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Revenues Fall at ViroPharma

HALO

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ViroPharma Inc.’s third quarter 2012 adjusted earnings (including stock based compensation) of 3 cents per share were slightly above the Zacks Consensus Estimate of 2 cents but significantly lower than the year-ago earnings of 51 cents. The earnings decline was primarily attributable to lower revenues.

Quarterly revenues, which decreased 36.3% year over year to $91.0 million, missed the Zacks Consensus Estimate of $99 million. The decline in revenue was primarily attributable to decreased Vancocin sales due to generic competition.

Quarterly Highlights

Cinryze sales increased 9.3% from the prior-year quarter to $83.7 million during the reported quarter, driven by higher demand. We note that ViroPharma has received US Food and Drug Administration (FDA) approval of the Prior Approval Supplement (PAS) for industrial scale manufacturing for Cinryze. This industrial scale manufacturing will enable ViroPharma to increase Cinryze production capabilities.

In September 2012, the FDA informed ViroPharma that the company may continue with its clinical studies of the subcutaneous administration of Cinryze in combination with its partner, Halozyme Therapeutics’ (HALO - Snapshot Report) recombinant human hyaluronidase enzyme (rHuPH20). The company plans to initiate a phase II study in the EU shortly. Data from the study are expected to be release in 2013.

We note that Vancocin sales plummeted 95% to $4 million in the reported quarter. The decline was attributable to the presence of generic vancomycin capsules in the US market.

Research and development (R&D) expenses declined 27.8% during the quarter to $16.5 million. However, the prior-year quarter included a $3 million and $6.5 million payments to Halozyme and Intellect Neurosciences , leading to the year-over-year R&D decline in the reported quarter. R&D increased 23.1% after adjustment of the one-time items. The increase was attributable to increased investment in Cinryze, Maribavir and Plenadren programs.

Selling, general and administrative (SG&A) expenses amounted to $44.3 million, up 41.3% from the prior-year quarter, due to costs related to the launch of Cinryze, Buccolam and Plenadren.

During the third quarter of 2012, ViroPharma repurchased 3.1 million shares for $80 million. The company has authorized a $200 million extension of the stock repurchase program.

Outlook

Following the third quarter results, ViroPharma revised its guidance for 2012. The company has reduced its net product sales guidance to $425–$435 million (previous guidance: $450–$475 million). The decreased guidance was primarily due to an anticipated decrease in Vancocin revenues. The company maintained its US Cinryze sales guidance of $320–$335 million.

Further, the company continues to expect combined R&D and SG&A expenses in the range of $215–$235 million.

Recommendation

We currently have a Neutral recommendation on ViroPharma. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

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