No pharmaceutical company wants to face generic competition against its lead drugs any sooner than it has to. Rather than going through the more traditional patent infringement route, ViroPharma (NASDAQ:VPHM) has taken steps to try to make it significantly harder than normal for a generic-drug maker to attack its lead drug, Vancocin.
Vancocin is an antibiotic that has been on the market since the 1980s to treat various infections. It is ViroPharma's only marketed drug, and any patent protection covering it has long since expired. Ordinarily, this would mean that generic-drug makers like Barr Pharmaceuticals (NYSE:BRL), Teva (NASDAQ:TEVA), and Novartis' (NYSE:NVS) Sandoz division would have developed generic versions of Vancocin a long time ago, but ViroPharma has had an ace up its sleeve to prevent this.
Because of the way Vancocin works, the Food and Drug Administration has set the bar for approval of any generic Vancocin copies higher than usual. Instead of just having to use laboratory tests (in vitro testing) to prove that a generic copy is similar (bioequivalent) to Vancocin, the bar has been to prove that it is equivalent in human (in vivo) clinical testing.
This is a much longer, more expensive, and difficult pathway for a generic drug to go through, and so far no generic-drug maker has tried, despite the drug's $204 million in sales last year.
What has happened and depressed ViroPharma's shares since 2006 is that the FDA gave signals that it would lift this human clinical trial requirement for any potential Vancocin copies. Obviously, ViroPharma does not want the FDA to do this and has made its case multiple times to the FDA about why this human clinical study requirement should stay in place.
On July 23, an FDA advisory panel committee will debate what sort of steps a generic-drug maker would have to go through to gain approval for copies of drugs similar in nature to Vancocin. I believe that the pathway toward generic versions of Vancocin is much harder than expected, and that's why ViroPharma shares are still undervalued.
Considering that this panel hearing could be a major indicator of whether Vancocin is able to stave off generic competition, though, investors choosing to remain unhedged with their ViroPharma shares should watch its outcome very closely.
