ViroPharma should seize the opportunity of a sale

Analysis

If your acquisition strategy falls flat, become a takeover target yourself. This could be just how ViroPharma's management’s thinking went, if a report that the group has hired Goldman Sachs to find it a buyer is accurate.

The company lacks focus and has struggled with margins. With little to show for a string of small acquisitions it looks like it is running out of ideas, and it would be strange if it was not considering selling itself. After all, it might be a good few years before the market values it at current levels again.

After Friday’s Bloomberg report, which cited Sanofi and Shire as interested parties, ViroPharma’s stock shot up 28%, and the company’s market cap now stands at $2.6bn. The shares have not traded this high for over 10 years.

One significant asset

Given that the group has only one significant product, Cinryze, for treating the rare swelling disorder hereditary angioedema (HAE), any interest must be squarely focused on this.

Cinryze came from Lev Pharmaceuticals, which ViroPharma bought for $618m five years ago, and generated $327m of revenue last year. It has single-handedly enabled ViroPharma to overcome the 2012 loss of US market exclusivity for the antibiotic Vancocin, which until then had been its most important drug.

But with the distractions of needing to develop other assets ViroPharma’s profitability has waxed and waned. Despite boasting one of the world’s most expensive drugs – Cinryze costs over $300,000 per patient per year – ViroPharma reported a second-quarter operating profit of just $3.8m on total turnover of $103.7m, for instance.

Moreover, Cinryze has had its own setbacks – failure of a subcutaneous version and more recent manufacturing concerns – and now faces new entrants to the HAE market (BioCryst eyes HAE market as Viropharma struggles to innovate, August 2, 2013).

A company with more scale might be able to put greater promotional muscle behind Cinryze and take its sales up a gear, although it is odd that an approach had apparently come from Shire. The UK company already sells the HAE drug Firazyr, which is now the biggest threat to Cinryze’s dominance in this area.

Of course, other large businesses with a niche focus on rare diseases, like Sanofi, or those that might be eager to enter this lucrative space – say, AstraZeneca – might give ViroPharma a look. One problem might be the US company’s desire to see its R&D pipeline reflected in the purchase price.

Assigning value

This pipeline, much of it derived from a string of acquisitions, has yet to register on the radar screen, so assigning much value to it could prove tough.

After Lev, ViroPharma bought Auralis for its narcotic painkiller diamorphine, followed by the orphan disease company DuoCort and an option to acquire Meritage Pharma, another rare disease business. DuoCort’s Plenadren is the only product arising from these acquisitions to feature in consensus forecasts for 2018.

The net present value of Cinryze forecasts stands at $2.9bn, though much of this is derived from sales after 2015, when the product's US orphan exclusivity expires. ViroPharma had $259m of cash and equivalents at the end of June, so will be sure to drive a hard bargain.

However much rare diseases are in vogue right now, price could be a sticking point for prospective buyers.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobEPVantage on Twitter

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