NPS Pharmaceuticals was forced to slash its workforce by more than half yesterday after failing to win US approval for its lead drug for osteoporosis, even though the product is already on the market in Europe.

The company took the difficult decision to demolish the commercial structure it had put in place for Preos (parathyroid hormone) after failing to convince the Food and Drug Administration to reconsider its decision to block approval of the drug last month. Shares of NPS fell just under 19% to end the day at $4.54.

In early May, the FDA said it would not approve Preos as a treatment for osteoporosis in post-menopausal women without additional data, because it was worried about high levels of blood calcium seen in women taking the drug, as well as the reliability of the injection device used in its administration.

Dr Tony Coles, NPS’ chief executive, told analysts and reporters in a conference call that while the company still believes Preos should be made available, it cannot countenance pressing ahead with the development of the drug, unless it can file an amendment to the application dossier based on data from existing studies.

If this is not possible, the company has chosne not to fund its own clinical trial, and the product would be postponed unless a partner could be brought on board. “We’ve not given up on Preos,” said Coles, noting that if the amendment route is still feasible, this could take place by the end of this year or the beginning of 2007.

In the meantime, NPS European marketing partner for the drug, Nycomed, launched it onto the market as Preotact last week, following approval from the European Medicines Agency.

The obstacles facing the product in the USA are good news for rival Eli Lilly, however. This company sells a parathyroid hormone-based drug called Forteo (teriparatide) that has just started to see sales accelerate, up 90% in the first quarter o this year to $127 million.

In addition to the staff cuts, NPS will close a Canadian facility, dismantle its salesforce and withdraw from a promotion alliance for an ophthalmic drug – Restasis (cyclosporine ophthalmic emulsion) - with Allergan.

The measures should reduce the cash burn to $135-$145 million in 2006, which should allow NPS to end the year with $114-$124 million, enough to preserve two years of operating funding, according to Coles.

Crohn’s disease drug now in pole position

The company will now focus on the clinical development of teduglutide for short bowel syndrome (Phase III) and Crohn’s disease (Phase II), which should be filed for approval in 2008, said Coles. Teduglutide is an analog of glucagon-like peptide-2 (GLP-2), a naturally occurring hormone that regulates the growth, proliferation and maintenance of cells lining the gastrointestinal tract.

He said the stripped down company still has plenty of potential in its R&D pipeline, particularly projects that are partnered with big pharmaceutical companies. Of particular note is the calcilytic programme with GlaxoSmithKline, which has passed a Phase I proof-of-concept study and is just about to start a Phase II trial, as well as compounds targetting the metabotropic glutamate receptor (mGluR) that AstraZeneca has taken into clinical trials and have potential in neurological and psychiatric conditions.

One or more of these partnered products should reach later-stage clinical development before the end of the year, said Coles. Meanwhile, a candidate drug for epilepsy, developed in-house, should be selected for preclinical development in the fourth quarter.