Vivus Won't Be Fixed Overnight, But Here's A Plan

| About: Vivus, Inc. (VVUS)
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Most biotech executives will never see one of their own projects go all the way to regulatory approval, so it is particularly ironic that in his 21-year tenure Leland Wilson, Vivus’s (NASDAQ:VVUS) deposed chief executive, pulled this trick off not once but four times.

But there is a difference between developing a drug and making it a commercial success – a fact that puts the spotlight on what First Manhattan Co [FMC], the dissident investor that gained control of Vivus’s board on Thursday, must now do to turn the company around. One thing is certain, however: there will be no quick fix.

All about Qsymia

Previous successes notwithstanding, FMC, which holds a 9.9% Vivus stake, had slammed Vivus’s board for being underqualified and overpaid and for mismanaging the launch of the obesity drug Qsymia.

It was Vivus’s failure to sign a commercialisation deal for Qsymia that had formed the basis of the extremely acrimonious three-month proxy battle that ended last week with the appointment of six FMC board nominees and the resignations of Mr. Wilson and various other executives.

The U.S. launch has indeed proved a dismal failure, and consensus forecasts for Qsymia’s 2018 sales have fallen from $1.4bn last September to $722m now, EvaluatePharma data reveal. And the EU has panned out even more badly, with the regulator refusing to approve the drug there so far.

FMC’s first move should be to strike a licensing deal for Qsymia – on whatever terms might be available. Surely there must be interested parties out there; Arena Pharmaceuticals and Orexigen Therapeutics struck obesity partnerships in 2010, so it must be assumed that Vivus had turned down approaches because it thought they undervalued the asset.

This spells a jolt back to reality: any up-front payment to Vivus now will be even lower than the $50m that Qsymia’s less efficacious rivals secured. On the plus side, though, only a company with a primary care presence can turn Qsymia into something, and thus the reward in a deal would shift to longer-term milestones and royalties, as well as keeping alive the prospects of an eventual sale of Vivus.

As for the EU, FMC will no doubt immediately move discussions with the regulator up a gear to ensure a timely approval there and boost chances of a deal; at least in Tony Zook, the former executive vice-president for global commercial operations at AstraZeneca who is set to become Vivus’s chief executive, the fund has a person with the right expertise.

That leaves avanafil, Vivus’s hapless approved but unlaunched erectile dysfunction drug, which has at last been licensed ex-U.S. to Menarini (Menarini rides to Vivus’s aid, July 9, 2013). FMC should move to monetise the Menarini royalty immediately with an entity like Royalty Pharma, and strike a likely heavily backend-loaded U.S. deal to dispose of the asset entirely.

Too successful?

Vivus’s intra-urethral erectile dysfunction pellet Muse and menopause drug Evamist had been offloaded earlier, marking the group out as a more successful drug developer than most of its peers.

But in a sense it is this success that has proved to be Vivus’s undoing, ensuring that founders remained in situ, with unrealistic expectations, for too long. Biotechs typically struggle in the transition phase from R&D to commercial entity, and Vivus simply faced these difficulties relatively late on.

It is clear from the proxy battle that FMC still believes in Qsymia, but Friday’s market reaction to the settlement speaks volumes. Under normal circumstances the end of a messy dispute and the overthrow of a tired and discredited management team would result in renewed shareholder optimism, but Vivus’s stock fell 8%.

Clearly investors have little illusion as to the new reality in which their company finds itself. But at least they have traded a fast-diminishing amount of short-term hype for the hope – however distant – of a longer-term return.