presents viropharmaincorporated another...

1

ViroPharma IncorporatedPresents

Sabrina Liu Amy Ma Thongchai Rattanaruengyot Anand Sharma

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis

ValuationsValuations

Another Biotech?

• Why Harold & Kumar hate this

Biotechs are hard to

understand. We can’t

project cash flows.

They’re traded at

crazy multiples!

We’re value

investors!!! We hate

Big Companies!

No!!!!

Asian and

Indian

combination.

Whitecastle

rocks!

DYCP

2

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Why ViroPharma is Different

• Why we love it They have 5 drugs in the

pipeline. Small Cap. We can

value this! Stock is likely to

be mis-priced.

Biotechs are

expensive? This is

trading at 5 times

EV/ Revenue 8

times EV/EBITDA

DYCP

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


More on the Difference

• I’m lovin’ it Only companies like Piper

Jaffrey cover this company.

We can see hidden value in

this investment!

Ok we’ll get serious

now. Let’s start the

industry overview

DYCP

3

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


The Biotech Industry

• First started in 1971 but really took off in the last 10 years

• Big players are Amgen, Genentech, Genzyme

Sharpshooters vs. Carpet Bombers

Industry

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Competitors

Leukemia, Cancer

Respiratory, Chemotherapy, Influenza

HIV/AIDS, Hepatitis B

Pompe Disease, Multiple Sclerosis

Arthritis, Multiple Sclerosis

Anemia, Arthritis, CarcinomaIndustry

4

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Industry Drivers

• Population over 65 to increase by 73%

– Over 40% of industry revenues

– Old people are also living longer

• States spending $1bn towards biotech

– Hardest part of industry is seed capital to start pipeline

Industry

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Industry Numbers

• Over $60bn with 18.9% growth in 2005

• Avg. R&D expenses have decreased from

~60%1995 � 38%2005 (of rev.)

• Firms trade at very high multiples

• Huge margins in this industry

– 55% to 90% is typical

Industry

P/E 45.06x

PEG 1.92x

EV/EBITDA 15.31x

Biotech Industry

5

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


From Phase I to FDA Approval

• Phase I (~.5-1yr)– Assess safety of drug in small # of patients

– 47% of drugs make it to market

• Phase II (~1-2 yrs)– Determine basic dosing, safety and effectiveness in patients with the problem


• Phase III (~2-4 yrs)– Same as Phase II but bigger, with placebo etc.


• Fast Track(i) Success rates from SCRIP magazine study of biotech industry & success rate study by DiMasi

Industry

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Reasons for Failure

40%

30%

15%

15%

Efficacy Economics Safety Other

From Phase I to FDA Approval

Industry

6

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


ViroPharma Overview

• $900 mm biotech company

• 5 main drugs in the pipeline

• 49 employees

• Core expertise in infectious diseases

• No debt, positive cash flow

Company

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Company History

• Incorporated in 1994

• Acquired rights to Maribavir in 2003

• First product, Vancocin, launched in 2004

– Paid Eli Lilly $116 mm

• Maribavir went to Phase III in 2006

• HCV-796 in Phase II

Company

7

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Product Overview

Product Summary

1

1

1

2

9

0 2 4 6 8 10

Pre Clinical

Phase II

Phase III

Market

Discontinued

Number of Products

Products Disease Phase

Vancocin Staphylococcal M

Maribavir Herpes III

HCV Hepatitis II

NTX Clostridium Difficile PC

Pleconaril Common Cold D

Company

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Business Structure

• Develops and sells drugs

• Outsources production to third parties

• Sells drugs to wholesalers

• Low capital expenditures

• No inventory

• Receives grants and milestone payment

Company

8

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Revenue Sources

1. Product Sales

2. License Fees and Milestone Fees

3. Grant and Other Revenue

Note: $ in thousands

Company

2003 2004 2005 LTM

Net Product Sales $0 $8,348 $125,853 $168,480

License Fee and Milestone Fee 1,084 13,070 6,564 564

Grant and Other Revenue 528 971 0 0

Total $1,612 $22,389 $132,417 $169,044

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Revenues and Profitability

• First revenue stream in 2004

• CapEx peaked in 2004 due to purchase of

rights from Eli Lilly


Company

Revenues and EBITDA

-$50,000

$0

$50,000

$100,000

$150,000

$200,000

2003 2004 2005 LTM

Revenues EBITDA

CapEx and R&D

-$50,000

$0

$50,000

$100,000

$150,000

$200,000

2003 2004 2005 LTM

Capital Expenditures R&D

9

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Growth Opportunities

• Marivabir

• HCV

• Pleconaril

$120mm

(.15-.03)= $1,000mm

We just need any of

these drugs to be

marketed and give

ViroPharma more

than $120mm of Free

Cash Flow and then

my sunflower will be

happy ☺

Company

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Partnerships

• Teams up with larger companies

– R&D

– Profit Sharing Agreement

• ViroPharma receives capital

• Sometimes makes product acquisition

Company

10

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Tax Benefits

• $60 mm of NOLs in balance by 2005

• We expect benefits to end by 2008

NOLs = Net Operation Losses Carryforwards

Company

2005 LTM

Tax Benefits $37,805 $14,975

Numbers in thousands

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Management Team

• Coming from senior leadership positions from other

companies (Amgen, etc.), their skill and their passionfor results will provide the catalyst for ViroPharma's

future.

Michel de Rosen

CEO

Colin Broom, M.D.

Vice President, Chief Scientific Officer

Thomas F. Doyle

Vice President, General Counsel

Vincent J. Milano

CFO and COO

Company

It’s all about

the

management

baby!

11

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Management’s Outlook

• Drugs launching in the next few years

• Growth of portfolio

Outlook is so sweet

baby!

I know!

Company

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


• Only FDA approved antibiotic to treat two intestinal infections sold in U.S.

– Clostridium difficile infections

– Staphylococcal infections

– Patients increasing by 20% / year

• Bought back rights from Eli Lilly

• Currently no competing drug in market

Pipeline

12

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


• 95% of 2005 revenues

• 3Q06 sales increased 54.5% compared to 3Q05

and overall sales in 2006 increased 49.8% compared to 2005

• High seasonal demands in spring

Pipeline

Vancocin Revenue Qtr1 Qtr2 Qtr3 Qtr4 Annual

2006 $29.23 $43.82 $55.10 NA NA

2005 21.05 28.82 35.65 40.31 125.85

2004 NA NA NA 8.34 8.34

Note: $ in millions

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


• Filed Petition for Stay of Action in March

with FDA

• Strong case against OGD’s proposal to modify bioequivalence standards for

generics

• 2012 earliest estimate of generics entering

the market if generic companies start at it

today

Pipeline

13

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Maribavir – CMV Overview

• A type of herpes

• Infection rate between 50%-80% of adults by 40 years of age

• For immunocompromised individuals, CMV can lead to serious diseases or deaths – Stem cell/ bone marrow or solid organ transplantation

• 19,000 stem cell/ bone marrow transplants in America

• 26,000 solid organ transplants

Pipeline

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Maribavir – Product Overview

• New type of CMV drug

• Designed for drug-resistant CMV strains

• No neutropenia and renal toxicity

“Unlike currently available anti-CMV agents that inhibit CMV DNA

polymerase, maribavir inhibits viral DNA assembly and inhibits egress

of viral capsids from the nucleus of infected cells. Maribavir is active in

vitro against strains of CMV that are resistant to commonly used anti-

CMV drugs.”

Pipeline

14

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Herpes

Pipeline

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Maribavir’s Competitors

• Many types of herpes

• Eye, genital, etc

• Not many competitors for Maribavir

• Received Fast Track approval in Feb06

Pipeline

15

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


HCV-796

• Treats Hepatitis C (currently no vaccines or treatments for this)– $2.5bn currently towards sales of “diseases that address”

– Close to 5million cases in the US and 200m worldwide

• Polymerase inhibitor

• VERY successful early Phase, possible “fast track”

• Works well as a combo package

• In conference calls, as well as industry analyst estimates, could be a $400 – $500mm per annum at peak

• Already well underway with Phase II (expected to get results in Q107)– Possible “Fast Track” drug

Pipeline

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


HCV-796

• Likelihood of success:

Pipeline

16

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


HCV-796

Pipeline

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Intranasal Pleconaril

• Antiviral product used for the treatment of the common cold

• ViroPharma sold to Schering-Plough:

– Cost them $1.9 mm to make

– Sold for initial licensing fee of $10 mm + $6 mm for

remaining inventory

– $65 million in milestone payments (get it in 07)

– Royalties on Schering-Plough's sales of intranasal

pleconaril in licensed territories

Pipeline

17

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


NTX

• Not even wasting our time because it’s in Phase I

Pipeline

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Risks

• Generic competition for Vancocin

• Failure for Maribavir and HCV-796

• Failure to come up with new pipeline

• Changes in prescription pattern

• Regulation

Risks

18

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Investment Thesis

• Catalysts:– Presentation at American Society of Hematology in Dec

– Phase II data for HVC in Q107

– Better than expected sales data

– Disease growth!

• Pipelines we can understand

• Products that there’s a market for

• Buy!

Thesis

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Relative Valuations

• Industry analysis yields attractive upsides

• For Biotech, we look at P/E, PEG

Valuations

Industry PEG

2006 2007 2006 2007 2006 2007 5-Year

6.61x 5.72x 15.3x 14.1x 45.06x 25.45x 1.92x

6.22x 5.64x 15.9x 14.6x 24.30x 22.20x 1.30x

PEG

2006 2007 2006 2007 2006 2007 5-Year

6.61x 5.72x 15.3x 14.1x 23.00x 20.00x 1.20x

$1,117.8 $1,200.8 $1,658.0 $2,848.6 $37.35 $55.09 $61.05

14% 23% 69% 191% 142% 257% 296%

Selected Multiple

Implied Price

Upside

EV/EBITDA P/E

Mean

EV/Revenue EV/EBITDA P/E

Median

ViroPharma

EV/Revenue

19

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Revenue Projection

• Probability of success

– Maribavir 90%, HCV 80%

Valuations


Revenues 2007 2008 2009 2010 2011

Vancocin $210,000 $315,000 $330,000 $330,000 $330,000

Maribavir 50,000 75,000 200,000 200,000

HCV-796 300,000 330,000 350,000

Total $210,000 $365,000 $705,000 $860,000 $880,000

Revenues 2012 2013 2014 2015 2016

Vancocin $0 $0 $0 $0 $0

Maribavir 200,000 200,000 200,000 200,000 200,000

HCV-796 350,000 350,000 350,000 350,000 350,000

Total $550,000 $550,000 $550,000 $550,000 $550,000

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Conservative Assumptions

• WACC is 15% (cost of equity)

– Bloomberg beta 0.9

• Vancocin revenue $0 after 2011

• No value to milestones or grants

• Didn’t show any margin changes

– Management said will get better

• International sales projections not included

Valuations

20

DYCPDYCP

CompanyCompany

IndustryIndustry

PipelinePipeline

RisksRisks

ThesisThesis


Q&A

presents viropharmaincorporated another...

Documents