VPHM, A cheap drug company.

**xxyygorich** Wed Nov 14, 2007 6:54 pm

VPHM, A cheap drug company.
VPHM, it actually is not a biotech company. It does not do research and develop, but buy good drug candidates.
Its principal product includes Vancocin for treatment of antibiotic- associated pseudomembranous colitis caused by Clostridium difficile and enterocolitis caused by Staphylococcus aureus, including methicillin-resistant strains. The company also develops Maribavir, which is in Phase III clinical development stage for the treatment of cytomegalovirus disease; HCV-796 that is in Phase II clinical development stage for the treatment of hepatitis C virus infection; and Intranasal pleconaril, which is in Phase II clinical development stage for the treatment of common cold and asthma
exacerbations.

Reasoning:
1. PE = 7. Extremely low among Biotech companies. Furthermore, it's profitable ! (Also very rare in biotech companies).

2. Insider purchases. Insiders (CEO, COO, beneficial companies) were buying a significant amount of the stock recently.

3. A nice pipeline.
One drug candidate (Maribavir) is in Phase III (Got orphan drag approval recently.). If approved, it will have 10 year patent protection. Another one HCV-796 is in Phase II. Another candidate is also in the Phase II.

4. Cash position.
$6.9 per share (Yahoo data). The debt is $2.5 per share. So the cash value is about $4.5 per share with strong cash flow from its main product, Vancocin.

5. Risk
Expired patent.
Its blockbuster product, Vancocin, has NO patent protection. Vancocin was acquired from Lily in 2004. Actually the core patent of Vancocin has expired in 1996, so far still no generic version. After acquisition, VPHM was able to raise the price by 80%. The Vancocin is the sole treatment for a severe transfacious disease which was spreading across in US. In 2004, only 17 states have this disease, now it was found in 3x states. Will there be a generic version of Vancocin soon? Maybe, but it has been late for at least 10 years. Some sources suggested that the manufacture procedure of Vancocin is complicated. I think there might be at least one or two years before a generic version hits the market. FDA proposed a simplified procedure to approve a generic version of Vancocin without a clinical trial, which trigged the sell off in 2006 from $22 to $8. (BTW, Jim Cramer recommended this stock when it was $19, right before the sell off, and did a very very "good" job!). VPHM filed multiple scientific and civil petitions to try to make FDA reverse the simple procedure in 2006. Still no answer was reported for these petitions.

I personally don't think the generic version of Vancocin is an immediate threat, but in a long term, Vancocin might not be as profitable as it today. The products in the pipeline will take 2 or 3 years to mature, because the clinical trials are very costly. The positive cash flow for Vancocin may not be enough. So VPHM might issue new shares to raise more money. The current shareholder’s value might be diluted.

Overall, I think VPHM is a very promising pick and very strong downside protection and own a small LONG position of it.

My price target is about $12 - $14.

Reference:
ViroPharma's Generic Discount:
http://www.fool.com/investing/dividends-income/2006/03/20/viropharmas-generic-discount.aspx
ViroPharma Submits Scientific Arguments In Supplement To ancocin Petition For Stay Of Action
http://www.medicalnewstoday.com/articles/46465.php
Jim Cramer
http://www.madmoneytoday.com/mad_money_2006_03_01.htm
ViroPharma Incorporated: Value in a Pharmaceutical
http://seekingalpha.com/article/53836-viropharma-incorporated-value-in-a-pharmaceutical

**lzhang** Wed Nov 14, 2007 7:37 pm

Hi,

I thought HCV-796 was halted due to `adverse events'

Anyway, it is not exactly a biotech company involving lots of R&D expenses, which I like.

http://www.fool.com/investing/high-growth/2007/10/31/the-next-hepatitis-c-blockbuster.aspx

**xxyygorich** Wed Nov 14, 2007 8:21 pm

Thanks for your reply.

I've modified the title.

I agree with you it was not a biotech company in terms of R&D.

Thanks for your information. I listened the CC. It seemed that it was not a big issue.

[url]http://www.fool.com/investing/high-growth/2007/09/27/viropharmas-good-bad-news.aspx lzhang wrote: "lzhang"]Hi,

I thought HCV-796 was halted due to `adverse events'

Anyway, it is not exactly a biotech company involving lots of R&D expenses, which I like.

http://www.fool.com/investing/high-growth/2007/10/31/the-next-hepatitis-c-blockbuster.aspx