One of the most hotly contested spaces in the biotechnology industry has been the treatment of obesity. This has become an ultra competitive space with 3 companies trying to assert their supremacy. The two primary companies have been VIVUS Inc. (VVUS) and Arena Pharmaceuticals (ARNA) with Orexigen Therapeutics (OREX) bringing up the rear.
Over the past 6 months, most have been banking on Arena coming out head, myself included. However, Vivus seems to be gaining momentum while Arena appears to be losing it. Let's start with the recent financials that each company released.
Vivus filed their quarterly statement for the period ending March 31, 2013, on May 8, 2013. At the end of 2012, Vivus had a cash position of $58.6 million. However at the end of the most recent quarter, Vivus had increased that by approximately 55% to $90.6 million. At the same time, Vivus had reduced their current liabilities by approximately 14.1% from $41.2 million to $35.4 million. On the income side, Vivus made great strides as well. For the same quarter in 2012, the company generated $0 in product revenue. For the first quarter in 2013, Vivus generated $4.1 million. Now let's compare that to Arena's report.
Arena Pharmaceuticals filed their quarterly statement for the period ending March 31, 2013, on May 9, 2013. At the end of 2012, Arena had a cash position of $156.1 million. However at the end of the most recent quarter, Arena's cash position had decreased by approximately 13% to $136.3 million. Like Vivus, the company's current liabilities had decreased but only by about $2.7 million, which currently stand at $27.2 million. Now while Vivus is generating revenues from its product, Arena still doesn't have a product on the market and is generating revenue through manufacturing services and collaborative agreements. For the first quarter 2013, Arena's revenue came in at $2.4 million, an increase of $200,000 from the same period a year ago. So on the fundamentals side, it appears that Vivus did more to grow their revenue, reduce their current liabilities, and grow their revenue than Arena did. Let's look at few more reasons why Vivus appears to be gaining an advantage.
On the same day as their earnings release, Vivus also let it be known that the company is actively pursuing a marketing partner to help boost sales of its obesity drug Qsymia. One concern among many investors had been whether Vivus could go it alone. Well it appears that corporate management shared the same concerns and has now taken steps to find a partner to help shoulder the cost of marketing Qsymia, the obesity drug owned by Vivus. Should a marketing partner be found, this should provide big benefits in future earnings releases.
In addition to the strong fundamentals and potential for a marketing partner, Vivus also released news regarding an agreement with the FDA in mid-April. This was to announce the FDA approval of Qsymia REMS modification which will allow access through certified retail pharmacies. This is huge news as it evens the playing field with Arena. Previously, Qsymia was limited to mail-order pharmacies, which obviously was holding back sales. I expect the new sales channel to dramatically increase sales and help take Vivus to the next level. Moreover, marketing was Arena's big advantage over Vivus as Arena had access to all available sales channels. Now that advantage has been removed, it would appear that Arena's competitive advantage has been penetrated.
In addition to Qsymia, which is Arena's most notable product, Vivus remains committed to STENDRA, used in the treatment of erectile dysfunction. Vivus provided a business update this morning, in which it was noted that the European Medicines Agency's Committee for Medicinal Products for Human Use (CHMP) recently adopted a positive opinion recommending the granting of a marketing authorization in the European Union for SPEDRA (avanafil). The company is also engaged in partnership talks with several companies in the U.S. and international markets.
Leland F. Wilson, CEO of Vivus, also said the following in this morning's update which should give investors lots of reasons to remain optimistic in the near future:
In connection with the upcoming VIVUS 2013 Annual Meeting of Stockholders, you can expect to hear more from the VIVUS team about the progress we are making in commercializing and developing innovative, next-generation therapies to address unmet needs around the world and how we are driving value for all of our stockholders.
Now while all of the above does seem to favor Vivus, Arena just announced some positive news of their own. Arena recently announced that the US Drug Enforcement Administration (DEA) has assigned its obesity drug Belviq into Schedule IV of the Controlled Substances Act. This will dramatically reduce the time it will take to get Belviq on the market, and in fact, Arena has stated it now expects to make Belviq available in the U.S. within the next 30 days. This will also result in a $65 milestone payment from its partner Eisai which should help their cash position. Still, while this is a great announcement, the market seems to be favoring Vivus, especially during the last 6 months, as the below charts show.
So while we can see in the first chart that Arena has depreciated by roughly 9% over the past 6 months, Vivus (as show in the second chart) has appreciated by 17% over the same period.
Vivus was the first to market and while it gave up its time advantage, it appears that management is learning what not to do and appears to be making all the right moves. With improving fundamentals, a newly approved REMS modification, and a pipeline including an erectile dysfunction drug, I believe Vivus has finally clawed its way back to the top.