Should VIVUS Just Forget This Drug?


Please forgive me for asking a dumb question, but here goes: Should VIVUS just forget one of its drugs? No, I'm not referring to Qsymia. If I were, the question would certainly belong in the dumb category -- and my keyboard would probably have already erupted in flames in mere anticipation of the flak that would soon come my way. My question instead concerns the company's erectile dysfunction drug Stendra. Should VIVUS dump Stendra?

Some people say there's no such thing as a dumb question, but that there are plenty of dumb answers. With that in mind, here are two answers to this question. You can be the judge as to which is the dumber answer -- and if the question itself fits the description as well.

To even consider the thought of getting rid of a drug that was just approved by the Food and Drug Administration last year must be dumb. After all of the effort to advance Stendra through clinical trials, to throw in the towel now sounds ridiculous.

Just look at the market size for erectile dysfunction products in 2012. Pfizer's Viagra led with $2 billion in sales. Eli Lilly made $1.9 billion from Cialis. 2012 sales for Levitra, co-marketed by Bayer and GlaxoSmithKline , aren't available yet but will likely come in lower than the $434 million in 2011.

That's around $4 billion in sales. With the population aging in the U.S. and plenty of other regions across the world, one would expect that the potential number of customers for erectile dysfunction drugs should experience solid growth. While some analysts do project a decline in the overall market for the next couple of years, they see a resurgence after 2014.

Surely Stendra could capture a decent chunk of this growing market. Clinical trials for the drug had solid results. No new product has entered the space in nearly 10 years. VIVUS states that around half of all men with erectile dysfunction who use PDE5 inhibitors aren't fully satisfied with their current medication. Shouldn't VIVUS be able to win over plenty of physicians and patients to Stendra with a strong marketing push?

VIVUS only paid $5 million up front to license the drug from Tanabe back in 2001. Since then, the company has spent around $350 million on research and development for all of its drugs. Only a portion of that amount was for development of Stendra. It stands to reason that even moderate success in commercializing the product would provide a good return on investment. Throwing that opportunity away sure seems like a dumb move.

And dumber?
Yes, throwing away the opportunity for Stendra might be dumb -- but selling off the opportunity isn't. Why would this be a smart option for VIVUS?

First, competing in the erectile dysfunction market won't be a cakewalk. The clinical trials to date compared Stendra to placebo but not head-to-head against any of its rivals. As a PDE5 inhibitor, Stendra has a similar biochemical pathway to Cialis, Viagra, and Levitra. Unlike Cialis, though, Stendra should be taken 30 minutes prior to sexual activity. Cialis can be taken any time, and one dosage of the drug has been shown to last up to 36 hours.

Beating Cialis on convenience and effectiveness will be difficult. Stendra should be able to compete more effectively with Viagra and Levitra. To do so, however, requires a top-notch sales and marketing effort. VIVUS can't do it alone, which brings up a second point.

The company has been looking for partners to help commercialize Stendra for quite a while now and still doesn't have any solidly lined up. VIVUS recently renegotiated with Mitsubishi Tanabe to push the launch date for the drug back to the end of 2013. Stendra was approved by the FDA last April but still hasn't hit the market. VIVUS maintains that it has made "significant progress" in talks with potential partners. That may be, but it's also basically what the company said three months ago.

Those of us who are outside the company don't know for sure what the stumbling blocks might have been so far in finding a partner. VIVUS has stated that it is pursuing regional commercial alliances. I wonder if perhaps more interest could be drummed up if full rights to Stendra were on the table.

At any rate, the clock is ticking. If VIVUS doesn't launch Stendra in the U.S. by the end of the year, it could lose its license to the drug. There are also only a few years remaining before key rivals begin losing patent protection. When that happens, a flood of generics will likely become available and result in an entirely new ballgame from a pricing perspective.

Last, but not least, Stendra in some ways is a distraction for VIVUS. Qsymia remains the company's primary focus. If the company could sell the rights to Stendra, it would be able to give its undivided attention to achieving the levels of success that management envisioned for Qsymia. That's not to say that the success would automatically come, of course, but for a small drug company being a jack of all trades does mean being the master of none.

I'll be the first to admit that both sides of this argument have some valid points. And there are probably more that I didn't raise. Perhaps the question about forgetting Stendra really is a dumb one after all. The dumbest question, though, is the one that is never asked.

Is now the time to sell VIVUS?
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Editor's note: A previous version of this article used Q4 sales of Pfizer''s Viagra rather than the full-year 2012 revenue. The Fool regrets the error.

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