Why NPS Pharmaceuticals Inc. Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of NPS Pharmaceuticals , a biopharmaceutical company focused on developing therapies to treat rare diseases, skyrocketed as much as 26% after rumors surfaced that it could be the target of a buyout.

So what: According to a report from FT Alphaville, which cited familiar sources, Shire has held internal talks and has been working with its advisors to possible arrange an all-cash offer for NPS Pharmaceuticals of around $40 per share. If Financial Times' blog is accurate, it would represent a valuation in excess of $4 billion for NPS and place a premium of roughly 50% on the company compared to yesterday's closing price. As of this writing, no comment has been issued by either Shire or NPS concerning the matter.

Now what: First off, let me point out that it's rarely ever a good idea to chase a stock higher because of a rumor. Often these rumors turn out to be nothing more than false leads and you could get stuck owning a company at a very disadvantageous price. That aside, I've long felt that NPS Pharmaceuticals would make a good fit for a larger pharmaceutical company. Gattex, NPS' short bowel syndrome therapy, has a free and clear path for all SBS patients and it comes with a monstrous orphan-protected price tag that should sustain profits for years to come. With the possibility of also bringing Naptara, its hypoparathyroidism drug, to market very soon, NPS could deliver an immediate EPS accretive boost to most big pharma players. In other words, I wouldn't place too much credence in FT Alphaville's rumor mill, but I would, if these rumors don't prove true, suggest you consider giving NPS a closer look on the likely pullback in its share price.

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The article Why NPS Pharmaceuticals Inc. Shares Skyrocketed originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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