Ahead of the Bell: ViroPharma upgraded

ViroPharma agreed to buy Lev on Tuesday for $442.9 million in cash and stock, giving ViroPharma access to Lev's drug candidate Cinryze. Analyst Stephen Willey believes the drug will be approved in October, and said Cinryze will help ViroPharma replace revenue from its drug Vancocin, which could face generic competition next year.

If Cinryze is approved by the Food and Drug Administration and granted market exclusivity, the price of the deal could rise to $617.5 million. The drug is designed to treat hereditary angioedema, a rare genetic disease that causes pain and swelling of the face and extremities. HAE can be deadly if it leads to blockage of a patient's airways. Other drug makers developing treatments including Dyax Corp. and Shire Ltd.

Vancocin treats gastrointestinal infections, and it is ViroPharma's only marketed product.

Willey raised his rating to "Overweight" from "Market weight," and lifted his price target to $15 per share from $10. He thinks Vancocin sales may start declining in 2009, but expects Cinryze to be approved early next year--helping the company operate until its drug Camvia reaches the market in late 2010 or early 2011.

In a Tuesday conference call, ViroPharma said it expects peak annual sales of Cinryze to reach $250 million to $300 million.

"Competition in HAE drug development is fierce, with five late-stage clinical candidates all vying for approval in both the U.S. and Europe," Willey said. But he thinks Cinryze has an advantage because clinical data supports its use as a prophylactic, or preventive, treatment. He said that means the drug is likely to receive orphan drug status, blocking competitors from the market.

Camvia is designed to treat cytomegalovirus in stem cell and liver transplant patients. Willey said ViroPharma's estimate of $400 million to $500 million in peak sales for Camvia is "highly conservative."

ViroPharma shares dropped 15.3 percent in Tuesday trading, closing at $10.62.