The ongoing battle between Vivus (NASDAQ:VVUS) and activist shareholder First Manhattan has been getting more serious with each passing day. The latest news is that First Manhattan is now suing Vivus over the recently adjourned shareholder meeting.
- Back in March of this year Vivus filed forms with the SEC acknowledging that First Manhattan, a 9.9% shareholder, has nominated a slate of 6 board members for consideration by shareholders at the annual meeting.
- In late March Vivus announced added debt and avoided stock dilution. The issue with First Manhattan was beginning to get more serious.
- In Early April First Manhattan issued press releases that were critical of Vivus management and outlined that a new board could re-launch the anti-obesity drug Qsymia.
- In mid-April Vivus successfully had some restrictive REMS loosened by the FDA. The company used this as an opportunity to point out that existing management was on the correct path.
- Two days later Vivus announced that shipments of Qsymia in March were up 29% from the previous month indicating traction and a positive direction for the company.
- In early May Vivus seemed to shift gears. First Manhattan was getting pretty active in its quest for change and Vivus began to outline its plans more succinctly.
- Also in mid-May Vivus added board members and addressed shareholders about the points made by First Manhattan. It seemed that the company was seeing that the threat of First Manhattan was not a passing one.
- As May came to a close First Manhattan upped the proverbial ante by increasing its slate of board nominees. If people did not think First Manhattan was serious prior, they certainly did now.
- In early June Vivus was essentially fighting a three front war. They were at war with First Manhattan, competitor Arena Pharmaceuticals (NASDAQ:ARNA) was getting ready to launch Belviq, and the company was trying hard to get more insurance coverage for Qsymia.
- In late June Vivus announced the European approval of its erectile dysfunction drug Spedra. This announcement countered the First Manhattan stance that current management was having issues in Europe.
- As July came the company announced that the anti-obesity drug Qsymia would now be available at about 8,000 retail pharmacies instead of simply through mail order. This announcement came ahead of schedule and was thought to be done early to combat some of the criticism outlined by First Manhattan.
- A week later Vivus announced a drug partnership in Europe for its erectile dysfunction drug Spedra. The announcement gave more ammunition to existing management regarding some of First Manhattan's concerns, but some felt the deal was too little and too late.
- On July 11th First Manhattan disclosed that QVT Financial had joined the quest to oust the current Board. QVT is Vivus' third largest shareholder.
- Late last week Vivus seemed willing to compromise and offered three board seats to the First Manhattan nominees. Some analysts felt that this was a sign that Vivus was not confident about the shareholder vote that was just days away.
- Over the weekend things seemed to turn sour and Vivus accused First Manhattan of misleading shareholders. The company filed a complaint with the SEC and adjourned the shareholder meeting until July 18th (from July 15th).
- On July 16th First Manhattan rebuffed the Vivus claims and went on an offensive, accusing Vivus of overstepping its bounds by adjourning the shareholder meeting and denying shareholders their right to vote.
Now we are at the point of the litigation that I had warned readers about. This is getting uglier by the day. With courts involved this will not be very clean. In addition there is a distinct possibility that class actions suits could ensue from any number of angles. One does not have to be a lawyer to see that potential.
Current investors pretty much have their hands tied. The anti-obesity sector has potential, but no one signed up for this type of mess. There are other plays that investors in Vivus can consider. Arena is already on the market with Belviq, and Orexigen (NASDAQ:OREX) is in FDA trials with an anti-obesity drug of its own called Contrave. No matter how you decide to invest in the sector, watch the insurance issue. Insurance coverage (or lack thereof) of anti-obesity drugs will be the driver in the near term.
Disclosure: I am long ARNA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have no position in Vivus or Orexigen