Cinryze Approved: A Significant Catalyst for Viropharma, Lev Pharmaceuticals

On late Friday, it was announced that Lev Pharmaceuticals' (LEVP.OB) prophylactic treatment for the rare but life-threatening disorder known as hereditary angioedema- HAE was approved by the FDA.

This is the first treatment to be approved in the United States for HAE and will likely have an almost immediate impact on the bottom line and cash flows for Viropharma (VPHM), who is expected to close on its deal to acquire Lev Pharmaceuticals on October 23, 2008 (2 business days following Lev's shareholder vote).

The terms of the deal are that Viropharma will pay Lev Pharmaceutical shareholders $2.25 per share in cash plus approximately (0.50/share) in Viropharma shares for a total of $2.75/share.

In addition, Lev shareholders have the potential for up to $1.00 per share if additional milestone are met which are as follows: 1) $0.50 per share consideration under 2 potential scenarios: a) Cinryze is approved for acute treatment of HAE and orphan exclusivity is granted or b) orphan exclusivity for the acute treatment of HAE has not become effective for anyone for two years from the date of closing and date of FDA approval for prophylaxis, whichever is later; and 2) an additional $0.50 per share consideration when Cinryze reaches $600 million in cumulative net sales within 10 years of closing.

So what does the approval of Cinryze mean if I am a shareholder of Lev Pharmaceuticals?

Shareholders of Lev, assuming shareholder approval at the special meeting on October 21, will receive a $2.25 cash payment + approximately $0.50 per share in Viropharma stock for each share of stock that they own. They then will receive CVR's which would entitle them to up to $1.00 per share in additional payments when/if the above listed additional milestones are met. At a share price of $2.38 at Friday's close, the upfront payments would generate a greater than 15% return for shareholders from current levels with the possibility for up to 36% in additional returns if the CVR's are met.

Estimates for Cinryze sales and the affect on Viropharma's EPS

There is a high pent-up demand for Cinryze among patients who suffer from hereditary angioedema. Cinryze should be able to generate some revenue (although it will not be huge) in the fourth quarter of 2008 with revenues building to $150-200 million in 2009, $250 million in 2010 and potentially $300 million in 2011. These figures assume no acute approval for Cinryze (only prophylactic approval which was just granted). If acute approval is granted, these numbers could increase to upwards of $400-450 million in 2011. Based on these figures Cinryze could add approximately $0.50-0.60/share in earnings in 2009 and about $1.00/share in earnings to Viropharma in 2010. After the closing of this deal, Viropharma will still have approximately $270 million in cash which will equal $3.43 to $3.57 per share (depending on the total share count after the deal is closed which will range from 75.6-78.7 million shares) and not including any cash build in the most recent quarter from Vancocin. Viropharma is trading at an extremely compelling valuation of just about 6x enterprise value(after merger close)/earnings just from Cinryze in 2010 with Vancocin still likely to also contribute to the bottom line and other potential revenue streams in the same period. I continue to be a strong buyer of the stock and will continue to add to positions with a intermediate term goal of $20 per share.

Disclosure: Author has a long position in both Lev Pharmaceuticals and Viropharma.

Comments

[kahuna:]

You didn't mention an important factor; that is CSL Behring has it's version of Cinryze (C1INH) in the FDA's pipeline and has an expectation of approval (most likely for the acute indication) early next year.

Neither company actually developed this medicine; they merely tweaked a drug (to FDA standards) that has been available in Europe for years. Because of this, the FDA will likely allow these two companies to compete in the marketplace. The orphan drug statuses will likely have little meaning as physicians could use each for acute or prophylaxis as desired.

2008 Oct 13 01:40 PM

[Dan Weiss:]

CSL Behring is expected to have a decision on its acute version early next year but the odds of approval at this point from my understanding in talking with physicians is very low. Is it possible that both Lev and CSL are allowed to have the product at the same time? Yes, but most likely orphan drug status will be awarded that is if/when the FDA finally clears it. I'd also note based on prior studies that the CSL treatment has not been as effective as Lev's. That being said, Dyax is another competitor in the field.

2008 Oct 16 11:58 PM

[Dan Weiss:]

Solid growth of Cinryze sales from Viropharma just reported this morning. In terms of looking ahead, DYAX is next up on the plate for potential approval of an acute HAE indication.

Jul 29 01:24 PM