ViroPharma, Inc. (VPHM)

Viropharma is a specialty drug company developing novel drugs for the treatment of infectious disease. It’s rare to find a small drug company that is actually turning a profit. After modeling it through 2012 I consider it a speculative buy, with a price target of $13.26 (industry average PE of 12 * the average EPS over the next five years).

Currently VPHM’s revenue comes from Vancocin, an antibiotic used to treat enterocolitis caused by Staphylococcus aureus and antibiotic-associated pseudomembranous colitis caused by Clostridium difficile; these strains are often vancomycin-resistant, meaning Vancocin fills an important niche. VPHM bought Vancocin from LLY for $116M and royalties back in 2004; since then they’ve cranked out over $500M of revenue with the drug - not a bad investment. The bad news is that sales growth from Vancocin has decelerated recently, and this year the company estimates it will sell a little over $220M of it. Also, generic erosion of Vancocin revenue is a threat, and VPHM continues to haggle with the FDA over what tests should be used to test a generic version’s efficacy/safety.

VPHM’s pipeline is small enough that they are pretty easy to understand and model. The company’s fortunes will be decided by two drugs, HCV-796 and Camvia (maribavir). HCV-796 is an orally dosed non-nucleoside inhibitor of HCV that VPHM is developing with Wyeth. While HCV-796 has shown considerable activity, a Phase II dosing trial was stopped in August due to elevated liver enzymes (8% for HCV-796 vs. 1% for control). I think the market was right to hammer VPHM’s stock for this result, as elevated liver enzymes are the number one cause of both drug adverse events and drug application rejections. For this reason I have backed HCV-796 out of my model, assuming it’s dead money. VPHM and WYE have stated they’ll review the safety data and try to find the best path forward for this drug. While there’s an outside shot that changing the dosing/treatment schedule/etc. may get rid of the problem, the odds of this drug ever coming to market, at least for first-line use, are low.

Which means that I think the company’s fortunes for the next few years rest solely on Camvia, a drug being developed for prophylactic treatment of CMV in transplants. CMV infection during transplants is a major risk factor, often leading to any number of potentially fatal clinical manifestations. Current standard treatment is Roche’s Valcyte. Camvia is a member of a class of drugs called benzimidazole ribosides, which inhibit viral DNA assembly and inhibits assembled viral capsids from exiting the nucleus of infected cells. Phase II trials were promising, with Camvia reducing CMV infection incidence in transplant patients with a favorable safety profile to standard treatment. VPHM has two Phase III clinical trials ongoing for Camvia, one for stem-cell transplant (SCT) and one for solid organ transplant (SOT). Assuming the drug continues to perform well and nothing unseemly pops up (granted, that’s a big assumption), VPHM plans to file an application for Camvia in 2009. Camvia is subject to the risks that all drugs in development are subject to (adverse events, inexplicable failure, etc.), but in light of the fact that the drug is targeting a large population of patients with few treatment choices it could prove to be a major revenue generator for a company of VPHM’s size.

VPHM is in good financial shape, a rarety among small drug companies, although this is subject to how the FDA decides to deal with the potential generic threat to Vancocin revenue. They should have enough cash on hand to carry out their Phase III trials, and analysis of their convertible notes issued, call options purchased, warrants issued, and insider buying suggests that management considers the stock to be severely undervalued at current levels and financiers consider it a good speculative investment. Shares outstanding has increased at about 10M/year over the past couple years, meaning that some of the impact of Camvia’s approval would likely be soaked up by share dilution.

One word of warning for anyone considering taking a position in VPHM. Drug companies with small pipelines tend to be extremely sensitive to negative news regarding the drugs in their pipeline, and VPHM has certainly lived up to this trend in the past. If you’ve followed VPHM for any reasonable length of time you already know that when this stock decides to plummet it doesn’t joke around. Most recent investors are familiar with the $13-$8 plummet in August due to the discontinuation of a dosing trial for HCV-796. But if you want to see some real fun, go back to the 2002 chart. VPHM cruised between $15 and $20 through mid-March, when they announced that Picovir (now licensed to SGP), their anti-common cold drug, did reduce the length of colds by a day but had serious side effects. VPHM immediately went to $5.90, then got as low as $0.87 before wrapping up 2002 in the $1.50 range. Anybody who owned VPHM at the time has to laugh when they see writers saying the market “plunged” a whole 2% these days. I guess it’s also worth noting that VPHM is still around, so I guess they can take a punch.

Check out the P/E.

Viropharm is priced as if generic competition is a given. Any significant delays that allow its pipeline to mature, or any stumbles will allow it to rebound significantly from where it is, $13 - $15, allowing for a 40%+ gain from where it is.

While speculative in nature, the short-term significant upside vs. the lack of likely significant triggers in the short-term to the downside mean this is a reasonable play for a smaller, speculative part of a portfolio.

new products coming on line. Lots of cash to back it up. Over beat down.

FDA will likely not approve generics in the space occupied by Vancocin. The molecule is too tough to work with for bioequivalence tests to have any meaning; and the bug, c. diff, that Vancocin battles is a killer. At the last line of defense, Vancocin is not likely to be pushed aside for an untested generic. This should take us, by itself, back to a stock price of about $18.

Additionally, other pipeline drugs are getting encouraging data. Insider purchases are up and the company is profitable.

As c. diff continues to grow, so will sales of Vancocin. Other drugs will just sweeten the pot as they are approved.

Market has over reacted to possible duplication of product by a competitor. Fundamentals are still strong.

Spectacular company, extremely undervalued and great growth. Has strong Phase III candidate in Maribavir (A), $230M in cash on the books in 2005 - about $3.33/share at current prices (B), and w/ the generic drug concern (or non-concern really), it still means the company has 2+ years before a generic becomes a threat to Vancocin. Very strong buy here. Bought at $9.62, rode down to $7.50, doubled down, sold some at $10 and kept the rest. Full boat here at $11.94.

short-long tem catalysts include:
1) FDA reversal of OGD bioequivalence rec for Vancocin
2) HCV-796 phase IIB results
3) announcement of studies of HVC-796 and VRTX protease inhibitor for HCV
4) update on Maribavir PhIII studies
5) continued Vancocin growth and proce increase
6) NTX PhI results
7) acquisition of new value driver

ViroPharma Inc. (VPHM) - cheap trailing price/earnings of 7, small enough market-cap of 872 million to be considered acquireable, 52wk Range of 7.07 - 24.36, with current price of 12.72 so room to move, pre-tax earnings yield of 14% and pre-tax return on capital greater than 100%. ViroPharma's business focuses on serious diseases including colitis, hepatitis C infection, and asthma exacerbations - which are all diseases with built-in demand populations.

2008 4th qtr missed estimates which was disappointing, however forward looking still is favorable. In the 4th qtr, they took a one time write down of $2.3 million for closing their corporate headquarters. While many firms unwisely cut R&D expenses when in troubled times, ViroPharma actually increased 4th qtr R&D expenses by 76% which should help fill pipelines to replace Vancocin if and when it goes generic at some point. 2009 guidance did not put revenues in for Cinryze due to uncertainty. This is an upside with high probablity. They continue to generate strong free cash flows.

I'm a long-term Viropharm bull who recognizes ebb and flow in the market. The ebb has brought Viropharm down to a price I like, especially with the Lev acquisition. This may go down as the acquisition of the year, especially compared to dubious buyouts of Encysive and Sirtris. In the meantime, Akorn's efforts to get approval of generic vancomycin appear to be lost in space, so the 65M and rising quarterly Vancocin revenues appear to be safe for the time being. Phase III marabavir data is on the schedule for Q1 2009 but I wouldn't hold through this if the stock enjoys a substantial bump from Cinryze approval. I'm looking for my fourth juicy gain on Viropharm here.

Picked by ria12

ViroPharma stock declined when the Office of Generic Drugs was going to rule that a generic of their drug Vancocin would be allowed onto the market with clinical testing. Since this is their only commercial product this makes them a risky investment. However, with the current news of the milestone reached with Wyeth and the possibility that the Office of Generic Drugs may require the generic version of Vancocin to be tested before they will wllow it on the market I believe ViroPharma is headed for an uptick in their price.

I hope this is not the next QLT

A cie able to give investors some wild ride. The street don't believe in them cause they're a one product outfit. The cie is working on broadening their offering with r&d and alliance. They had a inventory imbalance that scared investors away. The issue is well on path to be solved with success. Their main product is a medicine fighting c difficile disease outbreak. More and more hospital are at the brinks of being overwhelmed by this disease. VPHM has the most potent remedy. Talk about being at the right place at the right time. Optionable stock. Profitable stock. Stock price recovering slowly but steadily since summer end.

Value play. Well run biotech (CEO was the former head of Roche) who had a cure for the common cold, but was squelched by the FDA. Stock got hammered. Company went out and bought an off-patent antibiotic for staph infections and is just printing money with it. No generics have come in and it's been almost 3 years. Some dispute as to whether a generic company just needs to prove bio-equivalence, or whether they would need to run a clinical trial (since staph infections can be deadly). VPHM contends that simply matching the chemistry wouldn't necessarily make a generic drug work, so a generic should be forced to run at least one clinical trial. Seems to be academic question as no generics appear to be interested in a $200 million drug. $600 million market cap, company has $300 million net cash. 47% profit margins, awesome free cash flow, PEG 0.48. Also they have a drug in phase 3 for future growth. Company's a no-brainer at these prices.

Having had to go through hep C treatment I have chosen this biotech company as the company that I see is the closest to finding better treatments and cures. Hep C is an epidemic in the world and a breakthrough in this area will more than exceed anyones expectations as an owner. I have studied Hep C in detail and I like what this company is doing.

a raging value play combined w/tremendous growth potential

good value

.Viropharma was set back by the FDA and the publics over readtion to the news.Cinryze is still selling as before and this stock is a 5 * steal at 5.50.I see 15.00 in the not to distant future.