How Is VIVUS Faring in the Obesity Drug Market?

More than one third  of U.S. adults are suffering from obesity. People are becoming more health conscious and want the fastest and easiest solutions to lose weight. The U.S. weight loss market is estimated to reach $66 billion in 2013. Qsymia, an obesity treatment drug by VIVUS  (NASDAQ: VVUS  ) , was approved by the Food and Drug Administration in July 2012 as a supplement to reduced-calorie diet and physical exercise for obesity management.

Despite the high prevalence of obesity and the huge magnitude of costs associated with the obesity comorbidity treatment, Qsymia is facing significant challenges to realize its full potential. What is the company's outlook for the foreseeable future?

Major issues
Qsymia's sales have been minuscule since its launch in September 2012. VIVUS' revenue from the drug in the second quarter of 2013 was $5.5 million compared to $4.1 million in the first quarter of 2013. At the same time, the company has reported a net loss of $55.5 million, which is primarily attributable to increased selling, general, and administrative, or SG&A, expenses related to commercialization of Qsymia. The increasing SG&A costs are real problem for VIVUS' management; the company has to keep a tight lid on these costs, but its promotion programs leave limited room for it to achieve this in near quarters.

Another major hurdle in Qsymia's success includes the lack of insurance reimbursement, safety concerns, and consumers' mind-set. Doctors and obese people take excess weight as a lifestyle issue that can be addressed through healthy living habits rather undergoing medical treatment.

FDA-approved retail availability
Until July, Qsymia was available only through mail-order pharmacies due to FDA regulations. The FDA required extra regulation because Qsymia may cause birth defects if taken while pregnant. However, in April FDA allowed Qsymia sales through certified retail pharmacies under its Risk Evaluation and Mitigation Strategy order . According to the order, VIVUS is required to provide training to those health care providers and pharmacies that prescribe and sell Qsymia to make sure that they understand the risk of the drug. Also, a medication guide will be dispensed with each Qsymia prescription.

The drug is now available at approximately 10,000 certified pharmacies nationwide, including Walgreens, Costco, and Duane Reade retail pharmacies. In the second quarter of 2013, there were approximately 81,000 Qsymia prescriptions dispensed including 24,000 orders dispensed under the free trial offer. All these orders were mail order. With increased availability at retail pharmacies, I expect Qsymia's sales to increase.

Addressing the reimbursement issue
Drugs sales are highly correlated to the reimbursement coverage for the drug, hence Qsymia's challenge. The high cost burden on patients due to lack of reimbursement for Qsymia has been limiting the growth of the product; currently Qsymia is available at $150 per month without insurance coverage. The company is trying hard to increase Qsymia reimbursement coverage. As of July, Qsymia has increased its reimbursement coverage for approximately 36%  of the 160 million people in the U.S. with private or self-insurance. The U.S. Veterans Administration became the first governmental entity to cover Qsymia at a $9 co-pay.

The company recently amended its agreement with Express Scripts and Medco Health Solutions, the top U.S. pharmacy benefit managers , or PBMs. PBMs are primarily responsible for processing and paying prescription drug claims, and their involvement helps patients get the drug at discounted rates. After the amendment, patients are required to pay only $25 to $30 for their co-payment, which was $50 to $60 earlier. Currently, Express Scripts and Medco together cover 63.4 million people. The management committed to increase the reimbursement base, and I believe this improvement will help increase drug sales.

Competition
Currently, Qsymia is facing competition from Belviq, another weight-loss drug from Arena Pharmaceuticals (NASDAQ: ARNA  ) . It received FDA approval  in July 2012, and Belviq was launched in the U.S. in June this year. Arena has realized $1.3 million from the sales of Belviq in its launch quarter ended in June 2013. The drug is a potential threat for Qsymia since Qsymia isn't picking up in the market, yet Belviq generated revenue of $1.3 million in just one month. Arena doesn't sell Belviq entirely; iIts marketing is handled by partner Eisai, a Japanese drug maker.

Orexigen Therapeutics (NASDAQ: OREX  ) is also developing a weight loss product, Contrave. The FDA issued  Orexigen a complete response letter in January 2011. The FDA noted that Contrave can cause cardiovascular problems and asked the company to perform more trials to come up with the drug's complete risk profile. Since the FDA required Orexigen to run additional clinical trials to rule out the possibility that Contrave can cause heart problems, I think it will take time to receive FDA approval. While Contrave may not be an immediate threat, I see Belviq as a major concern for Qsymia since it has already hit the market and is taking Qsymia's share.

Valuation

Company

Enterprise Value/Revenue

Price/Book

VIVUS

74.51

5.63

Arena Pharmaceuticals

16.29

10.38

Orexigen Therapeutics

163.71

15.20

Source: Yahoo! Finance.

Currently VIVUS is facing trouble generating revenue, which is reflected in its EV/revenue ratio that is higher than Arena's EV/revenue ratio of 16.29. Orexigen is a loss-making company, and its EV/Revenue ratio is too high. A high EV/revenue ratio signifies that the company is not generating enough revenue compared to the investment the company makes. On the other hand, if we take a look at P/B ratios in the given pool, VIVUS is currently the most undervalued stock. I think VIVUS' fundamentals and a low P/B makes it attractive investment.

Conclusion
Qsymia is currently in the early stage of its lifecycle, and there are unique problems associated to its growth that VIVUS is trying to address. I believe the FDA approval to sell through certified pharmacies, the increasing reimbursement coverage, and the two promotion programs can improve its performance. Therefore, I remain neutral on this stock.

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Read/Post Comments (10) | Recommend This Article (1)

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 10, 2013, at 12:49 PM, RSRdriver wrote:

    For the last year the smart money has obviously been salivating knowing that Arena's drug Belviq would have to prove itself as a viable contender. Only fools thought that the pump spike was for real.

    Since "approval" they have done what any company with a useless product is expected to do.

    I don't care what Areniacs say, the proof is in the charts, the obvious ongoing rejection by MD's and the PPS crashing.

  • Report this Comment On October 10, 2013, at 1:26 PM, marp11 wrote:

    hmmmm

    praising belviq???

    bashing Q???

    hmmmmm

    shorts are now going long ARNA

  • Report this Comment On October 10, 2013, at 2:17 PM, marp11 wrote:

    poor rs drivel

    the shift has started and nobody told him,hes still on

    the wrong side.

    poor rsdrivel

    poor poor boy

  • Report this Comment On October 10, 2013, at 2:25 PM, Oozhe wrote:

    I wish I could echo your thoughts on this niche, but it's very hard to. VVUS and ARNA understandably and deservedly hard-pressed in this realm. Their real problems are their stigmata: both therapies - by investors and prescribers alike - are already characterized as severely challenged and blemished, probably permanently so.

    Those same observers are also quite aware of Orexigen's Contrave and do not gloss over it as summarily as it was here. Though it's hardly a wonder drug or broadly known or hotly anticipated among those who are familiar with it, Contrave relative to the others is known to be both their significant near-term competitor and likely to possess the best therapeutic index of the three.

    There is a large subset of both prescribers and investors who are turned to the OREX/Contrave option. And it is, btw, near the end of its FDA slog: their SPA deal with the FDA has a six-month turn around after resubmission in early December. It is highly likely to cut the predefined hurdle and the attendant interim look is imminent according to their independent monitors. The company claims to be prepared to almost immediately launch after approval; their marketing partner Takeda just assumed further marketing responsibilities for the launch. If they are making market, it is highly likely to be in 9 months. And resubmissions profiling like theirs have about an 80% rate of gaining final market clearance on schedule.

    The major parts of VVUS and ARNA's woes are that they simply don't have appealing therapeutic indices as far as the prescibers are concened AND that there is a somewhat better option on the horizon. And the investors feel they've seen this confirmed in the price action over the last year or so. OREX has the vastly better prospects here, even if Contrave will not be a true blockbuster

  • Report this Comment On October 10, 2013, at 2:54 PM, marp11 wrote:

    orex at least 2 years away from any decision. bleeding cash and no innovative anything. but

    nice try

  • Report this Comment On October 10, 2013, at 3:06 PM, feelinIrie wrote:

    For the last year the smart money has obviously been salivating knowing that Arena's drug Belviq would have to prove itself as a viable contender and now we know it is the real deal!

    Since "approval" they have done what any company with a novel drug does and watched their partner (Eisai) begin a succesfull DTC campaign, already having reached out to specialists!

    I don't care what Arena bashers say, the proof is in the results, and so far the results have been fantastic, as the exposure of this novel drud gets bigger!

  • Report this Comment On October 10, 2013, at 3:29 PM, Oozhe wrote:

    Well, simply gainsay what you like, but they're just direct, hard facts that:

    a) OREX and the FDA have an FDA-designed Special Protocol Assessment (SPA) stipulating a six-month turn-around decision on market clearance off interim analysis;

    b) the protocol for the new safety data is going as planned as confirmed by the independent monitors, and which, they also cite has

    c) an imminent interim analysis, allowing for

    d) immediate resubmission of the NDA expressly for clearance to market based on only

    e) the new and highly defined safety data, as the

    f) efficacy of the therapy is already conceded by the FDA to sufficient for approval.

    Simple, verifiable facts you obviously haven't had the chance yet to come across. The next look at the pivotal trial's data after this interim is in 2017. So, either way, "two year's to any decision" is clearly not a high probability at all. It's either nine months or four years.

    And "innovative" isn't nearly as pivotal as "safe and effective" is with the FDA. Besides - literally - a billion dollars of milestone payments inked, their partner Takeda is also covering marketing expenses proactively outside of that agreement. The 'bleeding cash' throw-away seems like gratuitous exaggeration anyway. How would such sentiment view VVUS' hocking its IP to stay afloat???!!!! No worries, mate -- get back to your DD.

  • Report this Comment On October 10, 2013, at 4:28 PM, marp11 wrote:

    i am long ARNA with a real product growing sales, a real partner,real DTC and 1.2 BILLION IN MILESTONES COMING.,,,which excludes any new partners for CHINA EUROPE SWISS ECT..you can dream for your 9 months or 4 years,,I am on the market, i have weathered the manipulation and now i will ride to glory,,

    but

    nice try

  • Report this Comment On October 11, 2013, at 10:12 AM, Oozhe wrote:

    Now then....

    OREX has a real product, a real partner, a real pipeline, its own billion in milestones coming - which excludes any new partners for other countries' markets LIKE THE EU, which ARNA and VVUS are nowheres near getting but OREX is......

    but, hey, enough of sounding like the overly wound-up, objectivity-free, heavily-underwater penny-stock zealot so common to biotech boards.

    So all ARNA's massive loss is due to ......manipulation????

    No inherent weaknesses, none at all in the development, management or product? Just some long-term large-scale covert conspiracy against your investment?????

    Am I catching on yet???

    ARNA, has lost a whopping 54% of its value - the standard drop off of a drug that fails its company - steadily over a period of almost 5 months, its entire life on market.

    And it has absolutely nothing to do with there being anything challenged about the product, its marketing or its development???????

    Sure enough --- Satan hates the virtuous.

  • Report this Comment On October 14, 2013, at 4:33 PM, avocadodrummer wrote:

    @Oozhe,

    You appear to be confusing stock performance with drug performance. The two are not the same. The drug works very well. Has the launch been slow? Yes. ARNA and Eisai implied a year ago that it would be. We stockholders may not be happy about the slow-and-cautious approach they've taken, but they will get there in the end.

    I dismiss neither Qsymia nor Contrave, though I do think Belviq is the better drug. VVUS was obviously the Wall St. favorite, but in the final analysis, the money will follow the sales.

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