Last week, drugmaker ViroPharma (NASDAQ:VPHM) announced potent first-quarter financial results and exciting progress with its drug pipeline.

Sales of ViroPharma's only marketed product, the antibiotic Vancocin, rose 68% year over year, thanks to a price increase and strong prescription growth. Diluted earnings per share climbed $0.18 to a total of $0.31 a share, while gross margins remained a whopping 95%.

Meanwhile, ViroPharma remains on track with its development of hepatitis C compound HCV-796. Last month, the company announced very strong phase 1 efficacy results for the drug, although the competition in hepatitis C treatments is heating up as companies like Vertex Pharmaceuticals (NASDAQ:VRTX) and InterMune (NASDAQ:ITMN) make fast progress in the field. ViroPharma expects to announce initial interim data from its phase 2 study with the drug in genotype 1 patients later this year.

After a convertible share offering that brought in more than $200 million, ViroPharma is flush with nearly $500 million in cash. Since the company is cash flow-positive, ViroPharma has a moderate treasure chest with which to make acquisitions. ViroPharma's guidance for the year calls for net income in the low $100 million range. Shares are currently trading at just more than twice the company's cash on hand, making ViroPharma's stock cheap in comparison to its peers.

One big question still hangs over ViroPharma: When will the Vancocin generic competition materialize? As time passes and no generic competitors surface, investors seem to be getting more comfortable with shares of ViroPharma, its strong cash flow, and its undervalued share price. Shares are up nearly 15% for the year.

That still amounts to barely more than a $1 billion market cap -- not a rich valuation for a company with $200 million a year in sales and a pipeline consisting of a novel mid-stage HCV treatment and late-stage transplant infection treatment. In short, investors unafraid of the potential for generic competitors to Vancocin should take a look at ViroPharma.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Vertex and InterMune are Rule Breakers recommendations. The Fool has a disclosure policy.