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found the cure for the common cold, or is the company's new experimental drug just another product to sneeze at?

Investors are treating the company like it's going to make miserable days of runny noses and watery eyes a thing of the past. Shares of ViroPharma are up almost 38% to $37.31 since positive late-stage test results were announced for the company's new drug, Picovir, on March 15. Shares are up more than 170% since the beginning of the year, when buzz about the drug began building.

By comparison, the broader

American Stock Exchange Biotechnology Index

is down almost 13% for the year.

But skeptics are telling a different story. They say Picovir will never live up to its hype. The drug just doesn't work that well, which means big approval problems with U.S. drug regulators. And even if it does get the nod, Picovir will not be easy for patients to get or take, which will knock down sales.

Biotech investors fight these kinds of battles over experimental drugs all the time. But ViroPharma is talking about putting a dent in one of the most common of all ailments, which is bound to generate a lot of publicity in the mass media. Consumers spend $2.3 billion a year on over-the-counter cold, allergy and sinus remedies, according to marketing research firm

Information Resources Inc.

These drugs only treat cold symptoms, not the disease itself.

The market potential could be huge if ViroPharma gets Picovir approved. But if the drug fails, ViroPharma and its investors will suffer a fate far worse than a runny nose.

On March 15, ViroPharma released results of two late-stage tests that showed cold sufferers who took Picovir experienced a "statistically significant" decrease in the length and severity of their colds, compared to patients who took a placebo. Patients also experienced a "significant decrease" in viral shedding, which means the amount of cold virus was reduced, lessening the chance that a patient would pass the cold along to someone else.

Buoyed by the results, ViroPharma executives said they intend to file an application seeking approval for Picovir in the United States by the middle of the year. The company also said it would ask the

U.S. Food and Drug Administration

for fast-track status, which could push the drug onto pharmacy shelves by very early 2002. No revenue estimates for the drug were given, but the company said cold sufferers visit doctors 51 million times a year seeking relief from their symptoms, yet there are no real cures available.

Optimism that Picovir was such a cure started ViroPharma shares soaring, helped along by a couple of analyst upgrades.

"We believe that the FDA will grant Picovir an accelerated review process and that there is a high probability that the drug will be approved," wrote

Morgan Stanley

analyst Doug Lind, who boosted his rating from neutral to outperform, and whose firm was an underwriter for ViroPharma's initial public offering. "If so," Lind added, "Picovir would be the first approved drug that targets the cause of the common cold."

But it's not that simple, say ViroPharma critics. And proof is in the fine print of Picovir's test results.

For starters, the drug only seems to work on approximately 65% of colds caused by the picornavirus, a family of small viruses. And to get the best results, a person's cold must be diagnosed early, most likely within 24 hours of its start.

"Think about this: If I have a cold and want to take Picovir, I have to make a doctor's appointment and get tested for the picornavirus," says one hedge fund manager who is shorting ViroPharma. "Then I have to wait for the results seeing whether a prescription will even help. And I have to do all of this within 24 hours? C'mon."

And Picovir's results were not exactly stellar. In the results published last month, patients taking Picovir shortened their colds by about one day -- from 7.3 days to 6.3 days, compared to patients who took a placebo. And to get these results, patients had to take the drug three times daily for five days.

Critics say by comparing patients taking Picovir with patients taking nothing, ViroPharma has unfairly skewed results in its favor, especially because tests failed last year that compared the drug's effectiveness against patients taking over-the-counter medicines.

It's this sharp dichotomy in Picovir's test results that could be the drug's albatross when it goes in front of the FDA, critics and supporters say. That's because the persnickety statisticians who work for the FDA generally don't let companies present only the data they like and ignore the data they don't like.

J.P. Morgan

analyst Frank Berger, while upgrading ViroPharma to a buy from market performer based on the positive test results, gives Picovir a 65% to 70% chance of getting a go-ahead. J.P. Morgan was an underwriter in ViroPharma's IPO.

"The real challenge will be convincing the FDA to approve Picovir with the existing data," he says. "Our take is that it will be an uphill battle with the FDA but ViroPharma will have fair probability of prevailing."

ViroPharma's CEO, Michel de Rosen, doesn't shy away from the criticism. "Most innovations are met legitimately with skeptical reactions," he says. "Our critics say the product doesn't work clinically, it won't be approved or it won't be prescribed as much as we expect. This is not surprising to me.

"What excites me the most is when we hear from physicians," he adds. "When they have enough time to ask questions and receive answers, they usually become very excited. And they tell us that there is a huge market for


All this adds up to a heck of a lot uncertainty for ViroPharma, and it's what makes biotech investing -- especially in companies with no track records -- such a risky business.

"The bottom line on Picovir is that it's a modestly effective drug for the common cold that will get approved," says a fund manager who is one of ViroPharma's largest institutional shareholders, and who recently increased his long position in the company. "I think the one-day improvement of symptoms really understates the drug's effectiveness. And the biggest driver will be in the drug's eventual use a prophylaxis against colds," he adds, referring to the drug's potential use as cold preventer, not just a cold stopper.

Company critics see it differently. "Unfortunately, most biotech investors don't have the experience or knowledge to understand the companies in which they invest. So ViroPharma has people believing it has a cure for the common cold, which it clearly doesn't," says one hedge fund manager, who has played ViroPharma long during the stock's run-up, but who intends to sell short as the company gets closer to a meeting with the FDA later this year.

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