Company Overview
Vivus, Inc. (NASDAQ: VVUS) is a pharmaceutical company that seeks to develop therapies to address unmet medical needs in human health. The company’s product portfolio consists of two approved therapies and one product candidate in active clinical development.
Qsymia has been approved by the FDA to treat obesity, while Stendra has been approved by the FDA for the treatment of erectile dysfunction (ED). The company is currently developing Tacrolimus for treatment of Pulmonary Arterial Hypertension (PAH).
Vivus was originally incorporated in 1991, and is headquartered in Campbell, California.
Pipeline and Products
As noted above, the company has two actively marketed products:
Qsymia, which received FDA approval in July 2012, is used for chronic weight management for adult patients with a body mass index (BMI) greater than 30, or patients with a BMI greater than 27 in the presence of at least one comorbidity, such as hypertension or type 2 diabetes.
Qsymia incorporates low dosages of active ingredients from two previously approved drugs, phentermine and topiramate. The primary benefits of Qsymia are believed to be appetite suppression and increased satiety, i.e. feeling full, the two most significant influences of eating behavior.
It should be noted that upon approving Qsymia for marketing, the FDA required that Vivus perform additional studies, including a cardiovascular outcome trial (CVOT). To date, there have been no indications of increased cardiovascular risk, and the company is working with cardiovascular and epidemiology experts to remove the requirement of a randomized placebo-controlled CVOT, although there is no assurance that these efforts will be successful. The cost of a CVOT is expected to range from $180 million to $220 million over five years.
Vivus is also considering developing Qsymia to treat a variety of other diseases including obstructive sleep apnea, diabetes, non-alcoholic steathepatitis, non-alcoholic fatty liver disease, hyperlipidemia, and hypertension. However, the company does not expect any future development for these additional indications until it has concluded its discussions with the FDA regarding a CVOT for Qsymia.
Stendra (avanafil) is a phosphodiesterase type 5 (PDE5) inhibitor that received FDA approval in April 2012 for the treatment of ED. The European Commission subsequently granted Vivus marketing authorization for Spedra (the trade name of avanafil in the EU) in July 2013.
Stendra is licensed from Mitsibushi Tanabe Pharma Corporation, and the company has entered into several sub-license agreements for most major territories. The sub-licensees consist of the Menarini Group (Europe), Metuchen Pharmaceuticals LLC (United States, Canada, South America, India), and Sanofi (Africa, Middle East, Turkey, Commonwealth of Independent States).
As shown below, Vivus derived more than 75 percent of revenue in the most recent quarter from Qsymia, with the balance attributable to Stendra / Spedra:
Source: Company Filing
Tacrolimus is currently being developed as a treatment for PAH, a chronic life-threatening disease characterized by elevated blood pressure in the pulmonary arteries between the heart and lungs due to constriction. The current medical therapies aim to reduce symptoms and improve quality of life but do not address the underlying disease. Vivus believes that tacrolimus may be able to address fundamental causes of PAH, and hopes to hold a pre-IND meeting with the FDA later this year.
Market Overview
More than 110 million Americans are obese or overweight with at least one weight-related comorbidity. Excess weight increases the risk of other conditions such as heart disease, sleep apnea, stroke, and osteoarthritis. The National Institutes of Health maintains that losing just 10 percent of body weight can reduce the risk of developing these conditions, while making a meaningful difference in health and well-being.
ED affects an estimated 52 percent of men between the ages 40 and 70 years old. Prevalence increases with age and can be caused by a variety of factors including medications, lifestyle, diseases, and spinal cord injuries. The company estimates that approximately half of the men being treated with competing PDE5 inhibitors are dissatisfied with their treatment.
Recent Developments
- On July 5, 2017, Vivus announced that it had reached a settlement agreement with Actavis Laboratories FL resolving patent litigation related to Qsymia. The agreement will allow Actavis to begin selling a generic version of Qsymia on December 1, 2024. If Actavis begins marketing prior to that time, Vivus will be entitled to royalty payments.
- On March 27, 2017, the company reacquired the commercial rights to Stendra from Sanofi for the territories in Africa, the Middle East, Turkey, and the Commonwealth of Independent States.
Second Quarter Earnings Review
In the quarter ended June 30, 2017, revenue declined 19 percent year-over-year to $11.2 million. This decline was partially attributable to a change in accounting methodology that resulted in a revenue reduction of $2.3 million. Net product revenue from Qsymia also decreased significantly, from $12.7 to $8.5 million.
Total operating expenses for the second quarter fell seven percent to $16.2 million. This was largely due to decreases to selling, general, and administrative costs driven by the company’s ongoing cost control initiatives. However, Vivus’ net loss for the quarter increased to $13.4 million ($0.13 per share), up from $11.4 million ($0.11 per share) one year ago.
At June 30, 2017, Vivus listed cash, equivalents, and available-for-sale securities of $251.5 million and debt equal to $244.8 million, yielding a net cash position of $6.7 million. Stockholders’ equity totaled $5.5 million.
Stock Influences
- Approval to market Qsiva in the European Union;
- Resolution of the CVOT requirement for Qsymia;
- Progress regarding additional applications for Qsymia; and
- Significant developments related to tacrolimus.
Risk Factors
- Qsymia is a combination of two active ingredient drugs which are approved individually by the FDA. As a result, Qsymia is subject to substitution by prescribing physicians;
- While the company currently has a strong reserve of cash and securities, completing a CVOT for Qsymia could significant drain its resources;
- The company has faced multiple challenges to its intellectual property from generic drug manufacturers; and
- The company has enacted several changes to its charter documents that could make an acquisition of the company difficult, even if such an acquisition would benefit shareholders.
Stock Performance
As of August 8, 2017, shares of Vivus closed at $1.01, yielding a market capitalization of approximately $100 million. The stock hit a 12-month high of $1.47 in November 2016, but has failed to trade near that level since. While the shares did experience a run-up in the weeks following the first quarter earnings announcement, the market for the stock has cooled. Shares now trade near the 12-month low of $0.99. The stock has lost 10 percent in the last year and is down 12 percent year-to-date.
Summary
Vivus has two products designed to treat conditions that affect a significant proportion of the population in the United States and abroad. Furthermore, the company plans to develop additional applications for Qsymia and tacrolimus for the treatment of PAH.
The company has significant cash and security reserves, but the company is also highly levered. Interest expense in the most recent quarter totaled $8.4 million, and the company has approximately $25 million of senior secured notes due in 2018. Combined with the ongoing possibility of having to fund a CVOT (with a price tag between $180 million and $220 million), Vivus will likely need to restructure its balance sheet in the next 1-2 years.
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