3 Reasons to Buy VIVUS

Shares of biotech company VIVUS (Nasdaq: VVUS  ) have been on a roller-coaster ride lately as a result of contrasting headlines in the news. The stock plummeted last month when patent concerns surfaced surrounding the company's new prescription weight-loss drug Qsymia. However, it was Qsymia's approval by the Food and Drug Administration in mid-July that had lifted the stock to a 52-week high. With so much movement in the stock it can be difficult knowing when to buy or sell shares. That's why I've outlined three reasons I think VIVUS is a buy today.

1: Approval of anti-obesity drug
VIVUS' newly approved treatment for obesity is important for a couple of reasons. First, it operates in an underserved market. According to Bloomberg, 42% of Americans will be obese by 2030. That's a frightening figure, but not for companies like VIVUS, as the climbing rate of obesity means strong demand and big bucks. That's not to say that VIVUS doesn't face competitors.

Quite the opposite, in fact, since VIVUS' drug will directly compete with Arena Pharmaceuticals' (Nasdaq: ARNA  ) weight-loss pill Belviq. Arena's medication was approved ahead of VIVUS' Qsymia, although it now looks like Qsymia will be the first of the two treatments to hit the market. This is an impressive achievement for both companies considering it's the first time medications such as these have been cleared for sale in the United States in more than a decade.

Qsymia is expected to be commercially available before the end of fiscal 2012. Rodham & Renshaw say sales of the drug could reach $290 million by next year. Yet, even if VIVUS falls short of this specific mark, the company will certainly enjoy an earnings boon in 2013.

2: Medical advantages over the competition
Clinical trials of both Qsymia and Belviq showed VIVUS' Qsymia as being more effective in the treatment of obesity. For example, patients who took Qsymia lost on average about 10% of their body weight, while those on Belviq experienced only a 4% drop in body mass. 

Additionally, patients being prescribed Qsymia are encouraged to take the medication for a minimum of six months. For VIVUS, this means three extra months of drug sales per patient compared to the recommended duration for the rival treatment from Arena Pharmaceuticals. 

Potential competition from Orexigen Therapeutics (Nasdaq: OREX  ) has also been wiped out -- at least until next year. The FDA forced the obesity drug maker to extend pre-approval trials on its Contrave product due to cardiovascular risks. Until Orexigen can prove that its drug is safe it looks like the only two real contenders in the space are VIVUS and Arena Pharmaceuticals. 

Now that we've done a side-by-side comparison of VIVUS and Arena's competing obesity remedies, let's see how the two frontrunners measure up in terms of stock performance. 

VVUS Chart

VVUS data by YCharts.

As you can see, Arena takes the lead in this regard with shares up more than 287% year-to-date. Meanwhile, VIVUS has gained upward of 123% so far this year. That's not great for current VIVUS shareholders considering Orexigen's stock is up nearly 158% year-to-date, despite not yet receiving FDA approval for its key weight-loss drug, Contrave.

Fortunately, I think this creates a buying opportunity for investors who don't mind a bit of volatility. Shares of VIVUS are currently trading at $22 apiece, or 26% below the stock's 52-week high of $31.

3: Long-term growth
The market potential for obesity drugs is tremendous, and VIVUS has a front-row seat. Not only does Qsymia create opportunities for VIVUS in the U.S. but also overseas as well. The company is also poised for commercial success with its erectile dysfunction drug, Stendra. Unlike Arena Pharmaceuticals, this means VIVUS isn't completely reliant on the success of its anti-obesity drug for sustained growth.

Stendra, which received FDA approval in April, could give Pfizer's (NYSE: PFE  ) Viagra a run for its money. According to Bloomberg, VIVUS' remedy works in less than half the time that it takes for Viagra to work. Last year, Pfizer pulled in $2 billion in sales of Viagra, proving that strong demand exists for the treatment of erectile dysfunction. Going forward, I expect VIVUS to gain traction in this market segment.

New medical solutions from companies such as VIVUS and Arena Pharmaceuticals often lead to meaningful gains in stockholder value. As these two biotech firms ready their drugs for the market, now is a good time to get on board.

For many investors, the biotech industry can be complicated and hard to navigate. Luckily, the Motley Fool just released a new premium report on Arena Pharmaceuticals and the industry at large. In the report you will get in-depth analysis on this biotech, as well as key opportunities and risks surrounding the stock. Click here to check it out now and you will also get a full year of timely updates on shares of Arena. 

Fool contributor Tamara Rutter owns shares of VIVUS and Arena Pharmaceuticals. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (5) | Recommend This Article (2)

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  • Report this Comment On August 15, 2012, at 4:52 PM, Foreeverlong wrote:

    I disagree with your advice to invest in Vivus/Qsymia. The stocks of Vivus and Arena are down for different reasons. Vivus is down because institutions initially invested in it, and have realized that they made a mistake, and are qucikly repositioning their funds in Arena/Belviq. To over-simplify, the generic components of Qsymia (topiramate/phentermine) are already available to physicians/patients, and the FDA gave Qsymia a highly restrictive REMS because of the dangers of topiramate, particularly to women of childbearing age. Physcians don't like uncertainty or liability, and Qsymia could offer them a heavy dose of both.

    But, to complete the story, HF's made the mistake of shorting Arena/Belviq betting that Arena would not receive FDA approval....but they did! HF's, Institutions, and MM's have combined to drive down the price of Arena through naked shorting adn other means to allow the HF's to work out of a huge short position (46mm shares), while allowing the institutions to re-invest their money out of Vivus and into Arena. Institutions investment in Arena has been on a steep ascent over the last few months, and is now rumored to be near 40% of the outstanding shares.

    Belviq is a novel drug, that is safe, is more moderate in efficacy, with no restrictive REMS, and can be combined at will with phentermine by the physician for a higher level of efficacy. And, Belviq has demonstrated application to Type II diabetes patients, and come believe that it has the potential to be a first line drug this purpose.

    Arena has all of "its ducks in a row" from manufacturing to sales, while Vivus is soliciting a BP to join them, with a high price tag to cover FDA required studies. Arena already has the 18th largest BP, Eisai as their partner.

    There is much more, but I wil leave it to others to add if they choose. But, for my money, the investment is clearly in Arena not only because of where they are today with Belviq, but because of a tremendous pipeline of drugs to follow.

    Best wishes.

  • Report this Comment On August 15, 2012, at 5:49 PM, CER4040 wrote:

    You need to check your facts on % weight loss. The FDA efficacy minimum is 5%. Belviq needed to meet that number in order to get approved. So I'm not sure where you pulled out this 4%.

    Furthermore any doctor that has a real medical license would never prescribe Qsymia as a first round treatment. For obvious reasons - safety.

    Belviq would be the first drug doctors would prescribe and depending on how the patient responds they could possibly combine with Topiramate the other half of the drug Vivus is using.

    Game.. Set.. Match! to Belviq.

  • Report this Comment On August 15, 2012, at 6:06 PM, billc74 wrote:

    And Qsymia only acheived the much higher weight loss on dosages of the drug that WERE NOT APPROVED. When approved dosages are compared the difference is not nearly as great as you state in your artticle.

    It is difficult to argue effectiveness with the safety issues Qsymia has. How can you say it is more effective without mentioning the safety issues and the limitations for dispensing to a more limited population. This story seems biased to me since only part of the facts are revealed by the writer. Shame!

  • Report this Comment On August 15, 2012, at 6:41 PM, arbo99 wrote:

    The Motley Fool has to be the most bias piece of trash that hits the internet. They are one sided even if they have to misrepresent to say what they want to say. Every article that is written against Arena Pharm has wrong information written into it. I get it. Motley Fool is into the pocket of Hedge Funds and wall street people that can and do influence share price. To knowledgeable investor would never look at this rag sheet other than for laughs.

  • Report this Comment On August 15, 2012, at 8:46 PM, bwyatt25 wrote:

    The usual biased, under-researched drivel of an article, bashing Arena and Belviq while extolling the virtues (?) of Vivus and their unsafe, unsound and unexiting blend of generics, Qsymia. Vivus will be first to market? Stendra has been approved for months and is no closer to launch than it ever has been. Qsymia will be even worse to market. Where is Vivus's salesforce? Answer they don't have one and most likely never will. They are a company comprising a handful of employees, no track record of sales and a management that has sold millions of dollars worth of shares as soon as the feeble FDA had been cajoled into approving Qsymia. What a joke it all is and shame on you Fools for endorsing a sham. I thought you were brighter than that,

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