Vivus (VVUS) investors have had to endure a roller coaster ride over the past weeks due to a challenge to existing management and the Board of Directors by activist shareholder First Manhattan. The mud-slinging investors have witnessed can only be trumped by a political campaign. After the close today, the companies announced a settlement.
This settlement agreement favors First Manhattan and, if agreed to by shareholder vote, could end one of the nastiest proxy fights in recent memory. The other item that would indicate a settlement is an SEC filing several members of existing management get "golden parachutes."
It is not uncommon for executives of public companies to have rich exit clauses. The Board modified the termination clauses of several executives as the proxy battle heated up. The SEC filing today modifies those yet again.
Vivus has moved from about $12 to over $15 in the last week-and-a-half. That move was not driven by sales of prescriptions, a partnership tied to Spedra, or anything else. The move could very well have been generated by shorts covering their positions in order to participate in the proxy battle, or simply speculation about the results. For the past few months, the Vivus story has not been about company performance or news. It has been about who will control the company moving forward.
We are now shifting to a company that will be driven by results instead of a control campaign. First Manhattan was very critical of the prior Board and management and gave investors every indication that it could put together a better team. With a new CEO and a controlling interest on the Board, it is time for First Manhattan to be put to the test. How patient will investors be? Part of the press release states:
"Under the terms of the agreement, Charles J. Casamento Ernest Mario, Ph. D., Linda M. Shortliffe, M.D., Peter Y. Tam and Leland F. Wilson will resign from the Board effective tomorrow. The Board was expanded today from nine to 11 members. Six FMC nominees, Michael James Astrue, Samuel F. Colin, M.D., Alexander J. Denner, Johannes J.P. Kastelein, David York Norton and Herman Rosenman, are being appointed to the Board to fill the resulting vacancies. Anthony P. Zook is expected to be named VIVUS's new Chief Executive Officer and appointed to the Board. VIVUS agreed to nominate a total of 11 nominees for election to the Board at the Annual Meeting, including the six FMC nominees and Mr. Zook, as well as J. Martin Carroll, Mark B. Logan, Jorge Plutzky M.D. and Robert N. Wilson from VIVUS's slate.
Mr. Zook is expected to succeed Leland Wilson, who will depart as VIVUS's CEO. Mr. Leland Wilson agreed to serve in an advisory role to VIVUS to ensure a seamless leadership transition."
I look for this week to close by new CEO Tony Zook issuing a letter to shareholders outlining some broad brushed plans and extolling that the changes will take time to bear fruit. I anticipate that Zook will offer a positive outlook and speak to the possibility that brighter days are ahead. Some of the "face saving" language was already included in the press release. The official annual meeting will take place in the next 30 days.
Overall the tenor of what happens next will be to show that the new board and management are confident, encouraged, and eager to take on their roles in leading Vivus. While this is all well and good (as well as expected), investors still need to focus on sales, costs, and the bottom line. For some, a continued bet on Vivus will be appropriate. For others, it will not.
The important items to watch are:
- Continued traction in weekly prescription numbers.
- The addition of more retail pharmacies.
- Any insight on a Direct-To-Consumer ad campaign.
- Any news regarding better or more insurance coverage for anti-obesity drugs.
- Any results on a possible partnership for Qsymia.
- Any news on a partnership for Stendra in the United States.
- Any news on whether the company will seek re-application of Qsymia in Europe.
As an investor it is great to see the bigger picture, but right now, absent any real direction, the little things are where you may want to keep your eyes. A new Board and management may get a pass for a quarter, but that is about it.