This month, Vivus Pharmaceuticals (VVUS) faces 60 critical minutes that could potentially double the addressable market for its anti-obesity drug phentermine/topiramate. VVUS will go in front of the European Agency for the Evaluation of Medicinal Products' Committee for Proprietary Medicinal Products (EMEA/CPMP) for an Oral Explanation (OE) in relation to it's marketing application for its anti-obesity drug. The drug is already FDA approved and will be marketed in the United States under the trade name Qsymia. Although similar to the FDA Advisory Committee (AdCom) process, the OE has a different format and focus.
In the European approval process, the OE is a hearing conducted directly between the CPMP and the applicant. In the EU, the review of a new drug application using the centralized procedure involves a 210-day process. On day 180, a list of outstanding issues (OI) is sent to the applicant. The CPMP then decides whether or not an oral explanation is required. If an OE is required, the CPMP will inform the applicant of the specific outstanding issues that must be addressed in the OE and which issues should be addressed in writing.
According to the EMEA's guidance document (pdf):
The OE should be prepared by the Applicant taking into account the following format:
Overall duration 60' maximum including:
- Sequential responses to each OI followed by a conclusive statement (up to 30')
- Main SPC amendments + main SOs/FUMs (up to 10')
- Questions and Answers session
In the quote above, SPC stands for summary of product characteristics (i.e., drug label), SOs are specific obligations, and FUMs are follow-up measures. Collectively, these are post-marketing commitments and risk-management steps.
VVUS has 60 minutes to make it's case for Qsymia's European approval. After the OE, the CPMP will discuss the issues presented. From the wording of the guidance document, it appears as if the drug sponsor is not allowed to be present for these discussions.
During the meeting where the OE takes place, there is no formal vote regarding the application. Instead, following the EMEA voting procedures guidelines (pdf), the trend of the opinion of CPMP members is polled informally. If the trend is positive, the Rapporteurs and EMEA Product Team Leader meet with the applicant to discuss key amendments to the drug label (SPC) and package leaflet and revisions of the draft proposal for SOs/FUMs. If the trend is negative, they meet to go over "possible options available from a procedural point of view."
One important note regarding the informal trend vote:
Where a trend vote has been recorded and notified to the applicant /MAH, it is not anticipated that the final formal vote will reflect a change in the opinion of the Committee, unless anything has changed substantially from the time of the trend vote to that of the final vote.
In other words, provided that nothing changes substantially from the OE to the final vote, the trend indicated to VVUS during the follow-up meeting should be the final opinion adopted by the committee. In general, the CPMP will not adopt a final opinion at the same meeting as the OE. Instead, it waits until the next monthly meeting to allow time, in the case of a positive trend, for the applicant to submit a revised SPC/PL and SOs/FUMs. This means, the final vote would take place in October of this year.
The EMEA voting guidelines state that, once all of the required information is available and once the CPMP has finished its scientific review, the trend should be checked and that:
The question(s) put to the CHMP, as well as the trend, are recorded in the Minutes of the CHMP Meeting.
It is unclear at the moment whether or not the CPMP considers the information submitted in writing and during the OE to constitute "all of the required information being available." If so, the trend will be recorded in the September meeting minutes. If not, no information regarding the trend will be found in the September meeting minutes.
If no trend vote information is recorded in the September meeting minutes, VVUS is not likely to publicly disclose the results of the trend prior to the adoption of the final opinion for two main reasons. First and foremost, even though the EMEA voting guidelines state that the opinion in the final vote should reflect the trend, the trend is an informal opinion only. Second, VVUS' launch of Qsymia in the U.S. is going to begin in Q4. It makes sense to focus media attention on the Qsymia launch instead of on the EU approval process. If the EU decision is negative, it will eventually be forgotten once Qsymia launches and U.S. uptake begins. If the decision is positive, it will have a larger impact on the stock price if announced closer to the U.S. launch of Qsymia.
How to Trade the Event
The October EMEA meeting, where the final opinion of the CPMP will be adopted, takes place from Oct. 15-18. Minutes of this meeting will be available on Oct. 19, which is the last trading day for October options. Investors wishing to establish options positions ahead of the CPMP decision would do well to focus on options expiring in December or January, in order to allow enough time for the market to factor in the news and to exit positions in an orderly fashion. We expect implied volatilities to increase as we approach the September meeting and the October decision. Focusing on these later months has the added benefit that any stock movement due to initial reactions to the Qsymia launch will be captured by these options in contrast to the October contracts.
From June 4 to July 3, VVUS' stock price went from $23.68 to $29.93 in anticipation of the FDA approval decision. When the FDA delayed the VVUS approval decision by 90 days, the market took this as a sign that the FDA was leaning toward approval and this likely contributed to the June run. VVUS also had momentum due to the June approval decision for Arena Pharmaceuticals' (ARNA) obesity drug Belviq. For the EU decision, these two factors are not present; however, Qsymia is now approved by the FDA, which may serve as a positive indicator among binary event speculators trading the EU decision.
Whether or not a run-up for VVUS materializes in September to October remains to be seen and depends largely on investor sentiment. The downward movement of VVUS' stock price after Qsymia's FDA approval may have left investors gun-shy for playing the EU approval decision. VVUS is currently range-bound between the 50-day and 200-day exponential moving averages. If a run-up in VVUS is to occur ahead of the EU approval decision, look for the stock price to close above the 50-day moving average within the coming week. Should this occur, there is potential for a short-term move to $29-$30 between now and late October because EU approval potentially doubles Qsymia's addressable market. Traders playing the run-up should plan to take at least some profits off the table if VVUS' stock price approaches $29. We do not recommend holding through the EU decision unless the investment time horizon is at least six to nine months. The potential downside from of a negative EU decision or from a "sell the news" reaction to a positive decision will take several months to be rectified by Qsymia's U.S. launch.
For longer-term investors, between now and the end of the year, VVUS faces several potential catalysts including the U.S. launch of Qsymia, the EMEA decision, and potential partnership announcements for Qsymia in Europe and for Stendra in the U.S. VVUS has guided that Stendra is likely to have an EU approval decision in the first half of 2013, providing another potential catalyst for the stock within the next nine months.
Disclosure: I am long ARNA.