The Cash Cow Is Out of Milk

ViroPharma (NASDAQ:VPHM) has milked Vancocin pretty well, but it looks like the cash cow is finally running dry.

The company bought the rights to the antibiotic from Eli Lilly (NYSE:LLY) for $120 million in 2004. Not a bad pickup, considering that the drug brought in revenue of $110 million in just the first half of this year.

Vancocin hasn't been under patent for many years now, but generic-drug makers like Teva Pharmaceutical (NASDAQ:TEVA) and Novartis (NYSE:NVS) haven't tried to make knockoffs of the drug because the Food and Drug Administration required generics to undergo clinical trials before approval. The increased cost acted as a barrier to entry and helped ViroPharma develop its cash cow.

More than three years ago, the FDA said it was considering letting generics onto the market with less-expensive laboratory tests. As the agency twiddled its thumbs, ViroPharma kept on milking.

Unfortunately, the FDA finally got around to convening a panel of experts Tuesday, and they unanimously agreed that the agency should approve generic versions of Vancocin without requiring them to be tested in clinical trials.

Both Mylan (NASDAQ:MYL) and Akorn have gotten in line for an approval. The Office of Generic Drugs works differently than the branded side of the agency. There are no PDUFA dates for generic drugs, so there's no telling how quickly it might approve the first generic competition.

So where does that leave ViroPharma once it loses its cash cow? It still has an up-and-coming drug, Cinryze, which treats hereditary angioedema, a rare swelling disease. With $267 million in cash and equivalents, the company is in OK shape to start rebuilding its pipeline. ViroPharma may also become a takeover target for a larger orphan-drug maker like Genzyme (NASDAQ:GENZ) or BioMarin Pharmaceutical (NASDAQ:BMRN).

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