It is not very often that Vivus (NASDAQ:VVUS) investors will agree with me, but on this subject I can imagine that even those that dislike my realistic assessment of sales and numbers will find a common path to agree with this article, or at least most of it.
Make no mistake, I still feel that Vivus is a speculative play and feel that the company has very high hurdles to navigate. That being said, the latest and greatest from the land of class action lawyers left me with a bit of a belly laugh. Read on:
Shareholder Alert: Purcell Julie & Lefkowitz LLP Is Investigating VIVUS, Inc. for Potential Breaches Of Fiduciary Duty By Its Board of Directors
Purcell Julie & Lefkowitz LLP, a securities class action law firm dedicated to representing shareholders nationwide, is investigating a potential breach of fiduciary duty claim involving the board of directors of VIVUS, Inc. (VVUS). On April 22, 2016, VIVUS's stock price closed at $1.80 per share. On May 3, 2016, VIVUS announced that its revenue for the first quarter of 2016 was $15.3 million, far less than the $32.2 million in revenue for the first quarter of 2015. VIVUS's stock price closed at $1.16 per share on May 13, 2016.
If you are a shareholder of VIVUS and are interested in obtaining additional information regarding this investigation, free of charge, please visit us at our website.
You may also contact Robert H. Lefkowitz, Esq. either via email at firstname.lastname@example.org or by telephone at 212-725-1000. One of our attorneys will personally speak with you about the case at no cost or obligation.
Purcell Julie Lefkowitz LLP is a law firm exclusively committed to representing shareholders nationwide who are victims of securities fraud, breaches of fiduciary duty and other types of corporate misconduct. For more information about the firm and its attorneys, please visit http://pjlfirm.com. Attorney advertising. Prior results do not guarantee a similar outcome.
I want to start this off with the part about the press release that brought me the most laughter. The last line in the press release state, "Prior results do not guarantee similar outcome."
Now consider the basis of the proposed class action suit.
"On April 22, 2016, VIVUS's stock price closed at $1.80 per share. On May 3, 2016, VIVUS announced that its revenue for the first quarter of 2016 was $15.3 million, far less than the $32.2 million in revenue for the first quarter of 2015"
Gee, if prior results from an attorney's office do not guarantee a similar outcome, how can we expect prior results at a public company to guarantee a similar outcome?
In my opinion this press release, and indeed the concept of this litigation demonstrates a systemic problem in the investment world. People simply expect things to always improve. If they do not improve everyone looks for someone else to blame. There are the conspiracy theorists that blame the shorts, market makers, and think that every writer is in the hip pocket of some evil hedge fund. Those are the types that do not even realize that many hedge funds actually go long a stock. There are the perma-bulls that see no wrong in management. The company could be imploding and these investors will find a way to say all is well with the world. The phrase, "Things will turn around next quarter" becomes a quarterly mantra accompanied by selective amnesia that makes the person forget that they have been saying the same things for 8 to 12 quarters now.
Vivus has its issues, but the substantial drop in revenue in Q1 of 2016 as compared to Q1 of 2015 was not really anything that management did. Instead, it was a direct result of the marketing partner for Stendra walking away, and with walking away ceasing on guaranteed shipments of Stendra that had that partner sitting on what has to be a supply that could last a couple of years. Instead of suing Vivus, the class action suit should be praising a deal that had a partner spending millions each quarter on a drug that it could not sell. This is why the partner walked.
Let's boil this down. Had this class action firm bothered to read my coverage of the Q1 results, it may well have decided that there are lawsuits with more potential for success out there.
"Stendra, the Vivus erectile dysfunction drug saw no supply revenue in Q1 of 2016 vs. over $8 million in supply revenue in the year prior. This drop is a direct result of the marketing partner walking away from the drug. Royalty revenue of $1.3 million was much better than the negative number reported a year ago, but is nowhere near what will be needed for this drug to cover its own expenses, let alone deliver a meaningful shift in the stock."
Q1 by the numbers:
- Q1 revenue in 2016 for Qsymia was $12.2 million vs. $12.6 million a year earlier. While revenue dropped, revenue per script did increase. This would actually point to cost control measures, something that is a fiduciary responsibility of the company.
- Q1 of 2016 saw no supply revenue vs. over $8 million a year ago. The Vivus partner is now gone. This means that there is no party to collect revenue from. It would be great if Vivus was able to land a new partner, but it is hardly a breach of fiduciary responsibility to not report revenue that is now impossible to report.
- Royalty revenue was actually positive in Q1 of this year vs. negative in the year prior. Is going from negative to positive a breach of fiduciary responsibility? I don't think so.
- The big winner on the financials was the selling and marketing expenses associated with Qsymia. The company spent just $7.6 million on pushing the anti-obesity drug. That is over $10 million less than the year prior, and this savings is what is helping the bottom line improve. A breach of fiduciary duty here? I do not think so. Perhaps one could argue that the cost cutting was to extreme and resulted in Qsymia sales revenue that was $400,000 less, but that is hardly the material of lawsuits.
- Vivus spent $7.5 million as administrative expenses, $1 million on R&D, and $3.7 million on cost of goods sold, all reasonable metrics in overall comparison.
The fact of the matter is that the delta between Q1 of 2015 and Q1 of 2016 all has very reasonable explanations. I covered $8 million in supply revenue, but what about the other part of that delta? Well, Q1 of 2015 included $11.6 million in licensing and milestone revenue associated to Stendra and Spedra. With the partner now gone, these types of payments will cease. Between the $8 million and $11.6 million we have a total that approaches $20 million that evaporated when the partner left. The lawsuit is complaining about a gap of about $17 million. Why did Vivus lose only the $17 million instead of the $20 million? The answer is cost cutting.
The bottom line is this. Had the class action attorney done some research and homework they would realize what was transpiring and why. No, going from $32 million in revenue to $15 million in not a good thing, but it does not mean that fiduciary responsibility is happening either.
Investors owe it to themselves to do research as well. In my coverage of the sector I have offered regular updates, pointed out the challenges of the sector, and even warned about year over year comparisons not looking good. Vivus is in the unfortunate situation of playing in an anti-obesity game that no one likes, and playing in an erectile dysfunction game that has giants like Viagra and Cialis already well established.
I actually give management credit for working toward keeping this company moving forward despite the severe challenges it faces. The company has managed to make the financials look at least a bit compelling and could actually find a way to sell itself for a price higher than it is currently valued at.
There are things with this company that I believe are smoke screens, but that comes with the territory. By example, I do not believe that the delay in the cardiovascular trial for Qsymia is to align a program for possible approval in Europe. Europe does not allow a main ingredient Qsymia (phentermine). Europe is not about to change its attitude so Qsymia can sell in that region. I believe that the company initially delayed in hopes of finding a partner that would help with the costs. I believe the delay then shifted to concern over the possibility of a Teva (NASDAQ:TEVA) generic and that lawsuit. Would the FDA approve a generic when the required CVOT study was not done? Could the CVOT study be used in some form of settlement agreement? I can't say that I blame them for taking such a path. I actually think it is prudent.
In the end, I feel that this latest class action suit will ultimately fail on the realities of the data. In fact, my coverage of the company is actually a very good defense against the suit because it has been clear to myself and many for years that Vivus had an uphill battle on its hands. Vivus investors that are critical of me may never admit it, but this is actually an article that they just might be able to appreciate. Stay Tuned!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.