Vivus a Good Short; Arena a Screaming Buy

REZA is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Vivus (NASDAQ: VVUS) just announced its quarterly results and as usual the smooth-talking management who’ve managed to convince some analysts that Qsymia is better than sliced bread, projected a rosy future for the company despite dismal numbers and other unpleasant realities surrounding Qsymia.

I called Vivus a short when it was in the $30's. Insiders sold a ton of shares in the 30’s on down. At $13 it is still a good short despite the fresh price targets such as $55. By being too bullish about Vivus several analysts have been consistently wrong, just as they've been wrong with their bearish sentiments about Arena Pharmaceuticals (NASDAQ: ARNA). Orexigen Therapeutics (NASDAQ: OREX)'s Contrave is a darling of some analysts but it has a long way before it gets to market and doctors I've talked to don't see it as anything great -- like Qsymia it is also a combination of generic components and doctors seem to prefer Belviq as first line therapy for obesity.

Qsymia is at best a second line therapy behind Belviq, Arena's much anticipated and safer obesity & T2DM medicine. On the call Vivus' management touted Qsymia’s efficacy. Efficacy has been used by hedge funds and their analysts and journalists to disparage Belviq and pump Qsymia but the fact is the efficacy numbers for Belviq are outstanding. Comparing Vivus and Qsymia's numbers is like comparing apples with oranges because their trials were set up very differently and there's never been a head to head comparison.

While the medical community believes a modest 5% weight loss can have significant improvements on overall health, two trials of Belviq showed completers lost an average of 8% of body weight and responders lost between 11% and 12% of body weight in a year. The top 25% of weight losers lost an average of 35 pounds in one year. These are excellent efficacy numbers.

Dr. Ed Hendricks of The Center for Weight Management told the FDA:

"I don't think placebo adjusted weight loss from a clinical perspective is a valid measure. I look at people who are true responders. There are plenty of people who are responders. There are 200 million people in this country could benefit from a drug like this... even 1/4 of them translates to 50 million people... Efficacy to me means more than just weight loss. Sometimes we use obesity drugs to prevent further weight gain [brings several examples and benefits]... Many clinicians are interested in this drug because they see it as a potential drug that could be added to some of the other drugs that we have. [brings examples]."

While Vivus' management has downplayed the generic challenge to Qsymia, the reality is patients can obtain generic ingredients of Qsymia at a fraction of cost. Insurance coverage is another issue. One medical doctor I spoke to who works for a big insurer said Vivus may have a hard time convincing insurance companies to cover Qsymia while he thought insurance companies will be delighted to cover Belviq because it saves them in the long term to have patients lose weight and no generic version of Belviq is available nor will be for many years to come.

In terms of market size a large portion of the obesity market, i.e., women of child-bearing age, may not want to be on Qsymia due to birth defect risks. With rejection of Qsymia in Europe, Vivus is so far confined to the US market while Arena is marching around the world seeking approvals in several regions and will likely get EU approval within the next four to six months.

The REMS program may discourage some practitioners from bothering with Qsymia. I don't believe the FDA will loosen the requirements as Vivus has requested.

There are many other reasons why Wall Street got it backwards with its bearish sentiments on Arena and bullish sentiments on Vivus. Vivus does not have much of a pipeline. Have a look at Arena's. Arena has a rich pipeline of several other drugs as well as use of Belviq for a number of other indications as well as in combination with other drugs. I still believe Arena is a delicious takeover target for Big Pharma at much higher prices to current valuation.

On the call Vivus management mentioned partnering. They've been saying this for a very long time but no partner has surfaced yet. I do not see any reasons why a big pharma would want to partner with Vivus. On the other hand Arena has already partnered with a world-class company that has experience marketing blockbusters and is looking for Belviq to be their next blockbuster. At $13 Vivus is a good short as I don't believe Qsymia sales will ever take off at the levels these analysts are predicting to justify a $55 price target. Arena on the other hand is a screaming buy at these levels because Belviq has the potential to be a global blockbuster.

You can visit my previous MF articles for further discussion of these companies.  

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 The views expressed above are only opinions and are NOT investment advice and are NOT medical advice. Please always do your own research. I am long ARNA and have no positions in the other stocks mentioned above. To find out more about my interests please visit www.rezamusic.com . If you like to join my private Arena-related mailing list send an email to (info -- at -- rezamusic -- dot -- com).

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