• Antiviral H1N1 flu treatment averages $2,250

SAN FRANCISCO – BioCryst Pharmaceuticals’ antiviral treatment peramivir for 2009 H1N1 influenza could generate $1 billion a year in profit margin, or as much as $28 a share.

The numbers on the emergency intravenous treatment peramivir   derive from long-standing Ticker Trax™ coverage of the protein inhibitor peramivir and the publicly-traded U.S. company (BCRX).

Analyst Michael Murphy of New World Investor says a five-day peramivir treatment of critically ill influenza patients in many cases will be doubled to 10 days if doctors heed advice from the Centers for Disease Control in the United States. Such a pace of treatment would cover 5,000 intensive-care-unit patients suffering from the virus, which has existed since at least 1918.

BioCryst CEO Jon Stonehouse announced Thursday that the U.S. government, via the Department of Health & Human Services, will pay $22.5 million for 10,000 five-day regimens of the drug. Peramivir  manufactures plasma that is delivered to life-threatening sites of infection in swine-flu patients.

Those who track swine flu developments said the price for peramivir was as much as triple what they were anticipating.

Overseas governments, led perhaps by the Ukraine and India, two hard-hit nations, could place orders for the antiviral compound this week, Ticker Trax reporting shows.

Scientists this week reported the H1N1 virus is killing 10 percent of the victims who seek hospital care. A California Department of Public Health survey just released showed a mortality rate of 11 percent.

Of those who died in the survey, 12 days passed from the onset of symptoms. Viral pneumonia and acute respiratory distress syndrome led the causes for the deaths.

Each five-day regimen contains a total of 3,000 milligrams of the drug, which is showing an 80 percent or higher success rate in patients who must be hospitalized for respiratory and other influenza complications. Peramivir slows the effects of the enzyme influenza neuraminidase that accelerates the spread of the Type A H1N1 virus in humans.

Mr. Murphy at New World Investor is one of a small number of analysts and writers who are tracking the experimental drug peramivir. Michael Murphy has tracked software and biomedical companies as a Certified Financial Adviser since 1970.

“HHS in Washington almost surely will be purchasing the remainder of its potential allotment,” Mr. Murphy said Thursday. Such an order would require another 30,000 treatments at a price of $67.5 million. “The price that the company negotiated is remarkable.”

The newsletter writer indicated to Ticker Trax that he expects Mr. Stonehouse at the Alabama company to reveal additional orders from other governments as soon as this week.

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Tracking a devastating illness

BioCryst Pharmaceuticals (BCRX, Stock Forum) spokesman Robert Bennett was not available to answer questions Thursday. The company this week canceled an investment conference appearance and in large part has informed investors via group telephone calls and press releases. A fresh contract this week indicates BioCryst is prepared to manufacture another 120,000 courses in intravenous peramivir by year’s end.

“Even that amount barely covers what we will see ordered from HHS, from India, the Ukraine, the World Health Organization,” Mr. Murphy said Thursday.

Mr. Stonehouse, the CEO, and William Sheridan, BioCryst’s chief medical officer, are on record in several conference calls stating peramivir, after passing Phase III human trials in Asia, is available for overseas stockpiling.

Among investment banks, JMP Securities appears to be most current in its coverage of BioCryst Pharmaceuticals. JMP’s two doctorate analysts place a $15 price target on BioCryst shares as of Oct. 29, 2009.

Few analysts, including Ticker Trax, have any idea how much peramivir costs to process and deliver.

Lead JMP analyst Charles Duncan on Thursday told me from New York, “I have heard it is very cheap to manufacture.” Mr. Murphy in Colorado affirmed that the novel compound is not in the class of complex molecular structures such as living biologic drugs – those with expensive manufacturing guidelines.

BioCryst also develops molecular compounds for leukemia, psoriasis, gout and possibly cardiac arrest. The company uses a process called crystallography, which we have detailed in reports to investors and subscribers of Ticker Trax. French scientist Louis Pasteur pioneered crystallography for discovering novel molecular compounds more than 125 years ago.

JMP in its most recent report says the company might not turn a profit for two to three more years.

Yet Ticker Trax analysis, fortified by Mr. Murphy at New World Investor in Colorado and by another newsletter writer, David Banister of Active Trading Partners in Rhode Island, indicates gross profit margin on peramivir could approach 90 percent. The company’s influenza research for the past several years has been almost entirely funded by America’s Health & Human Services – more than $100 million worth.

Accepting BioCryst’s assertion that it can produce at least 130,000 course of intravenous peramivir per year (120,000 plus the intial HHS order of 10,000), Ticker Trax, relying also on Mr. Murphy and others, calculates profits that could run more than $1 billion yearly, or about $28 per share across a common stock base of 38 million shares (before warrants and employee options).

The profit model is not without blemishes. BioCryst must receive the average $2,250 price for each treatment course in an overseas order.

BioCryst also must perform manufacturing of peramivir in a timely and safe manner. The company’s CEO, Mr. Stonehouse, must satisfy its first customer, the U.S. health authorities, that he will keep domestic orders on top of the pile on his desk.

The progression of the H1N1 virus appears to be accelerating in its transmission rate and in its respiratory and other medical complications. Tens of thousands of people in North America, Mexico, the United Kingdom and elsewhere are entering intensive care for treatment.

Ukraine hard hit by swine flu

In the meantime, evidence mounts that overseas orders from hard-hit nations, led by the Ukraine, Mexico, the United Kingdom and India, could be announced as soon as Thursday. “I think the orders already are on his (Stonehouse’s) desk,” Mr. Murphy says.

Mr. Stonehouse appears to have the pedigree to manage a novel compound that could exceed several billion dollars of sales spanning two or three years. He was the executive who took Prilosec, the little purple pill for gastrointestinal disorders, to one of the world’s top selling drugs.

Mr. Stonehouse has held salaried positions at several large pharmaceuticals companies, including Merck and AstraZeneca. His academic background is microbiology – University of Minnesota.

Finally, BioCryst’s partner Shionogi & Co. in Japan will have its hands full supplying peramivir to hospitals and stockpiles in Asia, primarily Japan, the Republic of China (Taiwan) and South Korea, where the drug already has cleared Phase III human trials and is likely to be accepted as an approved treatment by authorities.

BioCryst receives cash royalties and other incentives from its Japanese partner. This week, Shionogi filed in Japan to seek regulatory approval for peramivir. BioCryst will receive $7 million according to its contract with Shionogi and likely will reap far more in the way of royalties attached to sales milestones. BioCryst says the Shionogi partnership might generate as much as $102 million – plus double-digit royalty payments on sales of peramivir.

In a recent conference call, Mr. Stonehouse told us he has put in place highly professional and government-savvy individuals working on BioCryst’s behalf in a number of nations, including China, Israel and Mexico.

Writer Thom Calandra of Ticker Trax, a subscriber service of Stockhouse, has been tracking the drug discovery company BioCryst for four years and placed the shares on the service’s list of 11 Planetary Prospects in December 2008 at the price of $1.70 per share. Thom Calandra relies on interviews, original reporting, federal and international filings and life-sciences analysts and writers for his Ticker Trax research. (The subscriber service largely tracks natural resources companies and BioCryst Pharma.) 

Thom Calandra owns 63,000 shares of BioCryst Pharma (BCRX) and has no intention of selling below $25 a share. He has owned some of his shares for four years. His published fair-value analysis of BioCryst Pharma is available in Ticker Trax.

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