Just the whiff of impending generic drug competition can be disastrous to a pharmaceutical company's shares; most recently, that's proved true for ViroPharma (NASDAQ:VPHM). The potential introduction of generic versions of its lead product, Vancocin, which treats infections of the gastrointestinal tract, is possible sometime next year.

Despite the possibility of this negative upcoming event for ViroPharma's only marketed product, sales of Vancocin have been rising nicely over the past year, thanks to price increases and strong prescription growth for the drug. Sales were $55 million in the quarter, and they're expected to be up at least 29% for all of 2006 compared to 2005. Earnings for the quarter were $23 million, $0.33 a share.


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In the past few months, ViroPharma has made great strides in moving its pipeline along, in case Vancocin faces generic competition in the future. It moved Maribavir, its drug to treat a form of herpes that occurs in immunosuppressed people, into phase 3 trials. Additionally, ViroPharma and partner Wyeth (NYSE:WYE) just initiated a 267-person phase 2 trial testing its polymerase inhibitor hepatitis C treatment.

Investors will notice that shares of ViroPharma are trading at 16 times its trailing-12-month earnings (excluding a one-time tax benefit). This very cheap valuation is obviously due to the possibility that Vancocin may face generic competition sometime in the near future. ViroPharma made somewhat of a case back in June for why the drug shouldn't see generic competition without human clinical trials for any generic equivalents, but it is still unknown whether the FDA's Office of Generic Drugs division will agree. News on this front is very unpredictable, and timelines for when the FDA will release more information on the possibility of generic Vancocin have not been established.

Vancocin's fate will determine how well shares of ViroPharma perform in the near future, but at least ViroPharma's management has taken the right steps in securing its long-term future with the progress it has made in its drug pipeline.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy .