ViroPharma Finally Able to Look Forward

Aug. 6.09 | About: Shire PLC (SHPG)

ViroPharma (VPHM) has lost a long-fought battle to keep generic versions of its top selling antibiotic, Vancocin, off the market, a disappointing outcome for the company, but one that was widely anticipated.

The antibiotic has been hugely profitable for ViroPharma and a few more years of uncontested cash flows would have come in very useful, particularly in the wake of the damaging failure of the company’s most important pipeline product in phase III trials earlier this year. Still, the sword of Damocles that has hung ominously for sometime has now fallen and the company and its investors can now focus on plans for the future, which will hopefully include a deal or two.

Bioequivalence battles

Yesterday, the Pharmaceutical Science and Clinical Pharmacology Advisory Committee voted unanimously to support the FDA's Office of Generic Drugs draft guidelines on establishing bioequivalence for generic versions of Vancocin. ViroPharma was pushing for the requirement of human trials to continue, but the committee decided that in vitro tests would suffice. It seems likely that the FDA will now move swiftly to approve copycat pills waiting for approval.

Vancocin, which generated what now looks like peak sales of $232m for ViroPharma last year, has been hugely successful because it is the only antibiotic indicated to treat the severe hospital-acquired infection Clostridium difficile. Its patents expired years ago, the last core patent went in 1996, but because the barriers to establish equivalency were so high the drug has enjoyed a competition-free market place.

ViroPharma’s chances of maintaining this position have been gradually eroded in the last few years, and few analysts expected its last effort to succeed. Consensus forecasts already take into account generic entrants this year, and sales are seen dropping to $155m this year and falling as low as $17m in 2014.

All eyes on Cinryze

As such, this news will mean little for forecasts, although shares in the company were trading 3.5% lower in early trade today, touching $7.51. However, it does confirm that ViroPharma is facing a big drop in sales and profits over the next couple of years.

This position was reinforced by the failure of maribavir in a phase III trial in cytomegalovirus in February, robbing the company of its biggest future growth driver (ViroPharma's maribavir disappointment will sharpen focus , February 10, 2009). All of which means all eyes will now focus on the company’s newest product, Cinryze for hereditary angioedema (HAE).

Cinryze, an enzyme replacement therapy administered by infusion, is indicated to prevent attacks of the swelling disorder. Encouragingly, last week ViroPharma reported much better-than-expected quarterly revenues for the treatment and gave guidance for the full year of sales of $80m-$95m, considerably higher than consensus, which currently sits at $49m, according to EvaluatePharma.

Plans for growth

When ViroPharma announced the acquisition of Cinryze last year, via the takeover of Lev Pharmaceuticals (OTC:LEVP) for $443m, shares in the company dropped initially as investors reacted with understandable scepticism (ViroPharma takes gamble with Lev acquisition July 16, 2008). With no approved products in the US the HAE market was untested and unknown, leaving a lot of uncertainty, not something that investors appreciate.

However, ironically it is now Cinryze which is the sole growth driver for ViroPharma. It is early days for the drug, which was only launched at the very beginning of this year, and the actual potential is still hard to gauge. However, the signs are certainly encouraging.

This situation will also sharpen focus on what else the company has planned to grow revenues (Potential for a ViroPharma rebound , February 19, 2009). With $267m in the bank, a stated desire to add products in the transplant arena, and management time freed up from fighting Vancocin’s corner, the time is ripe for ViroPharma to make its next move.