Vivus Fails to Gain European Approval. So What?
Dr. Osman 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) had an encouraging October up till now. The stock has gained about 10% since the beginning of the month. I think the primary reason for the stock's performance was the good news of coverage from the insurers.
In the past, obesity was not considered a lifestyle. As such it was not considered a disease. However, there has been a change in the approach now, and obesity is now considered a disease which can lead to serious consequences. The company is now working with private insurers to increase the coverage, and it looks to have paid off. Employers are realizing that by covering a portion of obesity treatment; they can potentially avoid higher expenses in other obesity related diseases, such as diabetes.
Vivus has reported increasing sales and coverage, but there have also been some negatives. Qsymia recently received official refusal from the European Authorities. In addition, a recent report by Credit Suisse analyst suggested Wall Street was overly optimistic about the sales potential for the quarter. Credit Suisse estimated sales of $12 million for the quarter, almost half of what the Street expects. However, I believe the true sales figure will be somewhere in between. It depends on a number of factors. Some of the most important factors could be the increased insurance coverage, approval for wider pharmacy sales and better agreements with the mail order pharmacies. Let's look at these factors in detail.
Official Decision by CHMP (Committee for Medicinal Products for Human Use)
Unfortunately, the European Medicines Agency [EMA] decided against granting approval to Qsymia (Qsiva for Europe). The decision was based on concerns about the potential cardiovascular and central nervous system effects associated with the long-term use of Qsymia. However, I believe the effect of this event has already been adjusted in the stock's price after the company announced it was unlikely to receive positive feedback from EMA. Vivus is losing out on humble growth in Europe, but, obesity is not that big of a deal in Europe as it is in the United States. Vivus will focus on the domestic market, which is expected to account for 70% of the total sales for the company. Nonetheless, the inability to market the drug in Europe will surely come as a blow to the company.
Insurers are keen to cover the costs for the same reason FDA approved anti-obesity drugs after 13 years. Obesity related costs are at their all time high at present and cost around $147 billion a year. As a result, obesity has now been accepted as a disease rather than a lifestyle choice. At the moment, the obesity market presents an interesting scenario. If one participant gets an advantage in any market, it should affect its competitors negatively.
However, in the obesity market, the dynamics are completely opposite. Vivus's success in getting coverage for Qsymia means Arena Pharmaceuticals (NASDAQ: ARNA) also has increased chances of insurance coverage for Belviq. This is a unique market where I have always maintained that the participants will not be hurting each other. Instead, the market will provide ample opportunity to all competitors.
Recently, the Financial Times published an article, where a panel of experts stated that Qsymia was likely to receive increased coverage by insurers. As I mentioned, the impact of obesity related conditions and costs is enormous. The insurance companies may deem it cheaper to pay for obesity treatment. Doctors expect Qsymia to have a significant impact on diabetes, as the drug may help diabetes patients get off insulin. At present, Qsymia is receiving 30% coverage, and more insurers are expected to join. The drug is in the early stages of launch, and 30% coverage is extremely encouraging. IMS Health and Wolters Kluwer reported substantial gains on Qsymia sales. IMS reported that the weekly new prescriptions reached almost one thousand in the second week of sales. The increase in prescriptions backs my view that REMS will not deter the treatment-hungry obesity market.
Wider Pharmacy Sales and Effective Partnerships
Vivus submitted an amendment to the [REMS] for Qsymia on October 17. The proposed modification will allow the company to sell Qsymia through certified pharmacies, specifically select retail pharmacies. If the FDA grants the permission, Vivus will have increased access to the market, while meeting all requirements of the REMS. The REMS modification was made at the mutual request of VIVUS and the FDA. Up till now, the company has only been able to sell its drug through mail orders, and the addition of pharmacies will be a massive boost.
Qsymia is only accessible through mail-order pharmacies, which means getting the nation's biggest pharmacy benefit manager on board was a shrewd move. A strong partnership with some of the biggest mail-order pharmacies was vital for Vivus. The company has been able to secure partnerships with key players in the market, which will surely play an important role in the future sales of the company.
The obesity market will carry on with its ups and downs, but I believe the long term trend for Vivus will be upward. The U.S. is the biggest market for anti-obesity drugs and currently most companies focus primarily on domestic sales. There will still be considerable volatility in the stock as the news continues to hit the market. However, the long term prospects look good. If the firm is able to get access to certified pharmacies, the sales of Qsymia will shoot up, and the optimistic levels of sales may prove to be right.
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