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update: Viropharma (VPHM)

November 10th, 2006 · No Comments

It’s been a while since I’ve talked about Viropharma Inc. (Nasdaq: VPHM). Needless to point out, shares have not done well ever since the FDA was revisiting approval criteria for oral vancomycin (Vancocin); the fear being that the agency would make it easier for generic drug makers to get approval for the medication. The suddenness of this news was quite unexpected for investors, and shares of Vancomycin plummeted from highs of $23.64 to a low of $7.07. The question remains unsettled to this date and hang heavily over the company. Shares have since recovered somewhat to the $12-13 area on the continued strength of earnings and drug trials while this all plays out.

To remind those who are unfamiliar with the company, Viropharma is a biotech company who made its claim to fame by creating a vaccine for cold viruses; but it was never FDA approved and the company nearly went bankrupt. But it made an ingenious move of buying the rights to Vancocin from Eli Lily.

You can read the original Viropharma article here. It was originally posted in December 2005.

The company currently has a market cap of $880 million with a P/E of just 6.99. The company reported results last week which continued to show strong revenue and earnings growth. Net sales of Vancocin were $55.1 million for the 3rd quarter of 2006 and $128.2 million for the first nine months of 2006, as compared to $35.7 million and $85.5 million in the respective 2005 periods. The company is implementing yet another price hike for vancomycin and its revenue figures for this quarter reflect distributors buying ahead of the price hike.

Net income in the third quarter and nine months ended September 30, 2006 was $23.3 million and $48.7 million, respectively, compared to a net income of $18.7 million and $41.0 million for the same periods in 2005. Net income per share for the quarter ended September 30, 2006 was $0.34 per share, basic and $0.33 per share, diluted, compared to a net income of $0.33 per share, basic, and $0.31 per share, diluted, for the same period in 2005. Net income per share for the nine months ended September 30, 2006 was $0.71 per share, basic, and $0.69 per share, diluted, compared to a net income of $1.05 per share, basic, and $0.77 per share, diluted, for the same period in 2005.

The results speak for themselves. Shares would be soaring, if the FDA decision had already been made. It would give investors clarity as to when the relative exclusivity of the drug would end. But investors have had news to cheer about recently, unrelated to Vancocin, and related to its clinical pipeline.

The company recently started the first of two phase III trials for maribavir. Maribavir is being administered orally for up to 12 weeks for the prevention of cytomegalovirus (CMV) disease in recipients of allogeneic stem cell transplants. It is also intiating phase II trials of HCV-796, an orally dosed hepatitis C viral polymerase inhibitor that interferes with the replication of hepatitis C virus (HCV). The product is being developed in conjunction with Wyeth Pharmaceuticals (NYSE: WYE).

So is the company still a buy? I would say yes…the company continues to grow revenues and earnings significantly with oral vancomycin, adding to its cash hoard. But obviously there is no easy way to quantitate the one downside risk of the company…and that is the FDA decision.

The following is a posting from Zacks, which offers you another opinion of the company

Room for VPHM to Move

ViroPharma, Inc. (Nasdaq:VPHM) is a pharmaceutical company engaged in the development and commercialization of products that address diseases caused by infectious agents such as a virus or pathogenic bacteria. The company has one approved product, Vancocin Capsules, for the treatment of antibiotic-associated infection, and two mid-stage candidates for viral infections.

Recent concerns over a generic alternative to Vancocin have hampered the stock. This is keeping ViroPharma trading at a significant discount to its peers. The company has filed a Citizen’s Petition to the FDA-OGD to halt generic entrants.

Outside of Vancocin, clinical-stage candidates Maribavir and HCV-796 offer the next substantial growth opportunities. We believe the shares are vastly undervalued. Our target is $16.

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