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Areas That VIVUS Investors Must Watch

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Shares of up-and-coming biotech company VIVUS (Nasdaq: VVUS  ) floundered last week after its initial sales of obesity drug Qsymia fell short of analysts' expectations. While one poor quarter can devastate a stock in the near term, it is still important for investors to examine the long-term potential of a business.

In order to help you examine both the potential upside and risks associated with VIVUS, we've prepared a brand new premium report on this stock. It takes an in-depth look at the company's business, and also includes compelling reasons to both buy and sell this stock. Below is a small sample of what you'll find in the full report.

Areas You MUST Watch

Having an FDA-approved drug isn't very useful if no one is willing to pay for it, and so far most patients have to pay for Qsymia out of pocket.

There's no doubt that helping patients reduce their weight can help save money in the long run. Obesity is a risk factor for type 2 diabetes, some types of cancer, and high blood pressure that can lead to heart attacks.

Unfortunately, from an insurer's perspective, that's someone else's problem. While obesity is a risk factor for the other diseases, it's a long-term problem, and there's no guarantee that the complications will occur while the member is insured by their current insurance company. People change jobs; employers change their insurance carrier; without consistency, there's little incentive to cover obesity drugs.

Insurers can also point out that there's a very simple alternative to obesity drugs such as Qsymia and Arena Pharmaceuticals' (Nasdaq: ARNA  ) Belviq: diet and exercise. The drugs work, but it's clear that motivated patients can lose as much weight or more by watching their caloric intake and increasing the calories they burn.

The biggest exception to insurance coverage is large employers that self-insure. In addition to the long-term health benefits, they enjoy the upfront increases in production from employees that are healthier because they've lost weight. The same types of employers that might offer to cover all or some of an employee's gym membership might be willing to cover obesity drugs as well.

Medicare might also help lead the way, and the numbers seem to be on VIVUS' side. One professor estimates that a 10% weight loss by Medicare patients 60 to 64 years old could save the agency $8 billion over 10 years and $35 billion over their lifetimes.

Oh yeah, that other drug
While it doesn't get much attention, VIVUS actually has another drug, Stendra, which treats erectile dysfunction. Stendra was approved before Qsymia, but VIVUS hasn't launched it yet because it's looking for a partner to market the drug. The drug seems to work faster than Pfizer's (NYSE: PFE  ) Viagra and Eli Lilly's (NYSE: LLY  ) Cialis, but it isn't clear whether that's clinically meaningful. If spontaneity is a real issue, Cialis is available as a low-dose daily pill that doesn't require any time to get ready.

The erectile dysfunction market is huge, but Stendra will have to compete with generic versions of Viagra starting in 2019. Since many patients pay for erectile dysfunction drugs out of pocket, the lower cost of a generic will likely trump any efficacy advantage Stendra has.

Beyond Stendra, VIVUS' pipeline is bare. The company is testing Qsymia as a treatment for sleep apnea and diabetes. I have a hard time seeing Qsymia being marketed primarily as treatment for either disease (with a side effect that patients will lose weight), but the reverse (helping patients lose weight while treating their concomitant sleep apnea and diabetes) seems like a good differentiator to help compete against other weight loss drugs.

This is just a short excerpt from our senior biotech analyst's new premium research report on VIVUS. To get the full scoop on this company's potential as an investment, click here now to learn more.

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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 November 13, 2012, at 3:05 PM, NYGuy01 wrote:

    So let me get this straight (pun not intended). Vivus is waiting to find a partner for Stendra to help them market it, yet when it comes to their real drug with high growth potential Qsymia, they decide to go it alone. I don't know about you, but that makes no business sense considering they have bet the farm on Qsymia as their revenue generator and have no other appreciable pipeline.

  • Report this Comment On November 15, 2012, at 12:06 PM, jekohearts wrote:

    This article is complete garbage. First, it only took a quick search to find that Bloomberg published a report that says that Qsymia had already been covered by one-third of insurance companies in the first week of sales which was much higher than expected. Second, it is ridiculous to suggest that insurers would refuse to cover the drug because the patient might change jobs or move or that they won't cover the drug because the patient can just exercise and diet. If that were the case, obesity wouldn't be such a huge problem. At least you are trying to sell a report on VVUS at the end of the article instead of a report on ARENA like with most of your articles. Let me ask you a question Brian, do you think that Qsymia will have a market share of the huge obesity drug market or not? If so what do you think the price of VVUS stock will be?

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