ViroPharma Gets No Respect

When a drugmaker's stock is barely trading above its cash value, you know either that something is fundamentally wrong with its drugs or the market has a bleak outlook on its future. In ViroPharma's (Nasdaq: VPHM  ) case, it has only one marketed drug, but the company is getting no respect for that drug's future sales potential, or for its pipeline.

Earlier today, the Rodney Dangerfield of drug stocks announced its third-quarter financial results. Sales of its drug, antibiotic treatment Vancocin, fell $4.2 million to $50.9 million year over year. ViroPharma blamed the 7.6% sales decrease of the drug on a higher level of wholesaler stocking in the third quarter of 2006. That higher level boosted sales by approximately $8 million in last year's Q3.

Wholesaler stocking of a drug matters, because assuming that wholesaler inventory levels stayed at the same level this quarter as in last year's Q3, then that means the 2006 sales gains were a one-time event. In turn, that would mean that Vancocin demand didn't decline year over year.

Taking a wider view of the demand, Vancocin sales have risen 22% over the first nine months of this year compared with the same period last year. So I'd say the wholesaler-stocking excuse sounds reasonable.

ViroPharma did caution, however, that the market for Vancocin's class of therapies is maturing. Nonetheless, it didn't lower its forecast for 2007 full-year Vancocin sales. To the contrary, it increased the bottom of its range by $2 million, to a range of $202 million to $208 million in sales for the year.

ViroPharma did have some competitive pressures taken off its shoulders during the quarter, when Genzyme's (Nasdaq: GENZ  ) competing agent in phase 3 testing failed to show non-inferiority against Vancocin in treating patients with a specific type of bacterial infection. Genzyme hasn't halted testing of its drug yet, but the setback probably means that even if a second phase 3 study is successful, Genzyme will have more work to do with the drug.

On the conference call, ViroPharma's leaders also reiterated the 2009 forecast for marketing applications in the U.S. and European Union of lead pipeline drug Camvia. It treats a virus that often crops up in immunosuppressed patients following transplant surgeries.

ViroPharma has a market cap of barely more than $600 million but also holds $552 million in cash and equivalents and only $250 million in long-term convertible debt. So when will it start getting some respect? Something's got to give.


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