Will Vivus’s Stock Price Continue to Shed Weight?

With shares of Vivus (NASDAQ:VVUS) trading at around $11.75, is VVUS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Vivus has been one of the hottest stories on the street over the past two months. However, Vivus hasn’t been one of the hottest stocks. Their anti-obesity drug, Qsymia, was the victim of lofty expectations. On the Q3 conference call, it was stated that only 5,000 prescriptions had been filled. This caused a precipitous drop in the stock price.

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Part of the problem is that Qsymia is only offered through Walgreen (NYSE:WAG) and CVS Caremark Corporation (NYSE:CVS) mail order programs at the moment. Originally, the game plan was to market to physicians, but that plan was abandoned quickly. In order to jumpstart sales, Vivus is now offering a 14-day free trial of Qsymia. This might be a rash decision, but that remains to be seen. One potential problem is that it takes 30 days to see any real results. However, sometimes hope is a powerful weapon. Once those who deal with obesity have a potential cure in their hands, they might want more.

Let’s take a look at some important numbers for Vivus and then determine whether this might be a good entry point.

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for Vivus is excellent. The same can be said for the balance sheet. The three companies listed below in this space all have strong numbers in these areas. The other two companies listed include Arena Pharmaceuticals (NASDAQ:ARNA) and Orexigon Therapeutics (NASDAQ:OREX).  

Debt-To-Equity

Cash

Long-Term Debt

VVUS

0.00

$274.48 Million

$0

ARNA

.62

$165.77 Million

$73.24 Million

OREX

0.00

$108.28 Million

$0

 

T = Technicals on the Stock Chart Are Mixed

Vivus has had a nice run over the past three years, but it has underperformed Arena Pharmaceuticals by a wide margin.

1 Month

Year-To-Date

1 Year

3 Year

VVUS

4.58%

21.90%

14.17%

39.17%

ARNA

4.13%

385.60%

314.60%

164%

OREX

22.43%

232.30%

214.70%

-25.28%

 

At 11.77, Vivus is currently trading below all its averages.

50-Day SMA

15.12

100-Day SMA

18.51

200-Day SMA

21.20

 

E = Earnings and Revenue Are Not a Factor at the Moment

Annual revenue has been wildly sporadic, but this is normal for the majority of the industry. Earnings have been on a steady decline.

2007

2008

2009

2010

2011

Revenue ($)in millions

54.7

83.72

31.40

N/A

N/A

Diluted EPS ($)

-.04

-.13

-.20

-.24

-.40

 

There isn’t enough information to provide an analysis on revenue, but earnings have disappointed on a Q3 YoY basis.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

N/A

N/A

N/A

N/A

.41

Diluted EPS ($)

-.10

-.13

-.20

-.24

-.40

 

T = Trends Support the Industry

If you look at the companies involved in this space, they have all experienced significant spikes in their stock prices at one point or another. Welcome to the land of biotech. It would be great if those spikes didn’t often lead to stunning reversals. While there is a big market for anti-obesity drugs, expectations are extremely high. Investors of Arena Pharmaceuticals are hoping that Belviq will meet, or exceed, expectations. They are certainly confident. We will soon find out.

Conclusion

What’s most bothersome about this story is that there are hordes of people who care nothing about the actual benefits for those who deal with obesity. They care only about their investments. Vivus vs. Arena Pharmaceuticals has become like an exciting heavyweight fight where people are placing big bets on both sides. Truth be told, neither drug is good for the patient. The answer to obesity is exercise, even if it’s mild exercise, which instead of side effects, has positive effects on overall health.

If you haven’t yet visited Qsymia.com, this is from the site in regards to safety:

“The effect of Qsymia on cardiovascular morbidity and mortality has not been established. The safety and effectiveness of Qsymia in combination with other products intended for weight loss, including prescription and over-the-counter drugs, and herbal preparations, have not been established.”

That first sentence is especially important. Other potential side effects include increased heart rate, suicidal thoughts, glaucoma, and affected thinking. The most common side effects are tingling in hands and feet, dizziness, trouble sleeping, constipation, and a dry mouth.

There is one main side effect for exercise, which is fatigue. Then again, once your workout is complete, you will feel an incredible burst of energy and happiness due to the release of endorphins. You will also reduce stress, minimize feelings of anxiety and depression, boost self-esteem, and improve sleep. Wait … not done yet. Exercise will also strengthen your bones, lower your blood pressure, improve muscle strength and endurance, and REDUCE BODY FAT! You don’t need to embark on a rigorous exercise program. You can simply start with a light bike ride or long walk. If it’s raining outside, walk laps around your house or buy a stationary bicycle so you exercise while watching TV. Now … which choice are you going to make, natural exercise or a drug?

In regards to Vivus, this is a company that has shown poor performance over the past 15 years. The stock price has gone nowhere. Any time the stock popped, it eventually came right back down. The current marketing plan for Qsymia is also weak. One of the few bright spots is the balance sheet. However, that’s not enough for a positive rating. Vivus is a STAY AWAY.  

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