), which develops recombinant proteins to treat bone, gastrointestinal, and nervous disorders, is catching the eye of Big Pharma with its pipeline of products. "A large drugmaker may buy NPS," says John McCamant, editor of Medical Technology Stock Letter. He says the shares, now at 27, are worth 35 on fundamentals but could fetch 45 in a buyout. NPS already has ties with Amgen (AMGN
), AstraZeneca (AZN
), and GlaxoSmithKline (GSK
NPS is working with Glaxo on forming new bones; with AstraZeneca on gastric drugs. The Food & Drug Administration has approved an NPS product called Sensipar to treat bone disorders that affect dialysis patients. Amgen will market it. NPS may start making money in two years, says McCamant. Another drug, Preos for osteoporosis, has shown favorable results in Phase 3 trials, he notes. "NPS has been talking with drugmakers for a Preos partnership," says CEO Hunter Jackson. On deal rumors, Jackson says he'll listen "to a variety of proposals." Merrill Lynch's (MER
) Eric Ende agrees NPS is "cheap" and a "prime takeover candidate." Adam Walsh of investment firm Jefferies (JEF
) says evidence is mounting that Preos has "distinct advantages" over Eli Lilly's (LLY
) competing Forteo in safety and efficacy. He rates NPS a buy.Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them. See Gene on Fridays at 1:20 p.m. EST on CNNfn's The Money Gang.