Are Qsymia's Launch Challenges A Category Problem?

| About: Vivus, Inc. (VVUS)

Vivus Pharmaceuticals (NASDAQ:VVUS) released their Q3 earnings before the bell and the stock has been down as much as 25% in today's trading. In my article around the Vivus sell-off that I wrote last week, I stated it was likely that the lackluster launch of Qsymia was the driving factor behind the drop in the stock price. This speculation was confirmed in today's conference call where Vivus revealed the scripts filled for Qsymia since launch and some of the challenges they are experiencing to date.

Since launch in mid-September, Qsymia has been filled for 3,540 unique patients or 5,560 total scripts. At an average of $160 per prescription, which is a 2 week titration dose followed by a 30-day regular dose, that equates to less than $1M in Qsymia sales to date. This is a far cry from the original analyst expectations of $25M for Q4. In fact, at this pace, they won't even come close to revised analyst expectations of $10-12M for Q4 and I think it is highly improbable that you will see things turn around in order to meet 2013 estimates of $300M. As a result, it is likely you will see downgrades coming soon for Vivus.

Vivus reported a loss of over $40M for the latest quarter, significantly higher than Q2 as a result of increased costs associated with the launch and R&D expenses associated with their post-approval trials required by the FDA. Vivus guided that these expenses will continue to increase in the coming quarters as they continue to spend on marketing, education and get closer to starting their post approval trials including a Cardiovascular Outcomes Trial with 20,000 participants. With less than $300M on the balance sheet, Vivus has approximately 6 quarters worth of capital left barring a dramatic increase in Qsymia sales.

The following are highlights from the Vivus conference call pertaining to the Qsymia launch and the challenges they have experienced:

  • There have been 28,000 sales details to 25,000 target prescribers. These targets include primary care physicians, especially those with a focus on obesity, and endocrinologists. These should be the early-adopters for Qsymia. Investors must ask why out of these 25,000 physcians that have seen a sales rep, only 2,615 unique physicians have written a Qsymia script 6 weeks after launch, less than 10%.
  • Payers are only covering 1 out of 5 prescriptions so far. This is less than the estimated 33% of insurers who cover obesity drugs.
  • 30% of patients are not filling their scripts with the pharmacy when they find out how much they have to pay out of pocket.
  • Vivus expects to hear back from the FDA in about 6 months on their request to modify the REMS program to allow for local distribution of Qsymia.
  • Vivus has appealed the CHMP decision for marketing in Europe and they expect a final decision in approximately 6 months as well.

Vivus' CEO Leland Wilson is indicating that the slow launch is due to issues with the entire category of weight loss drugs and not specific to Qsymia. They are spending more time educating physicians on the benefits of weight loss than anticipated and this has resulted in a slower launch than expected. He feels that physicians are prescribing to a few patients to see the results and then they will prescribe more readily. It is worth noting that Leland Wilson, the CEO, and the President, Peter Tam, have sold almost $20M worth of their stock just in 2012. The most recent insider sells by the CEO and President were shortly after approval when the stock was over $30.

I must respectfully disagree with Mr. Wilson that Qsymia's problems are a categorical problem and one not directly related to their drug. I have opined for several years that Qsymia does not have the safety profile required for a 1st in class drug. Despite excellent average weight loss efficacy, it comes with too many side effects above placebo and serious concerns with elevated heart rate and increased risk of birth defects for the classes largest target market, women of child-bearing age. Qsymia is the packaging of a fixed-dose phentermine & topirimate combo, which has been prescribed by weight loss specialists for over 15 years. Despite being on the market for a long-time, it has never taken off in mass quantity like the famous FenPhen combo did. Vivus' challenge with selling Qsymia is getting prescribers to write it in the first place and take on the liabilities associated with it. Weight loss drugs with a Cardiovascular risk signal such as raising the heart rate or blood pressure have a long, checkered past in the medical community. When you combine the elevated heart rate, numerous side effects such as tingling extremities with the increased risk of birth defects -- you have a major uphill climb to get to a blockbuster drug.

Arena Pharmaceuticals (NASDAQ:ARNA) is trading down in sympathy with Vivus based on the fear that this could in fact be a categorical problem and one not unique to Qsymia. Arena's Belviq continues to wait for DEA scheduling before it can be launched in Q1 2013. However, unlike Qsymia, Belviq is a novel drug with a very clean safety profile. As I wrote in February 2012 when ARNA was under $2, Belviq has everything required to become a standard 1st line therapy to be prescribed liberally to many patients. The average weight loss for responders combined with the improvements to glycemic control is exactly what is needed for the largest unmet medical need in the world. I continue to believe this is the case and will become clear within a few quarters of launch. I think you will see many more testimonials by Belviq patients throughout 2013 and by the end of next year. It will become very clear that Belviq will be a 1st in class treatment for obesity while Qsymia is regulated to a 2nd or even 3rd line therapy after Belviq + Phentermine. So it is in my opinion that Qsymia's challenges are not categorical in nature but rather from problems related to the drug itself.

Disclosure: I am long ARNA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.