Vivus Impresses Street - Can It Last?

May. 6.14 | About: Vivus, Inc. (VVUS)


Quarterly numbers beat the street.

Qsymia sales are down quarter over quarter while revenues are up.

Stendra is beginning to produce revenue.

Vivus (NASDAQ:VVUS) impressed the street by turning in a loss of just $0.15 per share versus an expected loss of $0.37 cents. That news alone was enough to send the equity higher in after hours, but can it last? Likely not.

Vivus is known mostly for its anti-obesity pill Qsymia. The pill has been on the market since Fall of 2012, but Q1 of 2014 represented the first quarter where sales of the drug actually declined. Yes, the net revenue per bottle increased from about $62 to $75 (a good sign), but quarter over quarter scripts fell to 121,000 from 124,000 in Q4 of 2013. That drop may not seem like a big deal, but Q4 was severely impacted by the holiday season, meaning that beating the Q4 number should have been a walk in the park. It was not.

The saving grace for Vivus may come in the form of its novel erectile dysfunction pill Stendra. The company received $7.4 million in supply revenue and another $800,000 in royalty revenue on the drug, which had its formal launch in January of this year. In fact, Stendra is showing the type of potential that many had hoped Qsymia would show.

Total net revenue was $36.7 million for the first quarter of 2014, compared to $4.1 million for the first quarter of 2013. Of the total revenue for the current quarter, net product revenue was $9.1 million from sales of Qsymia, compared to $4.1 million for the first quarter of 2013. In addition, we recognized $19.4 million in license and milestone revenue, $7.4 million in supply revenue and $0.8 million in royalty revenue for the current quarter under our commercialization agreements for STENDRA and SPEDRA.

Vivus explained that the company reorganized its reps to better position them to market Qsymia and that the move caused a disruption in Q1. That would seem to be a bit of an excuse, which will only last one quarter. If Q2 does not deliver noticeable traction, the benefit we saw with the company beating the street in Q1 could turn south. Thus far, in Q2 we have about 4 weeks of relatively flat prescription growth. With just 8 weeks left for Q2 sales, the pressure is on. The situation is not being helped by a more competitive landscape in the anti-obesity space, nor the seasonality of the sector.

Competitor Arena Pharmaceuticals (NASDAQ:ARNA) launched a television ad campaign in April, and Orexigen (NASDAQ:OREX) is, in theory, a month away from FDA approval on its anti-obesity drug Contrave. Vivus speaks to getting better insurance coverage and increasing net revenue per bottle as the growth focus, but the bottom line is that prescriptions need to increase and this is simply not really happening.

Vivus does appear to have costs under control, but sometimes you need to spend money to make money. Essentially the company is in a tight situation with regard to Qsymia. Simply stated, a catalyst is needed, and that becomes harder when the competition is applying additional pressures with advertising. If Vivus is not careful, weekly sales of Belviq sales could surpass Qsymia in the next three or four weeks.

Total research and development expense was $4.4 million for the first quarter of 2014, compared to $7.0 million for the first quarter of 2013. Selling, general and administrative expense was $28.6 million for the first quarter of 2014, excluding non-recurring charges of $2.1 million, compared to $44.7 million for the first quarter of 2013. Selling and marketing expenses for the commercialization of Qsymia totaled $18.7 million for the first quarter of 2014, compared to $28.6 million for the first quarter of 2013.

The bottom line here is that Vivus has a narrow window of opportunity to get the numbers in order. A Q1 surprise was great, but the stage is now set to get expectations in line with reality. From what I have seen so far in Q2, sales of Qsymia will be modestly better. That means we need to see increases in net revenue per bottle and Stendra sales pick up the slack. That is a tall order at this point.

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