Vivus Reports A Weak First Month For Qsymia Print E-mail
By Brian Wilson, Lead Contributor   
Wednesday, 07 November 2012 08:17
icon_newsnotesAfter much anticipation, we finally saw Vivus Inc. (NADSAQ: VVUS) post quarterly results that showed some hint as to whether or not Qsymia (phentermine and topiramate ER) sales revenue will eventually justify the company's market capitalization.
The market has been very hungry for information about Qsymia's potential after July 17th 2012 (the date of the FDA approval), although it was hard for analysts to put value on the drug since there have been no FDA-approved prescription weight loss pills in the United States since the the 1990's. This is why the market has struggle to value Arena Pharmaceuticals (NASDAQ: ARNA) and Orexigen Therapeutics (NASDAQ: OREX) too.

Arena actually received FDA approval for its prescription weight loss drug, Belviq (lorcaserin), on June 27th (a few weeks before Qsymia's approval) but hit a stumbling block with a DEA (Drug Enforcement Agency) scheduling that allowed Qsymia to hit the market first. Still, the market seems to favor Arena since the FDA recommended Belviq as a Schedule IV drug to the DEA, which implies very low abuse potential and would allow fewer marketing restrictions than Qsymia once Belviq enters the prescription weight loss drug market. More specifically, we'd see Belviq available in retail pharmacies – Qsymia is only available through mail order. There is also the fact that Vivus' MAA (Marketing Authorization Application) was not accepted by the EMA (European Medicines Agency), which means that Qsymia may not be able to even enter the European drug market. Belviq, on the other hand, probably will.

The story gets more interesting when you include Orexigen into the mix, with its future prescription weight loss drug Contrave (naltrexone SR and bupropion SR.) Contrave has yet to receive FDA approval, and is in a phase III trial called “The Light Study” that is meant to test the cardiovascular risk factors that obese patients would be at risk for after FDA approval. The expected primary completion date for The Light Study isn't until 2017, although it's widely believed that the FDA will accept Contrave under certain conditions. REMS studies would make sense, since Qsymia is undergoing those as well due to its own cardiovascular risk factors.

The Q3 2012 earnings report that was put out by Vivus yesterday (November 6th, 2012) is particularly important to all three prescription weight loss drug companies because it is our first view of a huge and unexplored drug market that is expected to be quite large due to the huge incidence of obesity in the population. Although we can make crude estimates of the size of the prescription obesity drug market based on hypothetical market penetration rates of the obese population, there's nothing better than empirical data to verify the assumptions.

In the third quarter, Vivus posted an embarrassingly low product revenue of $41,000, which was derived from a petty sum of 5,560 Qsymia prescriptions that were sold between the drug's launch on September 17th and October 26th. While it's hard to blame a drug for weak performance on its first month of launch, there are two big concerns that serious VVUS investors have to wrestle with going forward.

First off, anyone who is long VVUS has to make the assumption that Qsymia only had a bad start because of the stumbling blocks that the company mentioned, including very limited insurance coverage and high co-payments for Qsymia prescriptions. According the company's conference call, patients had to pay an average of $62 for each 30-day prescription, which could justify the ~30% abandonment rates. Vivus is hoping that Qsymia can get more affordable for the people that need it after healthcare coverage expands, although it might require some patience.

The second major concern that Vivus investors should consider is the valuation of the company as a whole, which is currently $1.2 billion. Since we now have some financial data to work with, we can start to use numbers (as they become available) to gauge intrinsic worth.

At a retail price of $160 for a 30 day recommended-dose, we see that Vivus got about half of the $89,000 worth of Qsymia that the obesity drug market spent on the drug in its first month. The $41,000 in product revenue only cost Vivus $4,000 (this is the COGS), which implies profit margins of over 90%. This will make the company extremely profitable if prescription sales grew. We would want to see annual prescription sales in the hundreds of thousands rather than the tens of thousands implied by the current figures though.

Ultimately, while Qsymia's first month wasn't all that exciting it's important to realize that the drug only had a little over a month to in a brand new market. Not every drug hits the ground running. Vivus did have some viable excuses during the conference call too, which made sense. Still, the company has a long way to go. Shares were down almost 21% after the quarterly report, which implies that many investors are not willing to take the risk.

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