Why the Shorts Are Attacking VIVUS

VIVUS investors could barely bask in the glow of Qsymia's approval before they found themselves in the crosshairs of short-sellers. Well-known blog Citron Research published a piece attacking the strength of VIVUS' patents, and although the blog authors acknowledge they are not patent lawyers, a steep sell-off ensued. What does this mean for VIVUS and its competitors? Watch and find out.

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David Williamson owns shares of Amarin, but he holds no other position in any other company mentioned. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 26, 2012, at 12:42 PM, headyinvestor wrote:

    I'd argue its because it is a combination of two generic drugs.... someone will find a way around it.

    As well as their plan to launch it on their own, they have no idea how much time/$ that will cost. Leave primary care plays to the bigger guys.

  • Report this Comment On July 27, 2012, at 2:17 PM, Foreeverlong wrote:

    David,

    Here is what I think is going on with VIVUS.

    1. The HF's began shorting Arena back when it was at $2, believing that LORC (now Belviq) would not get FDA approval. it did.

    2. At the same time they were Long VIVUS.

    3. Now, they are trying to reverse the positons, while they try to hold the lid on Belviq's price. The problem, Arena's stock (nearly 75%) is largely held by retail investors, who are not willing to part with with their shares, and major binary events are fast approaching e.g. DEA labeling, approval of Belviq by Europe, large amounts of cash coming to Arena through their partnership with Eisai, and actual sales of Belviq in the U.S. beginning this year etc.

    4. Belviq is identified by the FDA as a very safe, novel drug that can be marketed to a much broader cross-section of the world's population, whereas Qsymia has inherent problems with population segments such as: women of childbearing age (cleft palate), cardiovascular issues, loss of memory etc. These problems translated into a REMS by the FDA, requiring prescribing physicians to perform monthly pregnancy tests, and other diagnostic lab tests that are burdensome and costly.

    5. Physician medical directors and advisors (Fox News, Consumer Reports etc.) are already voicing non-support for the components of Qsymia (phentermine and topiramate). Whereas, major organizations are coming out in support of Belviq e.g. Barriatrics etc.

    6. Physcians are afraid of prescribing Topiramate to such a large cross-section of the world's populaton. Its never been done before. Obviously, so is the FDA, who gave Qsymia a very restrictive REMS. And, as you said, the components of Qsymia have been available in generic form, and have not been prescribed in large quantities for weight reduction. The FDA's REMS is burdensome,and physicians are not going to take on the beuracracy of having to deal with Qsymia.

    7. Some will argue the comparative efficacy levels of the two drugs, but physicians know that they can combine Belviq and Phentermine at any time to have the safest most efficacious drug for weight loss ever available.

    8. Arena has a top 20 BP partner in Eisai, and has created the infrastructure to take their drug to market quickly, while Vivus'es management seems to be have occupied themselves with selling their shares, and has yet to announce how they will sell the product.

    But, in the end, I think that Vivus'es biggest problem with the Phentermine/Topiramate combination is that physicians are afraid of it, and will not go through all the hassle required by the FDA's REMS to prescribe it. The health care field is a very litigious environment, that has zero tolerance for error. and lots of attorneys prowling about.

    Yes, I am long Arena, but I would have bought Vivus too if I thought that it made financial sense.

  • Report this Comment On July 27, 2012, at 2:22 PM, Danosaur95630 wrote:

    Unfortunately for Vivus, all of the FACTS identified by Citron Research were completely true, read the article and look at the data - this really is not that complicated!

  • Report this Comment On July 27, 2012, at 2:54 PM, biogemfinder wrote:

    Like my dad said..you are a bigger fool to argue with a fool!

    Nuff said.

  • Report this Comment On July 27, 2012, at 2:59 PM, Foreeverlong wrote:

    Dano,

    I agree with you, and Vivus'es management hasn't lifted a finger to refute Citron's analysis. In some cases, it would make sense not do anything, but his report has been very damaging to the price of the stock and valuation of Vivus.

  • Report this Comment On July 27, 2012, at 4:32 PM, genesis667 wrote:

    Bottom line is VVUS has shown complete contempt for their shareholders. And why not, Leland and Tam cashed out huge when they dumped millions in stock, they don't care that the shareholders are being crushed. They got theirs!

    Have they done anything to discredit what Citron has said, no, they have not. Why, because they don't give a flying frick about the shareholders.

    For that reason alone I would dump it!

  • Report this Comment On July 27, 2012, at 9:16 PM, AlanPithy wrote:

    The CEO of ARNA has not sold any of his shares. On the other hand VVUS CEO sold shares after the AdvCom vote and again after they got approval. That alone tells us that the VVUS CEO thinks his stock is fairly valued, while ARNA CEO thinks his stock is not yet fairly valued. While CEO is not the only barometer I am amazed to find that almost none of the top VVUS executives have sold shares. A couple of mid level execs did sell a few shares but nobody unloaded in the way the VVUS executives did. That tells me that the ARNA management team is very confident about the future of their drug/company.

    The Citron report is another thing to think about if you are long VVUS, but ultimately I think ARNA's Belviq is going to be the big winner regardless of patent issues. Belviq is very well tolerated, there has never been a drug for obesity that is as well tolerated as Belviq, that means almost everyone who needs it can take it. Phentermine is a little tougher to take and for those who can tolerate it, I think you will see it combined with Belviq to create Bel-Phen, which probably will work as well as the old Fen-Phen did but only safe. Generic or real, Qsymia won't compete with Belviq because it is more difficult to tolerate and comes with a host of other problems including cognitive issues, higher risk of pregnancy for woman and higher risk of birth defects. Between Topo-Phen and Bel-Phen, Bel-Phen will win.

  • Report this Comment On July 28, 2012, at 1:57 AM, xtcpw wrote:

    Regarding this statement made in bullet 3 of one of the comments above;

    "The problem, Arena's stock (nearly 75%) is largely held by retail investors, who are not willing to part with with their shares"

    I don't see any evidence to support this idea of unwilling sellers. The avg daily volume for the last 3mo window is 25mill shares meaning all the outstanding shares have the potential to turn over in 8 or so trading days. That's alot of churn, if more stock was in the hands of those not interested in selling the stock would be driven considerably higher just on demand and lack of supply.

  • Report this Comment On July 28, 2012, at 11:23 AM, steamoil wrote:

    According to stuff I read on the Fierce-CRO site recently , PDI inc went into contract with VVUS to market their product.

    ScinoPharm has been producing Topiramate for years, and will be partnering up with VVUS to produce the drug . Article dated 7-19-12. .IMO, the shorts will take down the share price of any company that they manipulate the price for their advantage. They care little about what a company is producing ,selling ,etc. they will try to bring the price down , and usually succeed in order to make their questionably legal bucks.

  • Report this Comment On July 28, 2012, at 11:32 AM, steamoil wrote:

    Time will tell to see how this all pans out. I am long VVUS, and ARNA, and I believe that both drugs will hit the market. VVUS is not going anywhere any time soon since they already have other products on the market. The only good thing the shorts are doing ( if you could call anything they do good) is that the lower price will be more attractive for takeover possibilities.

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