Pleconaril pushes ViroPharma shares higher; Merrill Lynch says some biotechs too costly
By Stephanie O'Brien, CBS MarketWatch
Last Update: 4:54 PM ET Jan 18, 2000 NewsWatch
Shares of ViroPharma surged Tuesday amid reports the company may be close to marketing a cure for the common cold.
Shares of the Exton, Pennsylvania-based company (VPHM) rose 16 1/4, or 39 percent, to 58 1/4 in recent trading.
ViroPharma's chief financial officer Vincent Milano said in an interview that a story posted over the weekend by the Associated Press, which was picked up by other media outlets, generated the surge of interest in the company. Milano said the company hadn't disclosed any new information related to Pleconaril.
In July, ViroPharma shares soared after the company said studies showed that Pleconaril reduced the duration and severity of viral respiratory infection, a severe form of the common cold. Trial results indicated that Pleconaril-treated patients had a significant reduction in the duration of their symptoms and a quicker return to feeling normal, the company said. On average, the drug reduced the length of illness by 3 days, to 11 from 14 the company said at the time. See story.
Milano said Pleconaril, which belongs to a new class of antiviral drugs, is in late-stage testing against viral meningitis and viral respiratory infection. He said he expects to complete Phase III meningitis studies in the first six months of this year. Studies of the drug against viral respiratory infection, are expected to be completed after that. If the trials are successful, Milano said the company hopes to file an application to market the drug first for meningitis and then for respiratory infection by the end of 2000 or early in 2001.
Elsewhere, Merrill Lynch Erich Hecht expressed concern that prices for some biotech stocks are too high, given their price-to-earnings growth rate ratios. In a note to clients Tuesday, Hecht said based on price-to-earnings multiples, current valuations are unprecedented for the group of biotechnology stocks he follows.
The group is now trading at 43 times and 36 times our 2001 and 2002 EPS estimates, Hecht said. "This translates into PE-to-growth rate ratios of 1.9 times and 1.6 times for 2001 and 2002 respectively, versus 1.8 times and 1.6 times for the major pharmaceuticals," he said. "While we believe that the biotech group will continue to have strong revenue and earnings growth for the foreseeable future, we are concerned that current valuations discount higher rates of EPS growth than our projected 25-30 percent," Hecht said.
The analyst also said that valuations for the most speculative companies have appreciated dramatically. "In some instances, we believe the stock appreciation ignores fundamental flaws in the business model, or can be considered an egregious valuation. We believe many investors have no idea what they own." he said. He didn't name the stocks.
Hecht encouraged investors to focus on either the fastest growing, highest quality stocks, or alternatively the relatively inexpensive names. Hecht said he's increasing target price-to-earnings to growth rate targets for Amgen (AMGN), Biogen (BGEN), Chiron (CHIR), Genentech (DNA: news, msgs), Genzyme (DNA) and Idec Pharmaceuticals (IDPH) and Medimmune (MEDI).
Hecht cut his rating on Immunex (IMNX) to an intermediate-term and long-term "accumulate" from intermediate-term and long-term "buy." He upgraded Biogen (BGEN) to intermediate-term "buy" from intermediate-term "accumulate."
Among biotech movers, shares of Amgen were up 15/16; Biogen stock rose 3 3/8 to 82 1/16;Genentech was up 3 3/4 to 142 3/4 and Medimmune climbed 8 7/16 to 163 1/2.