ViroPharma: Still Impressive

| About: Shire PLC (SHPG)

I first noticed and wrote about ViroPharma Incorporated (VPHM) in July 2006 because the management was taking its own money and buying shares on the open market. The stock price was then hovering at $9 per share.

Given that VPHM's senior executives were already receiving equity as part of their compensation package, the additional purchases really caught my attention. I wrote a blog entry entitled "Insider Buying Signals Good News Ahead" and for all you who bought, there has been significant upside on the shares – a double for some of you who wrote to me. As of now, you are still up 50% if you still hold the shares.

ViroPharma is a biotechnology company that, according to its website, "aggressively targets deadly diseases that currently have few alternative treatment options. The company's focus is to develop products for physician specialists in gastroenterology and transplant medicine."

The management is quite talented and my biotech contacts (on the sell side and in venture capital) think it is one of the most impressive teams out there. The first commercial product, Vanocin, is a "potent" antibiotic used mainly on severely ill patients at hospitals to treat significant bacterial infections of the lower digestive tract. Vanocin is mainly used to treat the colitis caused by "Clostridium difficile and enterocolitis caused by Staphylococcus aureus (including methicillin-resistant strains)." So these are powerful medications.

The company is in the preclinical and clinical stage working on medications to combat viruses including hepatitis C and those that cause the common cold. In August 2004, Schering-Plough exercised its option to license the product -- bringing cash flow into the company now and royalties, potentially, later.

I am following up because I received an email asking why the shares had more recently dropped down to the $14 range from their high of $18.39. It comes down to the earnings release that came out in the end of February. The company disappointed (in relative terms, of course) in the fourth quarter, but, if you read the release, an explanation was provided:

During the quarter and twelve months ended December 31, 2006, net sales of Vancocin decreased 4.6% and increased 32.4%, respectively,compared to the same periods in 2005. The quarter comparison was impacted by the timing of wholesaler purchasing decisions. The twelve months increased primarily due to the impact of price increases. The Company believes, based upon data reported by IMS Health Incorporated, that prescriptions during the quarter and year ended December 31, 2006 exceeded prescriptions in the 2005 periods by 19% and 23.2%, respectively.

Bottom line is that VPHM could see a blockbuster year in 2007 and, even more likely, in 2008. This is an impressive company -- even still.

Type of stock: A biotech that makes money, focuses on drugs to treat global viruses and infections and is a company with a history of insider buying (always a good sign).

Price target:
At $14, this is still a good bet for those looking for a solid biotech. There is always risk, but VPHM could hit $20 within 12 to 18 months as it continues with strong robust sales and introduces new drugs.

VPHM 1-yr chart