NPS Pharmaceuticals may have concealed from investors that its drug candidate PREOS did not perform well in clinical trials and overstated the potential market for PREOS.

This is a securities fraud class action lawsuit against NPS Pharmaceuticals, Inc. alleging that NPS Pharmaceuticals and certain of its officers and directors with violations of the Securities Exchange Act of 1934. NPS engages in the discovery, development, and commercialization of small molecules and recombinant proteins.

The class action complaint alleges that NPS made false and misleading statements regarding NPS's business and prospects, including the potential for success of PREOS, its full-length human parathyroid hormone (PTH) drug candidate being developed for the treatment of osteoporosis. As a result of these false statements, NPS stock traded at inflated levels during the Class Period allowing NPS the opportunity to sell 7 million shares of NPS stock for proceeds of more than $79 million.

According to the class action complaint, NPS concealed from the investing public:

(a) contrary to defendants' positive claims concerning the PaTH study on August 10, 2005, the results in fact evidenced that PREOS was no different from Fosamax in bone density and fracture results;

(b) there was a very narrow market for PTH drugs (like PREOS and its competitor Forteo): namely, patients with severe spinal osteoporosis who had also suffered a fracture;

(c) on or before August 2, 2005, NPS was notified that a major study performed by a lead researcher in the field who had reviewed all PREOS study results had concluded that further studies were necessary to determine the efficiency of PREOS, if any, in humans;

(d) unlike other bone density drugs/products which can be used for hip fracture risk reduction, PREOS, assuming it received FDA approval, could not be prescribed for this use - a key market for bone density drugs;

(e) the Center of Medicare Services of Health and Human Services had ruled that injectable drugs for osteoporosis, like PREOS's competitor Forteo, would be reimbursable only for patients who had suffered a fracture, which indicated that the market for a drug like PREOS was limited to a small subgroup of osteoporosis patients who had suffered a fracture while on an existing oral drug;

(f) defendants were also aware that physicians would never recommend PREOS except in all but the rarest cases, since the Physician Desk Reference on drugs recommended Forteo (and hence, injectable parathormone drugs like PREOS also) for second line use in osteoporosis after failure of oral drugs like Fosamax and for a maximum of 24 months, which limitations on physician use narrow the medical indication for parathormone drugs like PREOS; and

(g) the combination of these facts added up to a huge hurdle to market success for PREOS because the very drug that was the baseline precursor drug for osteoporosis, Fosamax, had already been shown to be as effective as PREOS in the PaTH studies. These facts about PREOS, including the limited reimbursement for the family of parathormone drugs, were critical to understanding the very difficult prospects for FDA approval and market success for the drug.