Vivus: Patience Needed After Poor Earnings

| About: Vivus, Inc. (VVUS)

By: Ahmed Ishtiaq

Vivus Inc (NASDAQ:VVUS) reported third quarter earnings, and as I expected, the firm posted marginal revenue. Vivus only launched Qsymia late in the third quarter and could record revenues for six weeks. As I have stated in my previous article, the firm has been ultra cautious in marketing the drug. There has been incredible emphasis from the firm on educating the healthcare professionals about the drug. Let's look at the earnings of the company.

Third quarter results:

Vivus reported poor revenue figures for the third quarter. The company reported total revenue of $41,000 from prescriptions shipped from certified pharmacies. For the previous three months, Vivus reported a loss of $40.4 million, or $0.40 per share. For the same period last year, the losses for Vivus were significantly lower at $8.6 million, or $0.10 per share. However, the increase in losses mainly comes from increased selling, general and administrative (SG&A) expenses. Third quarter was extremely important for Vivus as the company made arrangements for the launch of Qsymia. The firm spent substantially on the hiring of a sales team and other marketing efforts. Qsymia carries a restrictive label. As a result, Vivus had to put extra effort in its marketing activities. For the third quarter last year, SG&A expenses stood at $5.2 million. However, for the third quarter this year, SG&A expenses went over $31 million.

Vivus reported SG&A expenses of almost $16 million for the nine months ending September 30, 2011. However, for the first nine months of 2012, the company reported SG&A expenses of about $60 million. In addition, the firm has increased research and development expenses substantially, due to the post approval studies for Qsymia and STENDRA. On the other hand, the cash situation has improved during the year. At the moment, Vivus has over $62 million in cash and cash equivalents and over $212 million in available for sale securities. At the end of 2011, Vivus had $39.5 million in cash and cash equivalents and $107 million in available for sale securities.

Another important component in the balance sheet is the level of inventories. At the moment, Vivus has inventories of over $14.6 million. However, inventories at the end of the previous year stood at $3 million. Clearly, the company has experienced slower sales than it expected, hence an increased amount of inventories. However, it is extremely difficult to make an inference about inventory since Qsymia has not been in the market for long. We cannot establish a trend yet as the drug is in the early stages of its launch. For the first nine months of 2012, Vivus has reported a loss of $83.2 million, or $0.85 per share. For the same period last year, the loss was $34.7 million, or $0.42 per share.

What is next for Vivus?

Over the next two quarters, it will become clear how much penetration Qsymia can achieve. If, the sales figures still remain low, then Vivus stock may stay under pressure for a long time. However, one quarter should not decide the fate of the company. I am hopeful about the sales prospects of Qsymia over the next two quarters. According to IMS health figures, the prescriptions for Qsymia have increased substantially. At present, there are 3,504 patients on Qsymia. Based on the 30 day cost of $160, the revenue for the fourth quarter will be almost $1.7 million. However, I expect the number of prescriptions to increase substantially in the fourth quarter.

In addition, a modification to the REMS will allow the company to have a deeper reach in the market through retail pharmacies. On the other hand, competition will increase for Qsymia during 2013. Arena Pharmaceuticals (NASDAQ:ARNA) will launch its own anti obesity drug (Belviq) in early 2013. Further, Orexigen Therapeutics Inc (NASDAQ:OREX) may also launch its drug (Contrave) early if the FDA approves an application for early review.


The market expected the company to report poor results for the quarter. However, the revenue figures were incredibly lower than expectations. As a result, Vivus stock lost over 20% in the early trading hours. Nevertheless, I remain confident that the company will do well in the long term. The market for the drug is huge, and the efficacy is unparalleled. It is important for Vivus investors to be patient. As I mentioned above, the next two quarters are extremely important for the company. Vivus will report substantially high revenues in the next two quarters. The company has an established pipeline now, but the company will need some time to penetrate the market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Ahmed Ishtiaq, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.