ViroPharma Inc. (VPHM) recently entered into a supply and distribution agreement with Prasco Laboratories for the marketing of the authorized generic version of ViroPharma’s drug, Vancocin (vancomycin) in the US. Prasco plans to immediately launch its generic drug in the 125 mg and 250 mg dosage formulations.

Vancocin is approved for the treatment of antibiotic-associated pseudomembranous colitis caused by clostridium difficile infection (CDI), or C. difficile, and enterocolitis caused by staphylococcus aureus, including methicillin-resistant strains.

We note that last week the US Food and Drug Administration (FDA) denied ViroPharma’s citizen petition that was filed way back on March 17, 2006. The citizen petition was related to the in vitro method for determining bioequivalence of abbreviated new drug applications (ANDAs) for Vancocin. In its response, the regulatory body also mentioned that it will very soon release a final guidance for Vancocin bioequivalence.

Moreover, the FDA said that Vancocin’s label update in December 2011 would not result in three additional years of the drug’s marketing exclusivity. For an old antibiotic like Vancocin to be eligible for additional exclusivity, the FDA noted that the drug must be approved for a significant new use or indication, which is not the case with Vancocin. Further, the FDA approved three ANDAs for generic Vancocin, one of which was filed by Watson Pharmaceuticals Inc. (WPI).

Additionally, ViroPharma received a notification from the Federal Trade Commission, stating that it is conducting an investigation into whether the company was engaged in unfair means to promote Vancocin.

Our Take

Vancocin is the lead marketed product of ViroPharma and accounted for over 50% of the company’s revenues in 2011. The entry of generic versions will lead to a rapid decline in branded Vancocin sales. The stock carries a Zacks #4 Rank (Sell rating) in the short-run. We expect ViroPharma to remain under pressure as generic players launch their versions of the drug.

However, ViroPharma’s other marketed drug, Cinryze (accounted for 46% of revenues in 2011) along with the recently launched Buccolam and Plenadren should help the company come out of these tough times. Thus, longer-term, we have a Neutral recommendation on ViroPharma.

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