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ViroPharma Incorporated's (VPHM) stock has been in a sideways trend for the past several months. And, although we are maintaining our Buy rating on the stock, we continue to see little movement until an update is issued from the Office of Generic Drug (OGD) on a potential generic Vancocin product.
Management continues to petition the Food and Drug Administration (FDA) to delay a generic entrant, most recently submitting views on the in vitro dissolution bi-equivalence testing methods. Approval of a generic product at Strides/Akorn at any time could create volatility in the stock. However, at this level the stock remains incredibly cheap and we are optimistic that management will be able to add significant value in the coming years.
We are maintaining our Buy rating with a price target of $14. This is despite the fact that we expect little movement in the stock price until clarity on the generic Vancocin issue emerges.
We do not expect a generic product launch until 2009. If the FDA/OGD is silent until 2009 that could mean ViroPharma's stock will remain in the tight trading range throughout most of the year. At this time we are looking for the Camvia phase III data from the stem cell transplant (SCT) study in the first quarter 2009 as the best near-term catalyst outside of an update from the FDA/OGD.
ViroPharma exited the first quarter 2008 with $599 million in cash on hand. This is 94% of the current market value of only $640 million. The net cash position (minus $250 million in debt) is still over 50% of the stock value. Management is actively seeking opportunities to put this cash to work.
We are anxiously awaiting an announcement. That being said, ViroPharma is one of the best managed companies in biotech. We are very confident in the financial and strategic position of the company that is key to our recommendation.
At this level ViroPharma stock is too attractive to ignore. Our 2008 revenue forecast of $220.9 million yields a price to sales ratio of 2.9x. This is significantly below the biotechnology peer-group average of around 6.5x. We forecast 2008 EPS at $0.90 (including option expense). Our $14 price target is based on 15.5x our 2008 EPS estimate of $0.90.
Read the full analyst report on VPHM.
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