Bad Day For Vivus - Is The Future Brighter?

| About: Vivus, Inc. (VVUS)

It was not a good day for Vivus (NASDAQ:VVUS). The company held its Q2 earnings call Tuesday, and in the process informed the Street that it essentially missed on many critical metrics. I had anticipated that the company would focus on the future, and that is exactly what transpired. Even though CEO Tony Zook tried to paint a pretty picture, the Street did not ignore many negative elements. Some highlights (good and bad) include:

  • The company lost $0.55 per share on the quarter, missing expectations by about a dime
  • Sales of anti-obesity drug Qsymia came in at just $5.5 million, below analysts' expectations upwards of $10 million, and below the "over $6 million" I was anticipating. Free trials are really putting a dent in Qsymia revenue.
  • The company stated that some 81,000 prescriptions were sold during the quarter. Vivus books revenue from prescription sales vs. what competitor Arena (NASDAQ:ARNA) is doing, where sales to wholesalers are driving revenue. Apples to apples comparisons on Q2 revenues between the companies is not really possible given the differing reporting methods.
  • The average prescription price of Qsymia during the quarter was $68.
  • Nearly $0.03 of the reported loss is attributable to the proxy contest.
  • Prescriptions rose by 37% from the previous quarter.
  • CEO Zook is personally involved in partnership discussions for Qsymia.
  • The company seems to have focus and hope on garnering approval in Europe.

Vivus outlined four critical paths that the new CEO and management will be focusing on.

  1. Expand use of Qsymia through targeted patient and physician education;
  2. Find the right partner for Qsymia to expand PCP reach;
  3. Create a pathway for centralized approval in Europe; and
  4. Eliminate expenses that are not essential to expanding use of Qsymia. We are already making progress on these four goals.

Zook will likely cut costs substantially. It is one area where the company can impact the bottom line most quickly. Direct to consumer advertising will be more modest than many hoped for. The biggest barrier is that the company wants to ramp up availability and expand its retail presence prior to making a big advertising push. Zook spoke to his experience in creating successful drugs and brands in setting the advertising stage.

For investors, the key question is this. Do you forgive the company for less than stellar results thus far and do you have confidence that Zook can turn the ship in the next 6 months or so? That is a tough thing to gauge. In my opinion, the single biggest issue is insurance coverage. Insurance coverage currently stands at about 30% of covered lives. The lack of coverage is what necessitates free trials and discounts. If the company can discount less the top line can grow. Combine top line growth with prudent cost cutting, and you could set up a dynamic that can surprise the Street. The next quarterly call will be quite interesting. Stay Tuned.

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.