of a carpule contains a dried form of the active drug, and the other half contains the reconstituting fluid or water. "The dual-chamber carpule goes into the injector pen, and when the pen is put together, the reconstituting fluid goes into the dried form of the drug. Then you shake it up and you have two weeks worth of dosing," Clark said.

"In the process of creating and filling that carpule, there has been a problem that has arisen that caused the carpules to be out of spec. We are addressing that now with the filling processors," he said. "We have enough bulk drug to get us through Phase III, but we don't have enough of the packaged drug to get us through Phase III."

While production of the drug has not stopped, NPS is zeroing in on a solution, Clark said. "If we don't solve it, then the trial will have to be modified or delayed. If we do solve it, there will be no impact on the trial," he said.

While Merrill Lynch and other brokerage firms saw this as a fairly significant setback, others, like Bear, Stearns & Co. Inc. Equity Research in New York, said it's too early to make an accurate judgment call.

Ronald Renaud, a biotech analyst at Bear, Stearns, told BioWorld Today that his company has not downgraded NPS.

"It's a sticky situation right now for them, but we're not going to really know what the ultimate outcome of this is until we find out whether or not their fill and finish manufacturer can fix this problem," he said. "So we know there is enough inventory or product to be used through the third quarter of this year, but what we don't know is whether they are going to fix this problem in time to go beyond the third quarter."

Furthermore, in his research note, Renaud said, in light of the shortage of manufacturing capacity for biologics, "we believe that this is not as grave as was originally anticipated. We believe that this issue could be resolved over the next four to six weeks and remain cautious until the situation is more visible."

If Preos continues through development according to the NPS plan, the Phase III trial would be completed at the end of September 2003 and the company would file its biologics license application in mid-2004. NPS anticipates a possible mid-2005 launch.

Enrollment for the Phase III trial, referred to as TOP (Treatment of Osteoporosis with PTH) concluded in late March. Initially the study was designed to enroll 1,800 women with osteoporosis, but later it was expanded to include another 800 patients. The study seeks to demonstrate the bone-building and fracture-reducing power of Preos over an 18-month period in women with osteoporosis.

The company said studies suggest that daily injections of Preos may stimulate the growth of structurally sound, fracture-resistant bone.

NPS is discussing the potential of finding a marketing partner for Preos.

The product also is being evaluated in conjunction with Merck's Fosamax as a therapy that inhibits bone loss. That 240-patient study is being sponsored by the National Institutes of Health.

In its first-quarter financial results released Wednesday, NPS reported a net loss of $22 million, or 73 cents per share, compared to a net loss in the first quarter of 2001 of $6.1 million, or 20 cents per share. Revenues for the first quarter of 2002 were $787,000, compared to revenues of $491,000 for the same period last year. All revenues were from research and development reimbursement agreements.

NPS also is studying ALX-0600, a peptide that stimulates the growth of cells that line the intestines, in patients with short-bowel syndrome.

Furthermore, the company has a deal with Amgen Inc., of Thousand Oaks, Calif., for development of an investigational calcimimetic, AMG 073, for secondary hyperparathyroidism, a serious disorder associated with renal disease. The product entered a Phase III trial in December, triggering a $6 million milestone payment to NPS. (See BioWorld Today, Dec. 24. 2001.)

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