Why ViroPharma Shares Imploded

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shareholders of biotechnology company ViroPharma (Nasdaq: VPHM  ) are running for the hills with their stock down as much as 23% today after the FDA approved a generic version of its colitis drug, Vancocin.

So what: ViroPharma launched a citizens petition in 2006 to deny Watson Pharmaceuticals (NYSE: WPI  ) the right to launch a generic version of Vancocin, claiming it was too similar to the patented version. The FDA today shot down that petition, clearing the path for Watson to bring its generic to market. Vancocin was responsible for $289 million of ViroPharma's $544 million in sales last year. To top it all off, the Federal Trade Commission is investigating the company for possible unfair practices with regards to the marketing of Vancocin.

Now what: What a day, right? It's pretty safe to say that ViroPharma can expect an immediate decline in Vancocin sales, which is being factored into the stock price today. Sales of its Cinryze jumped 42% in 2011 and it's going to need exceptional growth from that drug to justify even today's reduced valuation. I'd personally wait for ViroPharma to get an earnings report or two with Vancocin no longer under patent before you consider buying into the stock.

Craving more input? Start by adding ViroPharma to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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