Great Job, Now You're Fired

"As a founding CEO, over the past 22 years, Leland has secured four drug approvals, an unheard-of achievement for a small pharmaceutical company. He has taken VIVUS from start-up to what it is today."
-- Samuel Colin, senior managing partner at First Manhattan, VIVUS' largest shareholder.

But "what it is today" apparently isn't good enough for Colin. After a heated proxy fight, Colin succeeded in ousting VIVUS' CEO Leland Wilson.

Rather than waiting to see which of the two slates of board nominees shareholders would vote in, First Manhattan and management reached a compromise. If you can call it that; First Manhattan clearly got the better end of the deal because, apparently, it was going to win anyway.

In addition to ousting Wilson, four other board members will resign from the board to make way for six of First Manhattan's nominees. The board will be expanded from nine to 11 members, with First Manhattan's choice for the CEO spot, Anthony Zook, taking the 11th spot.

If you haven't been keeping score at home that's:

First Manhattan: 7
Old management: 4

New management! Different story?
Zook, who served as executive vice president for global commercial operations at AstraZeneca until February, has his work cut out for him. VIVUS' obesity drug, Qsymia, hasn't been flying off the shelves since it launched last September; in the first quarter, sales amounted to just $4.1 million.

It's not like VIVUS wasn't putting in the effort. In the first quarter, the company spent $44.7 million on selling, general, and administrative expenses to hock Qsymia.

Obesity is a big market with lots of patients, but doctors have been reluctant to try drugs, given the side-effect issues of Wyeth's fen-phen, Abbott Labs' Meridia, and Sanofi's Acomplia, especially when diet and exercise are generally safer.

Patients also haven't warmed up to the drug, given its cost. At the end of the first quarter, VIVUS had secured insurance coverage for about one-third of insured patients, but much of that is at the tier 3 level, where co-pays can be as high as $50 to $100. By the end of the year, VIVUS is shooting for 50% coverage, but there's still a long way to go before the sticker shock disappears.

Neither the doctors' concerns nor the patients' cost issues are going to change under new management. Best-case scenario for investors is that the new management is able to find help from a large pharma partner that can put a little more muscle behind the launch.

VIVUS' direct competitors in the obesity space both have large partners. Arena Pharmaceuticals secured a marketing deal with Eisai to market Belviq, and Orexigen will have help from Takeda once its obesity drug, Contrave, is approved.

Both companies got $50 million up front, more than $1 billion in potential milestone payments, and royalties in deals signed before their drugs were even on the market. Presumably, VIVUS could get even more now because it has an approved drug.

It isn't clear exactly why VIVUS didn't sign a post-approval marketing deal. My best guess is the company couldn't get the terms that management thought it deserved. We'll have to wait and see if the new management is willing to settle for less, or can drive a better deal.

If management can secure a deal, buying now could be a good move, but it's also risky to count on a pharma partner to step up. To counter that risk, consider diversifying into dividend-paying stocks. The Motley Fool's special report, "Secure Your Future With 9 Rock-Solid Dividend Stocks," is a great way to kick-start your search. Just click here to get your free copy today.

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