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VIVUS, Inc. (VVUS) is a biopharmaceutical company, engaged in the development and commercialization of therapeutic products for large underserved markets, including obesity and related morbidities, such as sleep apnea and diabetes, and men's sexual health. VVUS dropped 1.90% and closed at $12.88 on February 21, 2013. VVUS had been trading in the range of $9.86-$31.21 in the past 52 weeks. VVUS has a beta of 1.20. VVUS had a call option volume of 10,687 (vs. the average call volume of 2,113) with a daily call option ratio of 2.31.

On February 21, 2013, VVUS' obesity drug, approved in July in the U.S., failed for a second time to win approval from European regulators because of its potential side effects, as reported by Bloomberg. CHMP indicated that VIVUS, Inc. must conduct a cardiovascular trial to show the drug, which would be called Qsiva in Europe, is safe before it could be approved. Qsiva was approved by the U.S. FDA in July, 2012 and is sold under the trade name Qsymia in the United States. The pivotal Phase III clinical trial program included over 4,500 subjects studied up to two years, establishing Qsymia as a safe and effective treatment for obesity. FDA also approved another diet pill, Belviq, sold by Arena Pharmaceuticals Inc. (ARNA) in the same year. Another diet drug, Contrave, developed by Orexigen Therapeutics Inc. (OREX) also faced the same problem as FDA would not approve the pill without a lengthy, expensive study to prove that it does not increase the risk of heart attacks and strokes, as reported by Reuters.

The company's management was disappointed with the result. As stated by Peter Y. Tam, president of VIVUS, Inc.,

"We have worked diligently throughout Europe with key opinion leaders and regulatory and risk management experts to highlight the favorable safety and efficacy profile of Qsiva. Despite the positive recommendation of CHMP's own Scientific Advisory Group (SAG) and the high unmet medical need in obese patients, a majority of CHMP members have failed to recognize the importance of making this treatment option available, particularly for patients whose only effective intervention is surgery."

CHMP's Main Concerns, Back in October 2012

On October 18, 2012, the Committee for Medicinal Products for Human Use (OTCQB:CHMP) adopted a negative opinion, recommending the refusal of the marketing authorization for the medicinal product Qsiva. CHMP had concerned about Qsiva's long-term effects on the heart and blood vessels, particularly due to the effect of phentermine, which is known to increase the heart rate but whose long-term effects are not clear. There were also concerns about the long-term psychiatric effects (depression and anxiety were reported in the studies) and cognitive effects (such as problems with memory and attention) related to the topiramate component of Qsiva. Topiramate could be potentially harmful to the unborn baby if taken by pregnant women. CHMP also noted the high probability that the medicine would not be used strictly for the intended patients. As a result, CHMP concluded that the benefits of Qsiva did not outweigh its risks and recommended that it be refused marketing authorization.

Q4 2012 Earnings

VVUS is expected to release its Q4 2012 earnings on February 25, 2013. Analysts, on average, are expecting an EPS of -0.44 with revenue of $3.09M for the quarter ending in December 12, 2012. In the last 4 quarters, VVUS had 4 negative surprises.

There are a few positive factors for VVUS:

  • VVUS has a total cash of $274.48M with a zero total debt.
  • Higher revenue growth (3-year average) of 22.1 (vs. the industry average of 13.6).
  • The sales for Qsymia is expected to grow until 2019 in the United States.
  • On February 6, 2013, Leerink Swann resumed coverage on VVUS with an Outperform rating and $19-$20 valuation. The firm indicated, "Bottom Line: Our due diligence points to a significant transformation occurring in the obesity space, similar in scope to smoking cessation a decade ago. The result should be a robust market expansion story advanced by: 1) novel more potent drugs; 2) increasing reimbursement; 3) significant sales & marketing efforts, and; 4) more approvals of effective therapies with co-morbid disease benefits. The initial Qsymia launch has been slow but significant drivers lie on the horizon."

Technically, the MACD (12, 26, 9) is nearly neutral. The momentum indicator, RSI (14), is showing a bearish lean at 45.73. VVUS is currently trading below its 200-day MA of $19.10 and 50-day MA of $13.17. The next support is $10.82, the S1 pivot point, followed by $9.53, the S2 pivot point, as seen from the chart below.


(Click to enlarge)

Source: StockCharts.com

In short, with the second Qsiva rejection by CHMP and upcoming earnings on February 25, 2013, the volatility is expected to increase until the earnings release and when things become clearer for Qsiva in Europe. Long-term investors may want to establish positions after the earnings to avoid additional volatility.

Note: All prices are quoted from the closing of February 21, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Source: Vivus, Inc.: Second Rejection And Upcoming Earnings, Patience Required For Investors