By Ivan Deryugin
Shares of ViroPharma (VPHM) fell 6.9% on May 1 with the release of mixed first quarter results, also amidst a weak day for the biotechnology sector driven in-part by market rumors that a relatively large biotechnology focused fund is liquidating, prompting a sell-off across the sector. However, ViroPharma's commercial and pipeline progress is on track, with new timelines announced for several clinical programs. With Cinryze continuing to show growth and what appears to be growing market share, the company is moving beyond the loss of its Vancocin franchise. Since we covered Viropharma in December of 2012, the stock is up 10% (peaks over 18%), and we believe that the company is making meaningful progress on its development programs. ViroPharma remains a shifting story as the company refocuses investors from Vancocin to its broader product offering and pipeline.
Q1 Review: Addressing Vancocin's Legacy And Expanding New Franchises
For Q1 2013, ViroPharma posted revenues of $107.149 million, slightly missing consensus estimates of $108.47 million. Revenue fell 21.1% year-over-year, with 44.48% growth in Cinryze sales unable to offset a 94.56% fall in Vancocin sales, due to the emergence of generic alternatives. Pro forma EPS of 15 cents fell 59.46% year-over-year, driven by continued growth in R&D expenses, as well as SG&A expense growth tied to the expansion of ViroPharma's Cinryze sales force and continued investments in the company's European business (where revenue rose 151.85%). Pro forma EPS excludes a $104 million writedown of assets related to the Vancocin franchise, due to faster-than-expected declines in the pricing of generic alternatives. Pro forma EPS, however, beat consensus estimates calling for 4 cents/share in profit. Additionally, ViroPharma slightly lowered the midpoint of its 2013 sales guidance, down $10 million to $462.5 million; however, the company reaffirmed its 2013 Cinryze forecasts of $390-$400 million in North American sales.
This quarter demonstrates ViroPharma's continued efforts to move beyond the legacy of Vancocin, and the company made progress on several fronts, both in the United States and in Europe. Within the Cinryze franchise, ViroPharma is continuing to invest in expanding the HAE market, and hired 8 additional sales representatives. CEO Vincent Milano noted that early results are encouraging, and that the full effect of these additional representatives is should be felt within the next 6-9 months. Cinryze is continuing to show steady growth within the United States, with 23,000 doses shipped during Q1. Importantly, 40% of new patients added during Q1 switched from steroid-based HAE treatments, and 60% of new patients had either previously been on acute HAE therapies, or were treatment-naïve. Most importantly, these figures, combined with weak results from Dyax (DYAX) (which manufactures Kalbitor for acute HAE attacks), whose Q1 sales came in around 50% below consensus estimates, suggest that Cinryze is gaining market share within HAE.
Investors should also be made aware of potential changes to Cinryze channel inventory, specifically with regards to specialty pharmacies and distributors. On the Q1 earnings call, CFO Charles Rowland noted that over the last several quarters, Cinryze inventories have been moving to the upper range of ViroPharma's contractual levels, towards 4 weeks of inventory, and that recently, the company has been informed by many of these pharmacies and distributors that they plan to optimize their working capital, which is likely to result in Cinryze inventory reduction. For the time being, ViroPharma is maintaining its Cinryze guidance for 2013, but this is an issue that investors should be on the lookout for, and the company has pledged to provide further clarity on its Q2 conference call.
Within Europe, Q1 2013 was marked by progress on several fronts, with European sales rising by over 150% in the quarter, as ViroPharma continues to expand its commercial presence across the continent. Of $6.8 million in total European sales, $2.7 million was derived from Cinryze, $2.5 million from Buccolam, and $400,000 from Plenadren, which was launched during the quarter. In addition, ViroPharma generated $400,000 in European sales of maribavir through several named-patient programs (more on maribavir later). Cinryze reimbursement was secured in both France and Italy during Q1, and the company is forecasting that by the end of the current quarter, reimbursement will be available in the 5 largest European markets (Germany, the U.K., France, Italy, and Spain). Buccolam reimbursement is in place across all 5 of these markets, and a full launch is forecast for mid-2013. Plenadren has not yet fully launched, and Q1 revenue reflects initial usage in Germany. However, ViroPharma is on track to expand the market for Plenadren, with national reimbursement secured in the United Kingdom, and named patient programs in place in both Italy and Spain ahead of more comprehensive coverage.
ViroPharma is continuing to invest in expanding its business and putting the loss of its Vancocin franchise behind it. And the company has the financial resources to continue investing in both its pipeline and its commercial operations. ViroPharma ended Q1 2013 with $260.804 million in cash and investments, with $163.968 million in senior convertible notes due in March 2017. Net cash at ViroPharma rose in Q1 2013 to $96.836 million as the company has, for the first time in several quarters, paused its share repurchases. There has long been debate within the sell-side community as to the wisdom of ViroPharma's buyback program, with some seeing it as a diversion of capital away from potential acquisitions or increase its investments in the business. Since our initial coverage of ViroPharma, we have argued that from what the company has shown to date, it does not appear that its buyback program is impeding either its R&D efforts or its commercial investments. And as Cinryze sales continue to grow, and its European business moves closer to profitability (we expect in 2014), ViroPharma will have increased scope to both continue its commercial and pipeline investments and repurchase shares.
Pipeline Catalysts: Framing A Timeline For Investors
For many ViroPharma investors, the need for a concrete timeline regarding new clinical data has been somewhat pressing. After seeing the collapse of the company's Vancocin franchise, many investors are uneasy with ViroPharma's dependence on Cinryze, and are anxious to know when revenue diversity may increase at ViroPharma as new products launch. On the company's Q1 call, the company provided several updates on this front, and offered a more concrete timeline for new clinical data from several pipeline programs.
- Enrollment in ViroPharma's Phase II trial of subcutaneous Cinryze [administered in combination with Halozyme's (HALO) recombinant human hyaluronidase enzyme (rHuPH20)] is set to complete enrollment this week, with clinical data to be released in "very early" 2014. As we noted in our last report on ViroPharma, clinical data for subcutaneous Cinryze has been favorable to date, and if approved, will add another layer of defense against competition in the HAE market.
- By mid-2013, new clinical trials of VP-20629, for the treatment of Friedreich's ataxia (FA) will commence. FA is an ultra-rare autosomal recessive disorder that leads to sclerosis and degeneration of the spinal cord and several peripheral nerves, and causes a wide range of symptoms, ranging from hearing/vision loss to diabetes and muscle weakness.
- Plenadren is also seeing progress. As a reminder, in March 2013 the FDA told ViroPharma that the clinical data it used to secure approval in Europe was insufficient for domestic approval, and that new Phase III trials would be needed. On the company's Q1 call, CSO Colin Broom announced that the company has constructed a Phase III trial protocol, and is now in the process of scheduling meetings with the FDA in order to move Plenadren into this Phase III program.
- As for VP20621 (non-toxigenic Clostridium difficile; NTCD), ViroPharma announced positive Phase II trial results in late April. The trial showed that VP20621 had a statistically significant effect on the recurrence of C. difficile infection (CDI). The Phase II trial included 168 patients randomized into 4 arms (one placebo arm and 3 dosing arms, ranging from 1000 spores per day for 7 days to 107 spores for 14 days), and met is primary endpoint (viable NTCD detected in stool samples) across all 3 dosing arms, with NTCD detected in 54-79% (63% average) of patient sin the dosing arm, for a combined p-value of less than 0.0001. The Phase II trial also met its secondary endpoint (rate of CDI recurrence) on a consolidated basis, with recurrence rates of 5 or 15% in the 3 dosing arms, versus 30% in the placebo arm. However, only one of the 3 dosing arms (107 spores for 7 days) exhibited a p-value of less than 0.01; the other 2 dosing arms had p-values of 0.10 and 0.11. VP20621 was generally well tolerated, with 10% of patients in the dosing arms reporting headaches, versus only 2% for the placebo arm, and 17% of patients in the dosing arm reported abdominal pain, versus 33% for the placebo arm. It should be noted that 2 patients died during the course of this Phase II trial. However, their deaths have been determined as unrelated to VP20621. One patient within the placebo presented with a severe case of CDI, that failed to respond to fecal transplant (death was ruled to be caused by respiratory failure), and another patient within the high-dose arm presented with recurring CDI and later fractured their hip; death was ruled to have been caused by a combination of renal failure and pulmonary sepsis. Although ViroPharma has said that it is encouraged by the clinical data for VP20621, the drug's target indication falls outside of ViroPharma's focus on orphan diseases, and as such, the company plans to find a partner to continue clinical development, and possibly commercialize the drug.
- As for budesonide (for the treatment of eosinophilic esophagitis), ViroPharma has indicated that Phase II data will be available in 2014. As a reminder, budesonide is exclusively licensed to ViroPharma by Meritage Pharm (privately held), and ViroPharma has an option agreement in place that allows the company to acquire Meritage for $69.9 million (with additional commercial and regulatory milestone payments) after the availability of Phase II data and a Meritage meeting with the FDA on an "acceptable clinical endpoint for the Phase III program."
- Much of ViroPharma's Q1 call was spent on discussing updated clinical data for maribavir, an experimental treatment for human cytomegalovirus (also known as HMCV) in hematopoietic stem cell and bone marrow transplant patients. HCMV, which is often undetected by healthy people, has the potential to be fatal in patients with compromised immune systems, leading to a variety of CMV-induced illnesses, such as CMV hepatitis, CMV pneumonitis, and CMV esophagitis. ViroPharma has been testing maribavir in Europe (and currently has several named patient programs in place), and data presented on the company's Q1 call is encouraging. There are currently two Phase II trials of maribavir (for both stem cell and bone marrow transplants), and viral clearance has been achieved in over 90% of (over 37 out of 41) patients in these trials. Of note, these trials include patients that are refractory and/or resistant to current CMV treatments. Additionally, ViroPharma is conducting a 160-patient European trial of maribavir in asymptomatic CMV viremia; the trial includes 3 dosing arms and is a head-to-head trial comparing maribavir to Roche's Valcyte (valganciclovir), and another 120-patient U.S. study as well. Preliminary data from these various studies has been positive, with 26 out of 28 (93%) patients for whom data is available in the asymptomatic study showing viral clearance (as measured by CMV levels in their plasma). Of the 2 patients that failed to show clearance, only 1 was tied to maribavir, with the other patient being forced to withdraw from the study for non-medical reasons. Data for the Valcyte arm, however, is also made less clear by patient withdrawals. Viral clearance was achieved in 5 out of 8 patients (53%), but these 3 subjects were all withdrawn from the study for non-medical reasons. Within the resistant and refractory study, 12 out of 13 (92%) patients for whom data is available showed viral clearance. The 13th patient was withdrawn from the study and later died due to post-transplant complications unrelated to maribavir. Maribavir also presented an acceptable safety profile, with taste disturbance cited as the most common adverse event. ViroPharma is taking an incremental approach to maribavir, and is releasing data in increments of 40 patients. The company's goal is to present the full data set for maribavir once it is available to the FDA to discuss a potential path forward, with Milano stating that breakthrough therapy designation is a possibility, given that for the subset of patients being targeted for treatment with maribavir, it is their last available treatment option. As Milano stated on the company's Q4 call, "when you think about the nature of the study, we're treating patients who have no alternative. They either die or this works." Initial data for maribavir is encouraging, however more data is needed, and this will likely occur incrementally throughout the course of 2013 as ViroPharma receives more viral clearance data.
Although ViroPharma slightly missed Q1 estimates, it appears that the remaining vestiges of the company's Vancocin franchise, not Cinryze or its European franchises, caused the weakness. Cinryze appears to be taking share, with many of ViroPharma's new Cinryze patients switching from steroid-based or acute HAE treatment options. The company's European business is continuing to make progress, and the company's financial position remains secure. ViroPharma will see multiple sets of clinical data released over the next 12 months, and this should serve to highlight that ViroPharma's long-term potential is not limited to Cinryze.
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