The stock market works in ebbs and flows. There are buyers and sellers, there are market makers, and there is a market. These functions typically are enough to make the market work. Then there is news. News can sometimes be the great equalizer in trading. If good news is released an equity tends to move up. If bad news is released it tends to move down. In my experience it seems that the takedown on bad news is typically more swift and more overdone than the impact a company has to good news. The reason is actually quite simple. People tend to build good news in before it happens, while we tend to be taken by surprise when bad news happens. This could well be the case with Vivus (VVUS). Let's look at the three-month chart vs. the six-month chart.
As you can see, prior to FDA approval of Qsymia, the anti-obesity drug Vivus has on the market, the equity was trading above $20 per share. When competitor Arena Pharmaceuticals got its anti-obesity drug Belviq approved in late June, Vivus began to climb as well. Within a couple of weeks Vivis had its own FDA approval for Qsymia. The stock ran to nearly $30 per share.
Of course, both Vivus and Arena (ARNA) settled down after the news of FDA approval. It is only rational. When the approvals happened it sent an irrational exuberance through the street. FDA approval is indeed great news, but there are still steps needed to take the product to market. Essentially, Vivus settled down to levels that it had prior to approval.
The next meaningful step for the company was attempting European approval. It became the focus of investors. It only seemed natural to get this drug to as many markets as possible. As all eyes turned to Europe, Vivus launched Qsymia in the United States. That news saw the equity climb to just over $24. It was great news! Ironically, it would appear, that the FDA approval caused a bigger stir than the actual launch of the product! This is where the bad news comes into play, and the fact that the market could well be over-reacting to that news. Shortly after the U.S. launch of Qsymia, Vivus warned that it did not anticipate approval in Europe.
While certainly the news regarding Europe was bad, the company did state that it would, pending the write-up, pursue an appeal, or would modify and file for approvals again. Yes, this is a setback, but is the market forgetting something?
Vivus is approved in the United States, and as of right now, is the ONLY prescription anti-obesity drug on the market. In addition the company has other products like Stendra that also carry potential. Yes, the Europe situation stings a bit, but look at the potential market in the United States alone:
The market stateside is massive. Vivus is the only product on the market and could enjoy that position for a few more months. The potential market is Billions in the United States alone! Even if Vivus will share that market with Arena, the rewards could get staggering even without Europe.
As I write this Vivus is trading a couple of bucks below $20 and is actually at levels that it has not seen since the months BEFORE FDA approval of Qsymia! The question is whether a buying opportunity is presenting itself here. In my mind, from an investment standpoint, it is. Essentially I think the street gave too much weight to the bad news, and not enough weight to the fact that Qsymia is already being prescribed today in the United States.
Setting aside all of the drama that typically happens in the investment community between investors in Vivus and investors in Arena, what we all seek is an opportunity to make an investment that pans out and delivers a profitable trade. Does it really matter what you invested in months ago if an opportunity presents itself because of possible overreaction to news?
I would watch Vivus closely over the coming days and wait for things to settle down. Then, evaluate where the company is at with the understanding that its drug, Qsymia, is on the market.
Disclosure: I am long ARNA.
Additional disclosure: I have no position in Vivus