Vivus Announces Positive Ruling In Qsymia Litigation - Will It Matter?

| About: Vivus, Inc. (VVUS)

Summary

The company states that it got a favorable Markman ruling on most definitions.

Litigation still continues.

Impact on equity should be minimal.

Vivus (NASDAQ:VVUS) announced today that the company won a small battle with regard to the definition of certain terms within its patents. The court ruling, known as a Markman ruling, defines the definitions of terms that are viewed as important or even critical in the case regarding patent litigation. Winning a Markman ruling is an important step in the litigation process, but does not always mean that the path to prevailing in the litigation is assured.

Judge Stanley R. Chesler of the United States District Court in New Jersey adopted Vivus's proposed constructions for all but one of the disputed claim terms. According to the company, the claim term that was not won was acceptable to Vivus. With the Markman ruling now complete, the next phase of the litigation will be expert discovery. As yet, a trial date has not been set.

Vivus filed its suit back in March of 2015. Thus far, the litigation has taken over a year. Discovery could take many more months, and then a trial would be after that. When Vivus filed suit, an automatic stay of three years is created on the generic process. Vivus's other approved drug, Stendra, has had a generic claim of its own filed. The company has about 30 more days to file suit against the Stendra ANDA. Once that happens, both Vivus drugs will be tied up in expensive litigation.

While many investors will want to prop up this Markman ruling as a bullish event that will help the stock, the reality is that it is a small, longer-term positive in a lengthy battle that is still likely over a year away. Vivus competitor Orexigen (NASDAQ:OREX) issued a similar Markman ruling press release about a month ago, and the impact on the stock was nonexistent.

Investors seem to be wanting to find a positive in this litigation no matter what the outcome. Some want to argue that a settlement will be reached, which will allow Vivus a royalty on one hand and its patents "SUPER STRONG" on the other hand. The reality is that sales in the branded anti-obesity space are in decline. Patients, doctors, and insurance companies are simply not gravitating to the current offerings on the market at levels that would make any of the offerings on the market economically viable.

In my opinion, Vivus remains a speculative play with both of its approved drugs in potential litigation, post marketing clinical trials that are owed to the FDA, and a business model that continues to burn cash. While Vivus does have over $200 million in cash, it also carries substantial debt that will come due in 2020. It can currently service that debt with ease, but as each month passes, investors need to consider the likelihood and terms of how this company can refinance that debt picture. Stay Tuned!

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