Vivus Strikes Back

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

 
VIVUS Inc (NASDAQ: VVUS) has lost approximately 60% of its share value, from its July peak of $29. This decline in stock price started to accelerate after the launch of Qsymia in September. However the stock has bounced back 8% since last week, due to positive reports about post-thanksgiving sales numbers for Qsymia. According to Bloomberg Industries-compiled data, prescriptions for Qsymia had risen 21%, by the end of November. Consensus sell-side valuations show that VVUS has a 100% upside at current levels. I would recommend investors to take advantage of this massive pull back and buy VVUS.

Free 2-week Trial
Initially, Vivus was marketing Qsymia to Physicians only, which resulted in lower than expected sales. There has been a strategy shift; Vivus is now also targeting consumers directly. The company has announced a 2-week free trial program to garner mass interest. It was high time for drastic steps, as prescription growth had been flat at around 1200 new scripts (per week) and was declining by mid-November. According to data compiled by IMS health new prescriptions fell 3.8% and Symphony Health reported a 5.7% increase, for the week ending November 16.

According to company officials, the 2-week trial is not the only step taken, to improve sales. The company is also trying to persuade payers that do not cover the drug, to cut their co-pays. A key challenge for Vivus remains the retail distribution of Qsymia. The company is not allowed to distribute through retail pharmacies and distribution is restricted to mail order because of stricter safety guidance on Qsymia. The drug is considered harmful for pregnant women because studies show that Qsymia can cause birth defects, if administered to pregnant women. Other major side-effects include an increase in heart rate and metabolic acidosis.

Why Qsymia and not Belviq?
As I have said above, Qsymia is considered less safe, even as compared to Arena Pharmaceutical’s (NASDAQ: ARNA) Belviq. However studies show that Qsymia is more effective. During clinical trials Qsymia induced an average weight loss of 23 pounds, while Belviq managed only a 13 pound decrease in weight of the study subject.

What’s the potential for Qsymia?
The obesity drug market is still young and there is still a lot of room for growth. According to Financial Times, approximately 33% Americans suffer from obesity and experts are increasingly calling it a disability rather than a lifestyle choice. According to these stats the company has approximately a 10 million patient market in the United States alone. According to BioPharm Insight data Qsymia sales should reach $1.6 billion by 2019.

Valuation
The recent decline in value now presents a lot of upside potential for Vivus. The mean sell side target on VVUS is $23, approximately a 100% upside on the current price. I believe the challenges are not over for Vivus, but at these price levels the company is extremely undervalued (as sell side estimates show). A major factor in increasing Qsymia sales would be insurance coverage of the drug and its availability at retailers. Qsymia is currently being covered by only 30% insurers and I believe this coverage will rise. According to research, obesity control can result in cost savings of $50,000 per year, and this cost saving can be an incentive for insurance companies to increase coverage for obesity control.


 Figure 1: Analyst Opinion from Yahoo Finance

As the table above shows, only a single analyst has a sell rating on VVUS and the majority of investors are bullish on the stock. I believe these price levels make Vivus attractive and I recommend investors to go long.


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