Vivus Seeks Compromise With Large Shareholder

| About: Vivus, Inc. (VVUS)
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It may be an indication that the current Board and management at Vivus (NASDAQ:VVUS) are nervous about the outcome of the shareholder vote, or it may be that common sense has actually found a way to sneak into a Wall Street boardroom. Either way, a comprimise in the battle for control of Vivus is now on the table. The shareholder meeting is scheduled for Monday.

In a press release issued Saturday, Vivus invited three of the First Manhattan nominees to join the board regardless of the outcome of the shareholder vote, an action that actually could have been done months ago. There is a simple rule in public companies. When your largest shareholder seeks some changes, you give that shareholder due consideration.

Some new blood in the Vivus boardroom may be just what the doctor ordered. On the other hand, a wholesale transfusion may create as many problems as it hopes to solve.

One concern with a total switch if I were a shareholder would be the thought of giving that much control to a 10% shareholder. If you want to control something, buy it by getting to a control percentage of ownership. A 10% stake does not equate to full control. In contrast, it would equate to getting representation on the Board. That is what appears to be on the table now. Vivus is inviting three of FMC's nominees to join the board.

In my opinion, Vivus had some very big issues that date back to getting the anti-obesity drug Qsymia approved. I feel that Vivus sacrificed the removal of some restrictive REMS for the ability to be get Qsymia to the market ahead of competitor Arena Pharmaceuticals (NASDAQ:ARNA) and its drug Belviq. The strategy of getting to the market first worked, but the problem was that the launch of Qsymia, with its REMS in place, delivered only a fraction of the sales that the Street was expecting. The company lowered pricing twice, and even though it had an almost nine-month head start on the competition, it could not muster sales numbers that impressed anyone.

As activist shareholder First Manhattan began to make waves, Vivus responded by saying that the very REMS they had agreed to with the FDA were at fault for the bad launch. The current Board and management outlined that REMS were in the process of being relaxed and that they were in discussions with possible partners. To upset the apple cart, Vivus argued, would set back ongoing negotiations.

The issue of the possible switch of the Board and CEO at Monday's shareholder meeting has been a huge distraction for the company that has placed a cloud over the important matters and even muddied the waters of the anti-obesity sector as a whole.

What can the average investor do? The first answer is to vote. There are essentially two considerations on the table that now have deeper meaning than before:

1. Vote the GOLD card for the current Board slate. This vote initially would have kept the current board and CEO in place. management would be entrusted to continue to run the company as it sees fit. The new dynamic of a GOLD card vote is that the company will add three new Board Members from the FMC slate. This is guaranteed. In theory, this vote would bring fresh ideas to the table that could help the company correct past sins and march forward with new plans.

2. Vote the WHITE Card for the First Manhattan Slate. This vote would essentially remove the entire existing board and the CEO. A CEO replacement is waiting in the wings. First Manhattan says it can do better than current management.

On its face, it is a tough call. If indeed there are negotiations going on for a partnership for the anti-obesity drug Qsymia, it would be tough to throw a wrench in those works. However, if First Manhattan can come through on its stance that Qsymia has a chance in Europe, it could be very interesting. Competitor Arena will likely be gaining the time advantage in Europe. Arena withdrew its application there earlier this year to take some time to answer concerns. Arena could very well re-apply in the next 60 days or so, giving it the advantage of being first to market there.

I think that the result that would present the least volatility to the company would be a GOLD card vote. I feel that the vote will be close, and that there are a lot of nervous shareholders. The one certainty is that sales of Qsymia need to increase fast if the drug wants to have a chance at being deemed a success. Thus far, it is certainly not setting any records. Pay close attention Monday.

Disclosure: I am long ARNA. 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.

Additional disclosure: I have no position in Vivus