Valent Pharma (VRX) Shares Ride the Lightning, But Is the Storm Breaking? - Barron's (GSK)

November 23, 2009 1:38 PM EST

According to a Barron's article over the weekend, Valent Pharmaceuticals Int. (NYSE: VRX), the specialty drug maker, could see stock prices that plummet if their new epilepsy drug doesn't pass muster. VRX and GlaxoSmithKline (NYSE: GSK) recently submitted the drug for regulatory approval, doubling VRX shares to a peak of $34 since March.

Barron's believes that investors may be overestimating the value of Valent, which has a market capitalization of about $3 billion. They think that the potential for the epilepsy drug, retigabine, isn't as big as anticipated and won't be enough to offset waning profits from Valent's most important product, ribavirin.

Valent saw revs of $657 million in 2008, down 5% Y/Y, and a loss of $2.17/share. For the first nine months in 2009, revs were already $590 million with an EPS of $1.21. Consensus is an EPS of $2.04 and revs of $811.68 for FY09.

However, Valent will see patents worth an estimated $150 million per year expiring very soon. Royalties from ribavirin make up about $38 million of the $161 million in operating income made for the first nine months of 2009, and country-by-country patents on the drug are expiring rather quickly.

Though no numbers were given, its easy to estimate the potential profits from Retigabine. The drug regulates excitability by opening potassium-ion channels on the surface of brain cells. Doctors hope that it will help approximately 30% of epilepsy sufferers who still have trouble controlling their seizures with other drugs.

On the flip side, retigabine has a dosage of three-per-day, and side effects that are more severe than many users would like. Several had to pull out of testing due to these side-effects, but developers attribute a larger dosage than would be prescribed by doctors to the reactions.

Drug costs, too, may force many patients to turn to generic drugs, adding yet another barrier-of-entry to retigabine's market.

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