Sabrina Liu Amy Ma Thongchai Rattanaruengyot Anand Sharma. Presents ViroPharma Incorporated. Another Biotech? Why Harold & Kumar hate this

Transcription

1 Sabrina Liu Amy Ma Thongchai Rattanaruengyot Anand Sharma Presents ViroPharma Incorporated 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! 1

2 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 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 2

3 The Biotech First started in 1971 but really took off in the last 10 years Big players are Amgen, Genentech, Genzyme Sharpshooters vs. Carpet Bombers Competitors Anemia, Arthritis, Carcinoma Arthritis, Multiple Sclerosis Pompe Disease, Multiple Sclerosis HIV/AIDS, Hepatitis B Respiratory, Chemotherapy, Influenza Leukemia, Cancer 3

4 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 Numbers Over $60bn with 18.9% growth in 2005 Avg. R&D expenses have decreased from ~60% % 2005 (of rev.) Firms trade at very high multiples Huge margins in this industry 55% to 90% is typical Biotech P/E 45.06x PEG 1.92x EV/EBITDA 15.31x 4

5 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 73% of drugs make it to market Phase III (~2-4 yrs) Same as Phase II but bigger, with placebo etc. 95% of drugs make it to market Fast Track (i) Success rates from SCRIP magazine study of biotech industry & success rate study by DiMasi From Phase I to FDA Approval Reasons for Failure 15% 40% 15% 30% Efficacy Economics Safety Other 5

6 ViroPharma Overview $900 mm biotech company 5 main drugs in the pipeline 49 employees Core expertise in infectious diseases No debt, positive cash flow 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 6

7 Product Overview Products Disease Phase Vancocin Staphylococcal M Maribavir Herpes III HCV Hepatitis II NTX Clostridium Difficile PC Pleconaril Common Cold D Product Summary Discontinued 9 Market 2 Phase III Phase II Pre Clinical Number of Products 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 7

8 Revenue Sources 1. Product Sales 2. License Fees and Milestone Fees 3. Grant and Other Revenue LTM Net Product Sales $0 $8,348 $125,853 $168,480 License Fee and Milestone Fee 1,084 13,070 6, Grant and Other Revenue Total $1,612 $22,389 $132,417 $169,044 Note: $ in thousands Revenues and Profitability First revenue stream in 2004 CapEx peaked in 2004 due to purchase of rights from Eli Lilly $200,000 $150,000 $100,000 $50,000 $0 CapEx and R&D Capital Expenditures R&D -$50, LTM Note: $ in thousands $200,000 $150,000 $100,000 $50,000 $0 -$50,000 Revenues and EBITDA Revenues EBITDA LTM 8

9 Growth Opportunities Marivabir HCV Pleconaril 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 $120mm ( ) = $1,000mm Partnerships Teams up with larger companies R&D Profit Sharing Agreement ViroPharma receives capital Sometimes makes product acquisition 9

10 Tax Benefits $60 mm of NOLs in balance by 2005 We expect benefits to end by LTM Tax Benefits $37,805 $14,975 Numbers in thousands NOLs = Net Operation Losses Carryforwards Management Team Coming from senior leadership positions from other companies (Amgen, etc.), their skill and their passion for results will provide the catalyst for ViroPharma's future. It s all about the management baby! 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 10

11 Management s Outlook Drugs launching in the next few years Growth of portfolio Outlook is so sweet baby! I know! 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 11

12 95% of 2005 revenues 3Q06 sales increased 54.5% compared to 3Q05 and overall sales in 2006 increased 49.8% compared to 2005 Vancocin Revenue Qtr1 Qtr2 Qtr3 Qtr4 Annual 2006 $29.23 $43.82 $55.10 NA NA NA NA NA Note: $ in millions High seasonal demands in spring 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 12

13 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 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. 13

14 Herpes Maribavir s Competitors Many types of herpes Eye, genital, etc Not many competitors for Maribavir Received Fast Track approval in Feb06 14

15 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 HCV-796 Likelihood of success: 15

16 HCV-796 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 16

17 NTX Not even wasting our time because it s in Phase I Generic competition for Vancocin Failure for Maribavir and HCV-796 Failure to come up with new pipeline Changes in prescription pattern Regulation 17

18 Investment Catalysts: Presentation at American Society of Hematology in Dec Phase II data for HVC in Q107 Better than expected sales data Disease growth! s we can understand Products that there s a market for Buy! Relative analysis yields attractive upsides For Biotech, we look at P/E, PEG Mean Median EV/Revenue EV/EBITDA P/E PEG 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 ViroPharma Selected Multiple Implied Price Upside EV/Revenue EV/EBITDA P/E PEG 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 $ % 23% 69% 191% 142% 257% 296% 18

19 Revenue Projection Probability of success Maribavir 90%, HCV 80% Revenues Vancocin $210,000 $315,000 $330,000 $330,000 $330,000 Maribavir 50,000 75, , ,000 HCV , , ,000 Total $210,000 $365,000 $705,000 $860,000 $880,000 Revenues Vancocin $0 $0 $0 $0 $0 Maribavir 200, , , , ,000 HCV , , , , ,000 Total $550,000 $550,000 $550,000 $550,000 $550,000 Note: $ in thousands 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 19

20 Q&A 20