Seeking Alpha
Profile| Send Message| ()  

Vivus (VVUS) recently acquired FDA approval for its drugs, Stendra and Qsymia; the latter is expected to be the company's primary revenue earner. Qsymia's performance has been better than its competitor drugs, but it has a stricter FDA usage guidance attached to it. VVUS reported earnings last night. Analysts were expecting Vivus to report a loss of $0.23 per share. However, in line with its history of missing analyst expectations, the company reported a loss of $0.24 per share. After the earnings announcement, the company's shares fell approximately 3% in after-market trading. The company also disclosed that commercialization of Stendra and Qsymia would be more costly than they had initially estimated.

Early this year, Vivus also received an approval of its drug Stendra, which treats ED (Erectile Dysfunction). The drug will compete with Pfizer's (PFE) Viagra. Qsymia will primarily face competition from Arena (ARNA)'s drug, Belviq. Orexigen (OREX) is also in the process of getting FDA approval for its weight loss drug, Contrave.


(Click to enlarge)

2Q2012

Vivus has reported a loss of $24 million for the quarter ending June, as compared to a loss of $16.2 million last June, showing an increase of 48%. The loss per share in 2Q2011 was reported at $0.24. Analysts were estimating a loss of $0.23, meaning that the actual results missed by $0.01 per share. The QoQ loss can be primarily linked with increases in general and administrative expenses. These expenses have increased due to the company's pre-commercialization efforts for Qsymia.

There has been a 20% decline ($3.9 million) in Research and Development expenses, as compared to the same quarter last year, due to reduced expenditure on Avanafil (Stendra); however, expenses on Qsymia increased by $1.8 million. The company is expecting a significant increase in R&D expenditures for the remaining year. The primary reason behind this increase is the initiation of the ACQLAIM study by Vivus. This post-FDA approval study will focus on cardiovascular outcomes for Qsymia, and its time frame could be 5-6 years, with costs of approximately $200-250 million.

General and administrative expenses increased by almost 190% as compared to 2Q2011. This increase was due to increased marketing programs, market research, and an increasing workforce; all related to pre-commercialization activities for Qsymia. According to company disclosures, these expenses are forecasted to increase further in the next two quarters.

The company is showing signs of sound financial health. At the end of the second quarter, cash, cash equivalents and available securities amounted to $310 million, which is approximately double the amount disclosed in the 2011 annual results. A significant portion of this change came from an underwritten IPO of common stocks for an amount of $192 million.

European Approval

There is still speculation around Qsymia being approved in Europe. Vivus is trying to get the drug approved in the continent under the trade name Qsiva. According to company disclosures, the Committee for Medicinal Products for Human Use (OTCQB:CHMP) has invited Vivus for a meeting in September 2012. Also, the company is trying to get Stendra approved under the trade name Spedra. The company has received a 'Day List of 120 Questions' from the EMA, and is preparing its responses; however, no clear timeframe has been announced in this regard. JPMorgan (JPM) has given an 80% probability that Qsymia will be approved in Europe.

Distribution

A key area of interest for stakeholders has been the distribution and marketing strategy adopted for Qsymia. Vivus disclosed the following information to stakeholders in this regard:

  • Vivus has entered into an agreement with PDI Inc. (PDII) for marketing and sales of Qsymia. Under this agreement, PDI will provide 150 sales representatives, three field liaison managers and one account manager. Under this agreement, PDI will also provide Vivus with physician information. Vivus has agreed to pay $57 million for these services.
  • The company has entered into a 'Commercial Manufacturing and Packaging Agreement' with Catalent Pharma Solutions, LLC. The four-year agreement, beginning from the date of the first Qsymia commercial sale, would see Catalent be the exclusive supplier of Qsymia if they meet the performance criteria set by Vivus.

Valuations

EPS estimates for 2013 and 2014 are revised upwards to $0.43 and $2.13 respectively. Using an average industry P/E multiple of 30x, we can calculate a revised target price of $64 for 2014.

Average P/E of Industry

30x

2014 EPS

$2.13

2015 EPS

$3.6

Target Price 2014

$64

Target Price 2015

$109.3

Source: Vivus Looks Into European Approval As Company Pins Hopes On Qsymia