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No. of Recommendations: 3
Well, since no one ran with the valuation, I'll take a stab (please note, I'm not so good at this so do your own DD).

Current Share Price: $10.75
52 Week Range: 7.94 - 15.16
Market Cap: 752 M
Cash Per Share*: $8.76
CAPS rating: 5 stars
CAPShot rating: 11 (misses on industry rating)

*presented in Nov 25th Fool article http://www.fool.com/investing/general/2008/11/25/the-richest...

Using the Fool's DCF Calculator, the company looks to be a steal. Here are the inputs:
Discount Rate: 15% (I made up)
Free Cash Flow: 95.353 M (from the annual report)
Assumed FCF for next 5 years: 24.5% (analyst estimate from Yahoo)
Assumed FCF for years 6-10: 10% (I guessed)
Assumed Earnings Growth after 10 years: 3% (I guessed)
Current Stock Price: 10.75
Shares Outstanding: 69.98 M
Debt: 250 M

So, you get an intrinsic value of 27.94 per share, with a 61.5% margin of safety.

First thought - 24.5%! are the analysts nuts?

Well, maybe not. VPHM took in $204 M this year in sales and their net income was $95 M. They have a new drug on the market this year, which should increase earnings and they have a two drugs exciting the research phase (the one on the market, and one soon to be reviewed). That will decrease expenses. Analysts expect 24.5% growth, which would mean a net income of around $230 M. That's not quite so crazy considering the spending declines and modest sales growth.

But, I'm still worried about the pipeline. What happens if we assume there is no growth after that? Then, according to the DCF tool, the intrinsic value is 18.64 per share with a margin of safety of 42.3%.

That's still pretty good, but is it worth it?

What we're looking at here is a company that is maturing but not really growing. Growth will have to rely on the sales force, which is probably not the biotech company's strength (though they partner with Lilly).

Also, where is the potential for an upside surprise? There are no drugs in the pipeline that could come to market in the foreseeable future, so we're taking on the risk of a drug company (Vioxx anyone?) with out the potential reward.

I'm left wondering, are there other drug companies out there with a similar margin of safety but a better potential for growth? Probably, says I!

Dave
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No. of Recommendations: 0
I agree that there may be other drug companies with better potential.
From the company's website it looks like Cinryze and Vancocin are their two main products. The patent has expired on Vancocin, and generic competition for this product is probably eminent.
Going from the Financial Results posted on moneycentral.msn.com) Growth rates for the past five years look phenomenal at 105.68 for the company vs. 35.40 for the industry, but the past year does not look so hot with sales this quarter trailing the industry (29.4 for ViroPharma vs 80.6 for the industry) and net income also down (ytd at -8.5 vs +21.9 for the industry.)
I'm not sure how to value this one. Particularly with the near term risk that they will lose money, and no clear picture of their long-term prospects. Consensus EPS trends estimate this one dropping through 2010.
With a simple valuation based off of the current EPS of 1.1, an eps growth rate of 10% which seems optimistic compared to analysts eps trends, and using a fyi P/E estimate of 10.5 (moneycentral again) I am getting something a fair bit lower than their current share price.
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No. of Recommendations: 0
This is a strange one. A quick overhead doesn't seem to cut it. Why are revenue estimates increasing while EPS estimates are plunging?

2007 rev: $203.8MM EPS $1.21
2008 (est) rev: $242.9MM EPS $0.99
2009 (est) rev: $257.9MM EPS $0.56

Are they making some major investments or something what is going on?

BD
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No. of Recommendations: 0
This is a strange one. A quick overhead doesn't seem to cut it. Why are revenue estimates increasing while EPS estimates are plunging?

2007 rev: $203.8MM EPS $1.21
2008 (est) rev: $242.9MM EPS $0.99
2009 (est) rev: $257.9MM EPS $0.56

Are they making some major investments or something what is going on?


It could be that they are expecting increasing expenses with their drug in Phase III trials. These can be very expensive because of the number of patients involved (usually a few thousand). The trial will probably end in 2010 or 2011, at which point the EPS will go back up (assuming their other two drugs continue to sell).

Dave
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