VIVUS (VVUS) shot up 10% on Monday after announcing that Express Scripts (ESRX) would sell its obesity drug Qsymia. When your drug is only available via mail-order pharmacies, getting the nation's largest pharmacy benefit manager on board to sell it is a prudent move. A double-digit move appears reasonable on the surface.
I figured the deal was already factored into the stock. It wasn't like VIVUS was going to leave all those patients on the table. And while VIVUS might need Express Scripts more than the other way around, Express Scripts isn't quite in the driver's seat like it would be with most negotiations. For Qsymia, Express Scripts doesn't have a monopoly on all the members in the insurance plans it manages because the obesity drug likely isn't covered by most of them. Since they're paying cash, Express Scripts' customers were free to go to CVS Caremark (CVS -1.62%), Walgreen (WBA -0.93%), or one of the other mail-order pharmacies selling Qsymia. Even after the deal, they still are, but most customers are creatures of habit and will stick with Express Scripts if they're already using them for their in-plan drugs.
The terms of the deal weren't disclosed, but investors had better hope VIVUS made sure that management at Express Scripts felt they got a fair deal, because Qsymia's sales potential is ultimately dependent on pharmacy benefit managers like Express Scripts. If VIVUS can convince Express Scripts that covering the drug will result in healthier patients who won't take other medications, then they'll advise the plans that they manage to cover the drug. And more insurance coverage will result in higher sales.
Ironically, better coverage will also help Qsymia's biggest rival Arena Pharmaceuticals' (ARNA) Belviq. The drug doesn't have the same mail-order restrictions, but coverage by health insurers is still the most critical issue for peak sales of the drug. Fueling off each other is one of the reasons I've argued that the added competition isn't as big a deal as investors are making it out to be.
