Growing Despite the Economy

12/24/2008 9:00 am EST


Michael Murphy

Former Editor, New World Investor

Michael Murphy, editor of New World Investor, likes a drug company that has good prospects and is protected against competition.

ViroPharma (Nasdaq: VPHM) is a health care company that will grow dramatically in 2009 regardless of what the economy does.

The recent acquisition of Lev Pharmaceuticals gave them Cinryze, now approved to treat acute attacks of hereditary angioedema. This a rare disease that causes recurrent, unpredictable, debilitating, and potentially life-threatening attacks of inflammation affecting the larynx (patients can suffocate), abdomen, face, extremities, and urogenital tract. The 4,600 patients who have hereditary angioedema average about 20 to 100 days of incapacitation per year.

VPHM will start marketing the drug aggressively in January, and I expect dramatic revenue growth. The stock came down due to fears we would see generic Vancocin in 2007. [But so far] no competitor seems anywhere near introducing a generic [version of this antibiotic used to treat infections].

The Food and Drug Administration (FDA) has posted draft guidance for establishing bioequivalence (BE) to Vancocin. The new draft guidance is open for public comment, and if finalized as proposed, it would add new requirements for generic applicants.

Under the draft guidance, generic applicants will also have to show that their products contain substantially the same inactive ingredients in substantially the same quantities as Vancocin. For generic versions of Vancocin that [do not have substantially the same] inactive ingredients, FDA is recommending in vivo BE studies with clinical end points in patients with Clostridium difficile.

Importantly, FDA has also announced that there will be a 60-day period to review and comment on these draft guidance. FDA has acknowledged the complexity of the issues involved, and specifically stated that they will carefully consider such comments before finalizing its BE recommendation for Vancocin.

[Recently], the FDA posted their draft guidance for establishing bioequivalence. It goes well beyond the simple in vitro dissolution testing originally proposed in March 2006. Generic applicants will also have to show that their products contain substantially the same inactive ingredients in substantially the same quantities as Vancocin, or they will have to do in vivo studies.

There also is a 60-day period to review and comment on the draft guidance, which ViroPharma had requested. Of course, the company will oppose any generic that is proposed, dragging out the period that Vancocin can command a premium price.

Now that generic Vancocin is delayed and ViroPharma already has the drug that will replace all the Vancocin revenues and then some, you would think Wall Street would pile in before the good news hits. That hasn't happened, either.

So, the company will simply demonstrate quarter by quarter through 2009 what real growth looks like in a deep recession, and maybe then the Street will buy the stock. VPHM traded Tuesday around $13, and it remains a Top Buy under $13 for my $28 target.

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