Market Cap: $1.1 billion
Vivus (NASDAQ:VVUS) seems like an unlikely choice for a bullish stance given its wider-than-expected third-quarter loss (40 cents per share vs. 10 cents a year ago).
Chalk it up to slower-than-hoped-for sales of the company’s anti-obesity drug, Qsymia. Limited insurance coverage and high co-pays have lowered the number of prescriptions actually filled. Also, the European Medicines Agency cited safety concerns — particularly cardiovascular effects — in recommending against EU approval for the drug last month.
But I’m playing the contrarian on VVUS for several reasons.
First, the government’s “War on Drugs” is being supplanted by its “War on Obesity” — and that pressure is bound to motivate insurers to boost coverage of drug therapies under “Obamacare.” It doesn’t hurt that Qsymia has shown promise as a treatment for obstructive sleep apnea — a dangerous condition that can cause breathing interruptions while sleeping, and can raise an individual’s risk of early death.
VVUS is a more speculative bet, as the financial metrics bear out. It has negative earnings and cash flow, and it’s spending a ton of money on marketing for Qsymia. To paraphrase Shakespeare, Vivus is “not for all markets” — investors really need to believe that Qsymia will ultimately kick down the barriers for new obesity drugs, lay to rest safety concerns and vanquish competitors like Arena Pharmaceuticals’ (NASDAQ:ARNA) Belviq.
After a roller-coaster ride, VVUS is trading back at levels it last saw right before Qnexa was green-lighted by an FDA advisory panel. I see it as a bargain.