ViroPharma (VPHM) finally announced their next big acquisition: Lev Pharmaceuticals (LEVP), an almost unknown Bulletin Board biotech that treats inflammatory diseases. LEVP has a drug, Cinryze, before the FDA for approval by October 14. On May 2, the Blood Products Advisory Committee voted unanimously that there is sufficient evidence of the safety and efficacy for the approval of Cinryze for the prophylactic treatment of hereditary angioedema (HAE), a rare genetic disorder that leads to episodes of severe swelling in the face and extremities. It can be fatal if it causes swelling in the larynx, and the current treatment is anabolic steroids first, but if that doesn't work they punch a hole in the patient's neck so they can breathe. About 10,000 people in the U.S. have HAE, although only 4,600 have been diagnosed, and Lev holds orphan drug status for Cinryze for both prophylactic (preventing an attack) and acute (treating an attack after it has started) indications.
ViroPharma is paying $442.9 million up front, approximately 82% in cash and 18% in stock. The deal is expected to close before the end of the year. There are two contingent payments of $87.3 million each, one if and when Cinryze is approved later on for acute HAE, and another if it achieves $600 million in sales by 2018.
The HAE market is roughly $250 million to $300 million in sales today, so that $600 million target is very interesting to me. ViroPharma's management is expert at extracting value from drugs by expanding label indications and producing compelling data to convince physicians to use a drug and payers to reimburse for it.
VPHM stock immediately sold off 15%, supposedly because they have committed their cash to a company no one ever heard of. That's ridiculous - they'll still have over $230 million in cash after the deal closes. The only real issue is whether they will extract enough value from the drug to earn a great return on the investment, which brings us back to that $600 million annual sales target. Orphan drug status gives a company exclusive rights to a market for seven years, so even though there are competing drugs in other companies' pipelines, it certainly looks like Cinryze will be first to market for preventive use. CSL Behring's Berinert could be approved on September 6 for acute cases, beating Cinryze to market. But it could as easily be sent back for more data, giving ViroPharma a chance to get the Cinryze label expanded to include acute HAE. Both drugs have orphan status, and they might just split the acute market.
ViroPharma expects Cinryze to have a comparable price to other ultra-orphan drugs, in the $200,000 to $400,000 range. If it's used by 25% of the 4,600 identified HAE patients and is priced at $300,000 annually, then it could bring nearly $350 million in annual sales pretty quickly. The total available market in the U.S. is 10,000 patients times $400,000 or $4 billion. They won't hit that, of course, but the headroom is there for VPHM management to work their magic.
Cinryze sales will make up for any decline in Vancocin sales due to generic competition in 2009 and 2010. ViroPharma then has another drug, Camvia, coming to market in late 2010 or early 2011. Camvia treats cytomegalovirus in stem cell and liver transplant patients. ViroPharma management estimates peak sales of $400 million to $500 million for Camvia, but I think that is a very conservative estimate. It could easily be a $1 billion drug.
I'm recommending specific action on this stock to my New World Investor subscribers, you definitely don't want to miss out on what it is.
