Vivus And Anti-Obesity Sector Benefit From New Insurance Deal

| About: Vivus, Inc. (VVUS)
This article is now exclusive for PRO subscribers.

Vivus (NASDAQ:VVUS) has announced a new deal with Medco (NYSE:MHS) that places the company's anti-obesity drug Qsymia in a status whereby the drug will get more insurance coverage. The essence of the deal is that Medco has now placed Qsymia into the tier 3 category, which allows for insurance reimbursement. Prior to this deal, Qsymia was uncovered.

The tier 3 status with Medco means that Qsymia can be covered by insurance as long as pre-authorization is obtained. With insurance footing part of the bill, Medco plan participants are now expected to have an out-of-pocket expense of between $50 and $60 per month. This deal is substantial in that Medco carries 38 million patients on its rolls.

This deal is not only a positive development for Vivus, but also for competitors Arena (NASDAQ:ARNA) and Orexigen (NASDAQ:OREX). Insurance companies that cover any one of these drugs will likely cover all three in a similar fashion. One challenge in prescription anti-obesity pills is that insurance coverage has been spotty at best. While it is well documented that high weight is a contributor to a host of health concerns, insurance companies have been reluctant to cover the costs with a weight loss pill, even where medical need can be demonstrated.

Vivus has had Qsymia on the market for about 6 months and has had to lower prices twice. This demonstrates that consumers may be only willing to shell out a certain amount of money when it comes to slimming down. With more and more insurance companies now electing to cover these anti-obesity pills, the price points may get to a level that allow the sales of these drugs to gain traction.

At the moment Vivus's Qsymia is the only available anti-obesity pill on the market. Arena's Belviq is awaiting finalized DEA scheduling before it can launch, and Orexigen's Contrave is still in the FDA approval process. Vivus has only limited time as the sole drug on the market. Arena may receive DEA scheduling at any time. Once that happens, Belviq will join Qsymia in the marketplace.

Disclosure: I am long ARNA. I have no position in Vivus or Orexigen. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.