Vivus: What Business Is It Really In?

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Investors have heard this story before.  A pharmaceutical company, this time fill in the blanks with Vivus (NASDAQ: VVUS), is competing to put a breakthrough anti-obesity medication on the market.  That drug is Qnexa. This will be first time in 13 years in the U.S. that a weight loss drug could make it to the market. The competitive arena includes 2 other pharmaceutical firms.  This time fill in the blanks with Orexigen Therapeutics (NASDAQ: OREX), Arena Pharmaceuticals (NASDAQ: ARNA). The Food andl Drug Administration has informed all 3, BLOOMBERG reports, that they may have to conduct clinical studies of the risks, especially for the cardiovascular system.

So far, that doesn't sound all that promising.  In addition, research has already shown that Qnexa can also cause birth defects such as cleft palate.   But even before those new clinical trials may or may not have to be undertaken, the FDA has scheduled meetings to assess if the companies will be allowed to take any next step.  Vivus’ will be held April 17 for Qnexa, reports BLOOMBERG. The medication is a combination of 2 existing medications topiramate and phentemine. 

Even if Qnexa goes all the way and is sold by prescription in the U.S. marketplace, what will be the actual outcomes? Those aren't all that promising either. To begin with, the outcome of long term profitability doesn't seem to be in the cards.  Since the 1930s, 6 “diet pills,” ranging from amphetamine to fenfluramine/phenylpropanolamine, have come to U.S. market and all 6 have been yanked. This kind of drug has a record for nasty medical side effects. The worst is possible birth defects. What society will tolerate any danger to the developing fetus? Remember the flap over Paxil, even though mothers who had taken it during pregnancy likely could have been saved from committing suicide?

Just as importantly, the outcomes likely won’t include loss of weight which can be maintained. That rarely happens via the medication route.  To get to that kind of outcome of maintenance of weight loss, even before Qnexa is rolled out, Vivus should consider expanding its problem solving methodology from purely pharmaceutical to a combination of other interventions.  In this particular situation - and this is just a hypothetical - it could partner with or purchase Weight Watchers International (NYSE: WTW).  That program has a good track record for changing lifestyle behavior.  A temporary pharmaceutical "diet aid" in combination with a proven approach to modifying how people relate to food could be, to use the cliche, just what the doctor ordered.  Of course, both the leadership at Vivus and WWI would have to make explicit to their target markets the synergies between the two approaches.  The promise that this solution could be for the long term could enhance sales of both the drug and the program.  In addition, or as an alternate to WWI, Vivus could also partner with Apple (NASDAQ: AAPL) to distribute an app for meditation, inspirational messaging, and behavior modification exercises when the craving to overeat seems overwhelming. 

This line of thinking may sound "goofy" to those steeped in tradition. However, moving beyond the pharmaceutical box might be the way that this flat sector can and will create a future. In FORBES, health care consultant Dave Chase presents a compelling argument for the pharmaceutical industry to reinvent itself with the mission of treating and preventing diseases. To do that it will align itself with any expertise which could become a part of the solution.  This goes back to the old marketing dictum of asking: What business are we really in? The late Harvard marketing professor Ted Levitt articulated this kind of approach.  His example was the railroads.  Had they asked what business they were really in and answered "transportation," they could have expanded to automotive, airlines, and perhaps even tourist space travel.

If pharmaceutical does pose this kind of question, it might come up with the business model which is not as high risk as the one it is in.  For example, the model would no longer demand betting the ranch on chasing blockbuster drugs which may never even be produced or be approved by the powers that be.  Then they will exist surrounded by the continual fear they will be pulled off the market for side effects.  Even if they survive out there, then the patent expires.  Along with all that, there are, as with tobacco, the inevitable risks of later federal regulation, federal and state legislation, and class action and individual litigation. With improved odds for outcomes, those threats would lessen. Through access to other resources through acquisitions and alliances, the odds improve that the pooled capital would be deployed more productively.   

Pharmaceutical is not the only sector being shown options for answering that question: What business are we really in?  Thanks to technology, myriad other industries could redefine themselves.  Analysts and shareholders should start putting the screws to them to grapple with that, before they go flat in growth or head in a downward trajectory. 


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