The Good, Bad, and Ugly of VIVUS' Earnings

The Good, Bad, and Ugly of VIVUS' Earnings

VIVUS reported earnings last night. As we could have guessed from Eisai's sales report for Arena Pharmaceuticals' competing obesity drug, Belviq, the downside trumped the good news for VIVUS.

Prescriptions of Qsymia were up 35% quarter over quarter. Annualize that out and you're looking at growth of 232% year over year. There aren't too many companies that would turn down that kind of growth.

Net sales of Qsymia were only up 15% quarter over quarter. The sales growth doesn't match the prescription growth because VIVUS is giving an increasingly larger number of free trials and reduced-price drugs. Of the prescriptions shipped in the third quarter, 26% were free while 56% offered at some kind of discount. The cheaper medication is an investment in the long-term sales growth, but it's hampering revenue right now.

Even looking at gross sales without the discounts, VIVUS only sold $11.1 million worth of Qsymia in the quarter. That's not going to pay the bills. In fact, VIVUS is cutting 17% of its workforce to reduce costs.

Jumpstarting sales
I don't know what the level above hyper-growth is, but that's what VIVUS needs to hit. It's not hard to see how Qsymia, Arena Pharmaceuticals' Belviq, or Orexigen's Contrave could be a blockbuster given the size of the obesity market. I could see them all reaching blockbuster status.

But there are issues that VIVUS and Eisai -- and later Takeda Pharmaceutical, which will sell Contrave for Orexigen -- have to work through before the obesity drugs can reach their full potential: getting doctors to prescribe the drugs and getting patients to pay for it.

VIVUS has coverage for 38% of people in the U.S. covered by commercial insurance and says it's still on track to get to 50% coverage by the end of the year. Equally important is moving coverage from Tier 3, where co-pays are often $50-$100, to Tier 2, where co-pays are often in the $20-$30 range. Patients that don't see substantial results after a few months are more likely to stick with the drug if the co-pays are substantially lower.

Getting doctors to prescribe the drug is somewhat a function of time; the longer the drugs are on the market without safety concerns, the more likely doctors will prescribe the drug. But having more boots on the ground hocking the drug to doctors certainly couldn't hurt.

Arena and Orexigen have a distinct advantage here because they have backing from a big pharma partner. VIVUS' management said it's in talks with various companies to establish a partnership but wasn't willing to layout a timeframe for when they might be complete.

I think VIVUS can turn things around, but how long that takes and at what cost to current shareholders remains to be seen.

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Originally published