ViroPharma Incorporated has entered into an agreement to acquire all rights in the US to manufacture, market and sell Vancocin Pulvules, the oral capsule formulation of Vancocin (vancomycin hydrochloride), as well as rights to certain related Vancocin products, from Eli Lilly and Company (Lilly).

Oral Vancocin is a potent antibiotic approved by the US Food and Drug Administration to treat enterocolitis caused by Staphylococcus aureus (including methicillin-resistant strains) and antibiotic-associated pseudomembranous colitis caused by Clostridium difficile.

Under the terms of the agreement, Lilly will receive an upfront payment of $116 million for all rights to Vancocin Pulvules in the United States. In addition, Lilly will participate in the potential upside through the receipt of royalties on annual net sales of Vancocin Pulvules within a predefined range, ViroPharma said in a release.

"We believe our acquisition of Vancocin is a remarkable deal for ViroPharma, from multiple perspectives. We anticipate that revenues from this product will generate significant cash flows, which should advance us toward our stated goal of achieving positive cash flow from operations in the near future, realistically in 2006," commented Michel de Rosen, ViroPharma's chief executive officer. He added, "This important acquisition should allow ViroPharma, over the next several years, to fund substantially all of our ongoing development and operating costs from the cash flows from Vancocin Pulvules."

"We are delighted to announce the agreement to acquire Vancocin Pulvules, the only approved treatment for these two bacterial infections that cause inflammation of the lower gastrointestinal tract," Colin Broom, ViroPharma's chief scientific officer said adding, "Oral Vancocin is one of the few available options to treat C. difficile associated disease including pseudomembranous colitis, which is an increasingly frequent and potentially serious complication of antibiotic therapy occurring predominantly in hospitalized patients. Vancocin Pulvules has an established efficacy and safety profile in the treatment of this evolving disease and we see substantial opportunity to increase patient benefit by optimizing the therapeutic use of this product."

ViroPharma's upfront payment will be comprised of $53.5 million from existing ViroPharma cash reserves and $62.5 million gross proceeds from the issuance of Senior Secured Bridge Notes due October 2005 (Senior Notes) and warrants to purchase shares of ViroPharma common stock. The Senior Notes and Warrants will be automatically exchanged for $62.5 million aggregate principal amount of 6 per cent Senior Secured Convertible Notes due October 2009 (Convertible Notes) upon the receipt of stockholder approval of the issuance of the Convertible Notes, the release added.

Through this acquisition, ViroPharma will acquire certain know-how related to manufacturing of the product, the Vancocin trademark, starting material inventory, and the approved NDAs for oral capsule, injectable and oral solution formulations of vancomycin. In addition, ViroPharma will receive certain related intellectual property and other information and materials required to continue marketing the brand in the United States.

At closing, ViroPharma and Lilly will enter into a supply agreement and a transition services agreement. The process of qualifying a third party supply chain will be ongoing during the term of the supply agreement. Following the transition period, ViroPharma will assume responsibility for product inventory, sales, marketing and distribution of the Vancocin Pulvules brand. The transaction is subject to customary closing conditions, including the Hart-Scott-Rodino waiting period. ViroPharma expects the transaction to close on or about November 18, 2004.

Vancocin Pulvules is currently the only approved oral antibiotic used to treat staphylococcal enterocolitis, an inflammation of the mucus membrane of the intestine caused by S. aureus, and antibiotic-associated pseudomembranous colitis, caused by an overgrowth of C. difficile in the colon (more generally, C. difficile-associated disease). According to the Centres for Disease Control and Prevention (CDC), there are 3 million cases of infectious diarrhoea per year, of which 15 per cent to 25 per cent are C. difficile-associated. In calendar year 2003, Lilly's un-audited revenue from US sales of Vancocin Pulvules was approximately $40 million, the release added.

"Vancocin is an excellent fit with our strengths and capabilities," added Josh Tarnoff, ViroPharma's vice president of commercial operations. "This is a product that is well known by physicians in the hospital setting and in the field of infectious disease and gastroenterology, which are among our core therapeutic areas of focus. Vancocin has performed well in the marketplace for many years, even without a promotional effort behind it. This, along with its strong safety profile and proven efficacy against these lower digestive tract diseases, provides us an excellent foundation for the focused promotional efforts that will follow."

ViroPharma is currently focused on drug development activities in viral diseases including cytomegalovirus (CMV) and hepatitis C (HCV).