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Is a VIVUS Buyout Still on the Table? And if So, by Whom?

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The pieces of the puzzle are starting to fall into place for VIVUS (NASDAQ: VVUS  ) and its potential blockbuster anti-obesity drug, Qsymia.

The drug, which was approved by the Food and Drug Administration in July just weeks after Arena Pharmaceuticals' (NASDAQ: ARNA  ) Belviq, demonstrated higher efficacy in terms of weight loss relative to Belviq in late-stage trials and beat Belviq to pharmacy shelves, giving it first-in-class status. It also has very little worry about regarding Orexigen Therapeutics (NASDAQ: OREX  ) , whose anti-obesity candidate Contrave is still a minimum of two, perhaps three, years away from hitting the market, assuming FDA approval.

The distribution channel is also beginning to fall into place with VIVUS this week signing a distribution deal with Express Scripts (NASDAQ: ESRX  ) . This adds to deals already in place with CVS Caremark and Walgreen, which allow the drug to be ordered by mail.

However, VIVUS isn't a lock for success. The usually more accommodating European Medicines Agency seems unlikely to approve Qsymia in the EU. This isn't a major blow to VIVUS as the majority of its target population is located in the United States, but it's nonetheless another missed opportunity. It's also worth noting that unlike Arena, which has partnered up with Eisai to help it market Belviq, VIVUS is going it alone.

So the question beckons: Is VIVUS still a buyout candidate?

I'd say the potential for a deal is still definitely on the table, but it's nowhere near a sure thing with European approval no longer in the cards. Since VIVUS has no marketing deals in place, a buying company wouldn't have to worry about the messy situation of splitting royalties with another interested party, so that's a plus.

Another factor that may play into this is how VIVUS handles a launch by itself. A poor launch could indicate a sense of urgency by VIVUS to seek a marketing partner, or potentially a buyout, which could bring the asking price down and increase outside interest in the company. Conversely, a successful independent launch would probably nullify the idea of a buyout unless there was a hefty premium involved.

That leads me to my next question: Which company would be the buyer?

In February, an article by Bloomberg insinuated that Johnson & Johnson, Merck, and Bristol-Myers Squibb (NYSE: BMY  ) represented the three big pharmaceutical companies most likely to purchase VIVUS. Since then, Johnson & Johnson completed a $19.7 billion acquisition of medical device maker Synthes, which advances the company's focus on medical devices. Merck has about 11% of its sales stream at risk from the loss of asthma drug Singulair, but relative to its peers, Merck's pipeline is still healthy.

It's actually Bristol-Myers Squibb that appears to me to be the logical buyer. Bristol's venture into the hepatitis-C space by attempting to create its own HCV-focused drugs and through acquiring Inhibitex both ended in failure. Focusing on its "string of pearls" business plan, which involves focusing on acquiring game-changing drugs to fuel its pipeline, a VIVUS purchase could make sense.

Let's not forget that Bristol-Myers and AstraZeneca teamed up three months ago to purchase Amylin Pharmaceuticals for $7 billion, including debt, in order to get a hold of Amylin's pipeline of diabetes drugs that also have a positive side effect in most cases of weight loss. Bristol-Myers is desperately struggling to acquire drugs with blockbuster potential, and purchasing Qsymia could be a win-win for both parties.

What's your take on the potential for a VIVUS buyout? Weigh in with your thoughts in the comments section below.

Curious about the potential of Belviq relative to Qsymia? Don't worry, we've got you covered with our latest premium research report on Arena Pharmaceuticals. Packed with in-depth and unbiased analysis on the opportunities and threats facing Arena -- and complete with a year of regular updates -- this report will give you the tools needed to make smart long-term investing decisions. Click here to get your copy.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Express Scripts and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Express Scripts and Johnson & Johnson, as well as creating a diagonal call position in Johnson & Johnson. 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.

Read/Post Comments (8) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 12, 2012, at 9:53 AM, bhasa04 wrote:

    Forget buyout. You need to ask why VVUS is the only company who has not managed to lineup a big pharma partner yet. ARNA has Eisai and OREX has Takeda. What's so toxic about about VVUS?

  • Report this Comment On October 12, 2012, at 10:21 AM, 4wc wrote:

    What's so toxic about VVUS? The answer is easy, shaky IP with generic competition...despite what the bulls argue (you can't simply take 2 generic topo and phent pills b/c of time release of qsymia), the bears say you can.

    Also, with a safety profile less attractive than Arna's drug, bears argue that Belviq will be first line with Qsymia as back up, which may impact sales once Belviq hits the market in early 2013.

    My guess is that any potential suitors will wait till after Belviq launch to see how Q does (and also see what potential IP pitfalls may occur) before dipping a toe in the pool with less risk. This would especially be true for BMY who got badly burned in their last acquisition.

  • Report this Comment On October 12, 2012, at 10:29 AM, meldog6 wrote:

    Sean I disagree with you. How is EMA rejection not a major blow? The last thing I would do is make an inveatment on a Bloomberg insinuation of a buyout. Vivus management has been trying to sell this company for two years. Stendra has been for sale since its FDA approval. I think Vivus had banked on having a partner or the sale of Stendra by now to pay for the launch of Qsymia.

    To me with the hugh insider selling this year ($47million), Vivus managementy is just there for the money. I think they planned to have the company sold by now.

    With Stendra sitting in the weeds and Qysmia's soft launch, REMS, restricted label, only available at online pharmacies and now EMA rejection. I'm sure they are burning through alot of cash.

    I don't have to tell you what happens when a company dosen't have the right catalyst to launch a drug good or bad. Things can start out bad.

    I think vivus is overvalued and if wallstreet wasn't invested so heavy in it I think the pps would be lower. The EMA should be making their official rejection next week and with financials coming out in November which analyst are projecting a loss. I think the pps will adjust accordingly.

    Invest in companies on things you know. Never invest on someones guess.

  • Report this Comment On October 12, 2012, at 3:25 PM, Foreeverlong wrote:

    I agree Meldog with you and the others that have commented on this article.

    VIVUS probably does not have a BP partner, because they have some very expensive FDA required clinicals that they have to perform, and don't have the money to pay for them. So far, unlike in the case of Arena, there isn't a BP willng to pay the huge price tag for the additonal required clinicals for Vivus.

  • Report this Comment On October 12, 2012, at 4:53 PM, PhillyDan wrote:

    Sean, you are forgetting one major item and that is the large CVOT study that Vivus will have to conduct. That study will have thousands enrolled in the study and will run for 3 to 5 years. That study will cost in the tens of millions of dollars and possibly well over a hundred million dollars. In addition, there are several other studies, although not of the same magnitude as the CVOT, but will still cost money.

    I think these study costs are a major impediment to either a buyout or partnerships. Arena has Eisai picking up 90% of the CVOT that Arena/Eisai will need to conduct.

  • Report this Comment On October 12, 2012, at 5:48 PM, healthythoughts wrote:

    Since J & J had original patent on ingredient topamax in Qysmia (before patent protection expired & generics became available) they may be searching for new drugs to replace some of their expired patents.. BMY & Merck are probably searching for some replacements as well...Since VVUS has already done all the clinical trials & and granted approval, it should be a very good takeover.

    The CVOT should be an easier study for Qysmia, as it has been in use for other disorders, diseases/conditions, just not approved for weightloss until now..

  • Report this Comment On October 15, 2012, at 1:52 PM, PRODOD wrote:

    Qysmia is just a fancy name for generic molecules. Not much hope of a VVUS takeout when any premium value of the drug can be easily circumvented by simply writing two RX instead of one. Moreover, the birth defect risk of Qysmia is a big negative for any possible takeout: Big Pharma remembers Phen-fen and is unlikely to jump on Qysmia due to the potential CV & birth defect risks alone....

  • Report this Comment On October 16, 2012, at 10:45 AM, iongreen wrote:

    Company hasn't released sales numbers because they are letting their institutional stock holders buy more shares before the stock breaksout big time. If you notice, the daily trade volume is about 4 million each day for 14 days. Stock has moved from 17.75 to 23.00 during that time. After the buying by the big boys, the news regarding orders, acquisitions will hit the wire. Its my opinion that Vivus will sell the rights to Stendra for 1 1/2 billion dollars. Possibly sell the entire Company for 4 billion. If they only sell Stendra, stockholders may receive a one time only cash dividend of 5.00 to 10.00. GET ON BOARD.

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