Late Thursday night, shares of NPS Pharma (NPSP) sank as its partner GlaxoSmithKline (GSK) decided to prematurely stop a midstage study of an osteoporosis drug that was being developed as a joint venture. Glaxo decided to terminate the study of Ronacaleret in postmenopausal women with osteoporosis earlier than expected due to an observed lack of efficacy.

Weak-handed investors clearly over-reacted as they dumped the stock in the after-hours market, to the tune of almost 20%. By all accounts, this is a massive buying opportunity, and here is why:

1. Ronacaleret, one of nine drugs in NPS' pipeline, is not even considered a cash flow item to the company.

2. Glaxo was never really a partner. Rather, in 1993, it bought the rights to a drug that is now obsolete.

Ever since Anthony Coles left the company as CEO, NPS has been loved by Wall Street. Shares are up more than 100% in the past three months. Last quarter, NPS Pharma earned $1.2 million, or 3 cents per share, compared with a loss of $14.8 million, or 32 cents per share, during the same period a year earlier. Revenue rose to $27 million from $13.1 million on increased license and royalty fees. Analysts were expecting a loss of 17 cents per share on revenue of $27 million.

NPS said revenue gains resulted from licensing fees from Nycomed for Gattex, which is designed to treat short-bowel syndrome. It also received royalty revenue on sales of Amgen's (AMGN) Sensipar.

Some of the top biotech investors are in NPS, such has the $7 billion New York City-based biotech hedge fund OrbiMed Advisors, which is the second-largest investor with an 8.39% stake. In addition, Merlin BioMed Group has a 2.59% stake, and Renaissance Technologies has a 7.81% stake.

The news last night is meaningless, and if you can pick up shares of NPS down 15% to 20% today, there's a good chance they'll rebound within a week or two.

Know What You Own: NPSP operates in the biotechnology industry, and some of the other stocks in its field include Novartis (NVS), Pfizer (PFE) and Sanofi-Aventis (SNY). These stocks were recently trading at, respectively, $55.22, down 0.11%; $18.41, down 1.23%; and $34.11, up 0.32%. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

Posted on Sept. 26, 2008