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"As a founding CEO, over the past 22 years, Leland has secured four drug approvals, an unheard-of achievement for a small pharmaceutical company. He has taken VIVUS (NASDAQ: VVUS  ) from start-up to what it is today."
-- Samuel Colin, senior managing partner at First Manhattan, VIVUS' largest shareholder.

But "what it is today" apparently isn't good enough for Colin. After a heated proxy fight, Colin succeeded in ousting VIVUS' CEO Leland Wilson.

Rather than waiting to see which of the two slates of board nominees shareholders would vote in, First Manhattan and management reached a compromise. If you can call it that; First Manhattan clearly got the better end of the deal because, apparently, it was going to win anyway.

In addition to ousting Wilson, four other board members will resign from the board to make way for six of First Manhattan's nominees. The board will be expanded from nine to 11 members, with First Manhattan's choice for the CEO spot, Anthony Zook, taking the 11th spot.

If you haven't been keeping score at home that's:

First Manhattan: 7
Old management: 4

New management! Different story?
Zook, who served as executive vice president for global commercial operations at AstraZeneca until February, has his work cut out for him. VIVUS' obesity drug, Qsymia, hasn't been flying off the shelves since it launched last September; in the first quarter, sales amounted to just $4.1 million.

It's not like VIVUS wasn't putting in the effort. In the first quarter, the company spent $44.7 million on selling, general, and administrative expenses to hock Qsymia.

Obesity is a big market with lots of patients, but doctors have been reluctant to try drugs, given the side-effect issues of Wyeth's fen-phen, Abbott Labs' Meridia, and Sanofi's Acomplia, especially when diet and exercise are generally safer.

Patients also haven't warmed up to the drug, given its cost. At the end of the first quarter, VIVUS had secured insurance coverage for about one-third of insured patients, but much of that is at the tier 3 level, where co-pays can be as high as $50 to $100. By the end of the year, VIVUS is shooting for 50% coverage, but there's still a long way to go before the sticker shock disappears.

Neither the doctors' concerns nor the patients' cost issues are going to change under new management. Best-case scenario for investors is that the new management is able to find help from a large pharma partner that can put a little more muscle behind the launch.

VIVUS' direct competitors in the obesity space both have large partners. Arena Pharmaceuticals (NASDAQ: ARNA  ) secured a marketing deal with Eisai to market Belviq, and Orexigen (NASDAQ: OREX  ) will have help from Takeda once its obesity drug, Contrave, is approved.

Both companies got $50 million up front, more than $1 billion in potential milestone payments, and royalties in deals signed before their drugs were even on the market. Presumably, VIVUS could get even more now because it has an approved drug.

It isn't clear exactly why VIVUS didn't sign a post-approval marketing deal. My best guess is the company couldn't get the terms that management thought it deserved. We'll have to wait and see if the new management is willing to settle for less, or can drive a better deal.

If management can secure a deal, buying now could be a good move, but it's also risky to count on a pharma partner to step up. To counter that risk, consider diversifying into dividend-paying stocks. The Motley Fool's special report, "Secure Your Future With 9 Rock-Solid Dividend Stocks," is a great way to kick-start your search. Just click here to get your free copy today.

Read/Post Comments (6) | Recommend This Article (7)

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 July 20, 2013, at 3:53 PM, shirtbrigade wrote:

    diet and exercise are safer, but the underlying condition is what it is. If diet and exercise start to work, why not enhance the effect since the mind-set is there? I think the transition was spawned by the stock falling in half while insiders sold all the way down. Am I wrong? I think FMC is justified. Sorry.

  • Report this Comment On July 20, 2013, at 3:54 PM, shirtbrigade wrote:

    ...not to mention the massive short interest...which can manhandle a stock down, no matter what the SEC says or does. To reverse that shorting trend, you need management of steel. We will see what we have now, noodles or steel.

  • Report this Comment On July 20, 2013, at 6:51 PM, JustPassinThru wrote:

    "What it is today" is that top management sold their shares when the stock was peaking in 2012. The company took two generic drugs, re-packaged them and called it a "new" formulation, and tried to foist it on the medical industry and patients. Of course this Walmart approach to marketing failed and now the company has expensive post-approval studies to complete and essentially no earnings to pay for them with.

    Arena and VVus are almost as different as companies could be. Sales of Arena's drug, post scheduling, are increasing at an impressive rate and its performance with customers are surpassing its testing results. The company is regularly awarded new patents on different aspects of its novel medical technology, and the evidence of Belviq's application to diabetic issues, unrelated to weight loss factors, is growing. Arena's first drug is developing into a money-making machine that is alternately spewing new pharmacological solutions and gold.

    To compare it to Orexigen, a company that doesn't yet have a diet drug approved, is foolish (but not in a good way).

    Arena is currently a fantastic buy under $8.00. It still will be at $30.00, but Foolish investors will be kicking themselves if they miss out on this stock while its still a steal! 2 or 3 stock splits from now and a stock run-up to $100 or $120, and the regret from missing out on this stock while it was $7.00 will probably require medication of it's own.

  • Report this Comment On July 20, 2013, at 10:46 PM, meldog6 wrote:

    What does it mean when the comments are more informative than the article they reply to?

    This seems to be becoming the norm lately with motley fool and seeking alpha. It is sad to see people writing with agendas to soft bash one stock or try to convince someone to buy another stock for their financial gain.

    The best bet is to do your own DD and not be led by someone who if they new anything about stocks would not be writing articles on either of the sights.

    Do your own research and make your own decisions and you will be better off.

  • Report this Comment On July 21, 2013, at 1:49 PM, TheStockDoctor wrote:

    The CEO didn't do a "Great Job" as the headline states. He did a good job developing the job, but the launch was a complete disaster. The lack of landing a partner and complete flop of launch showed an enormous lack of foresight by executive management. While your article makes it appear that "how could they have known", when dealing with a potential multi-billion dollar marketspace, how could they have NOT known?

  • Report this Comment On July 29, 2013, at 7:33 PM, SELLmtg wrote:

    My opinion:

    Introducing ETRM (a medical device company

    that treat obesity )

    1) ETRM submitted PMA application for FDA

    approval of VBLOC therapy in OBESITY on 7/25/2013

    2) its website is

    go to its website for more information and news.

    3) its device to treat obesity is safer than taking medicine/drug because drugs cause side effects.

    4) ETRM is an excellent buy.

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