Drug Deal Can Only Help VIVUS So Much

VIVUS (NASDAQ: VVUS  ) has found an Italian to help it out. The biotech announced Tuesday that Menarini has agreed to market VIVUS' erectile dysfunction drug Spedra in more than 40 European countries plus Australia and New Zealand.

The Italian pharma is paying VIVUS about $21 million upfront and another $30 million -- at current exchange rates -- within the first year of the launch. VIVUS is also due undisclosed royalties and potentially another $102 million at current exchange rates in milestones and other payments over the life of the agreement.

Menarini has more of the men's sexual health spectrum covered since it also sells Priligy, a treatment for premature ejaculation. The ability for the company to promote more than one drug to doctors shouldn't be underestimated. Having multiple drugs can help a sales rep get in the door and increases efficiency, which should result in higher profits.

Small key to unlocking value
No doubt, potential sales of Spedra outside the U.S. are important. First-quarter sales of Pfizer's (NYSE: PFE  ) Viagra outside the U.S. were 47% of total Viagra sales. In the first quarter, Eli Lilly (NYSE: LLY  ) actually sold more of its erectile dysfunction drug Cialis outside of the U.S. than inside it.

But Menarini has its work cut out for it. While Spedra is arguably a better drug than Viagra and Cialis because of its earlier onset, Menarini will have to compete with generic versions of Viagra, which Teva Pharmaceuticals recently launched in Europe.

VIVUS also has to find a partner inside the U.S., which might be a little more challenging. Pfizer and Eli Lilly are clearly out as are Bayer and GlaxoSmithKline, which co-market the less-popular Levitra. That doesn't leave too many large pharmas to partner with, and I'm not sure there's a specialty pharma in the U.S. like Menarini that has a large enough primary care physician sales force.

Less important long term
The upfront cash from Menarini and hopefully a marketing partner in the U.S., where it will go by Stendra, will help keep the company afloat. But the VIVUS' long-term success ultimately has a lot more to do with its obesity drug Qsymia than how well its partner for Spedra/Stendra is able to market the drug.

VIVUS should really consider following its model for Spendra and find a marketing partner for Qsymia, perhaps rolling it into a deal for the U.S. rights to Stendra. It's true that the company would have to give up quite a bit of upside, but a partner could potentially make up for that through increasing sales by giving Qsymia substantially more promotion than VIVUS' tiny sale force is able to muster.

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