UPDATE 3-NPS: Nycomed to co-develop short bowel syndrome drug

(Recasts, adds analysts, company comments)

By Jennifer Robin Raj

BANGALORE, Oct 31 (Reuters) - NPS Pharmaceuticals Inc (NPSP.O) said Swiss drug developer Nycomed confirmed its intention to develop and market NPS' short bowel syndrome drug outside North America, sending shares up as much as 20 percent.

Privately held Nycomed's decision follows mixed results from a late-stage trial of the drug, Gattex, earlier this month.

As per a licensing agreement signed in September, Nycomed had the option to forego a $25 million payment based on the trial results. On Wednesday, NPS said Nycomed will pay the fee.

Nycomed's decision signals that the drug warrants further development and there is a chance for the drug's approval by European regulators, J P Morgan analyst Richard Smith said by phone.

Besides, a cost-sharing structure in which both companies contribute 50 percent towards development, plus the upfront payment, is "likely to support NPS financially for further Gattex clinical studies," Oppenheimer analyst Jack Hu said in a note.

NPS was studying Gattex, which has orphan drug status, for the treatment of short bowel syndrome, a malabsorption disorder due to the removal of a part of the small intestine.

In a late-stage trial of the drug, a higher dosage of Gattex did not prove to be significantly better than a dummy drug. However, a lower dosage proved effective in treating short bowel syndrome in 46 percent of the patients.

The pre-defined criteria of the study had required the results for the high-dose group to show statistical significance before the results of the low-dose group could be considered.

However, NPS had subsequently said that it intended to meet with the U.S. Food and Drug Administration to discuss approval for Gattex, given its performance with the lower dosage and its orphan drug status.

ADDITIONAL TRIALS?

Uncertainty surrounds the drug's chances for approval by the FDA without additional trials.

"There are definitely signs of efficacy (with the drug) but the question is how will the FDA view it?" Smith said.

However, he added that there are grounds from previous trials to suggest the FDA would be willing to look at a singular study for approval, in cases of diseases that do not have much therapeutic options.

Currently, the only other approved drug for short bowel syndrome is Merck Serono's Zorbtive. The rest of the therapies are all supportive therapies, Smith said.

"We continue to expect an additional study in SBS is likely to be required for regulatory approval," Oppenheimer's Hu said.

"(Nycomed is) going to be meeting with the regulatory agency in Europe just as we will in the United States to determine whether another trial is required," NPS spokeswoman Brandi Simpson said by phone, adding NPS hopes to meet with the FDA before the end of the year.

Shares of the company rose to an intraday high of $4.64, before falling back to trade up 66 cents at $4.51 in afternoon trade on the Nasdaq, wiping out losses following the trial results on Oct. 11.