Last month saw the FDA approve Qsymia, a weight loss drug manufactured by Vivus (VVUS). Americans are currently the most obese nation in the world, and this obesity is a big burden on the American healthcare system. This has created a huge demand for weight loss drugs and made it considerably easier to get approval of such products. Vivus can tap this billion dollar market through Qsymia. VVUS is expected to report a loss for the quarter, primarily due to its significant R&D expenses.
VVUS currently has a market capitalization of $2.09 billion. Since the approval of Qsymia, the stock has fallen from a high of $31.21 to $20.92, which is a decrease of approximately 33%. The primary reasons behind the sudden two week decline are the concerns by investors over patent protection by Vivus. The well known market player Johnson & Johnson (JNJ) is being considered a challenger to the Qysmia patent. Citron research raised concerns a couple of days after the drug received FDA approval. Cirtron is known in the market as a well known short seller. The stock has risen almost 300% within the last one year.
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2Q2012
Analysts are currently expecting the company to report quarterly sales of $102 million and a $0.23 loss of per share. The company has a history of missing analyst expectations. As can be seen in the graph, in 2Q and 4Q of 2011, the company reported losses that were higher than what was being expected by analysts.
Looking towards the future, analysts are expecting Qsymia to earn $1.6 billion in the next four years. However, the closest competitor to this drug is Belviq, a drug developed by Arena (ARNA), which is estimated to generate almost $1.5 billion in revenues. These two would not be the only competitors in this very lucrative market. Ppprovals of Belviq and Qsymia have opened the doors for the approval of Orexigen's (OREX) Contrave.
Source: Bloomberg
Ratio Analysis
The company's balance sheet shows that it is financially liquid and will not face any immediate problems. The quick ratio was 13.55 in 2011, as compared to the industry median of 1.79; the current ratio is 13.83 as compared to the industry median of 2.32.
Valuation
The outlook for Vivus remains positive. The mean EPS consensus at present is $-0.231, and it increases to $-0.222 for the third quarter. The expected revenues from Qsymia give a healthy outlook for 2013 and 2014. The company is expected to report EPS of $0.582 in 2013 and $2.094 for 2014.
Average P/E of Industry | 30.x |
2013 EPS | $0.582 |
2014 EPS | $2.094 |
Target Price 2013 | $17.4 |
Target Price 2014 | $62.8 |
Using the industry average P/E, we have calculated price targets for 2013 and 2014. The price target for 2013, based on estimated Bloomberg EPS of $0.582 is $17.47. The target price based on 2014 revenue estimates is $62.87.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
