Is Vivus’s Stock a Buy After This News From Aetna?

With shares of Vivus (NASDAQ:VVUS) now trading just below $12, is VVUS a BUY, a WAIT and SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement:

Wall Street expected Vivus’ newly launched weight-loss treatment Qsymia to be a success; in fact Bloomberg health-care analyst Andrew Berens predicted that the drug could generate as much as $1 billion per year by 2016. After all, the drug was the second obesity medicine to receive regulatory approval by the Food and Drug Administration and the first to reach the market in more than ten years.

But Qsymia sales have been weak in the drug’s first months on the market.

Vivus reported third quarter results on November 6 that revealed how deeply the company’s profitability depends on sales of Qsymia. For the three-month period ended on September 30, the pharmaceutical manufacturer posted a net loss of $40.4 million, or $0.40 per share, as compared to a loss of $8.6 million, or $0.10 per share, in the year-ago quarter. According to the company’s earnings statement, the net loss was attributed to “increased selling, general and administrative expenses related to pre-commercialization and commercialization activities for Qsymia.”…

But these expenses have yet to pay off. As the earnings statement shows, Qsymia sales only amounted to $41,000 over the quarter. While the drug was not released until September 17,  its sales do show that the drug is heavily dependent on receiving insurer coverage. However by the end of October, the drug was covered, on average, one in five times it was prescribed.

In the company’s earnings conference call, Chief Commercial Officer and Senior Vice President Michael Miller cited the lengthy gap between obesity treatments as the reason for the drug’s slow sales. “Given that the obesity market has not seen a branded introduction in 13 years, payer coverage is minimal, and there is prescription abandonment due to the cash outlay,” he said. The company’s pharmacy database showed that 30 percent of pending prescriptions were abandoned by patients due to the out-of-pocket costs, which amount to $160 for a 30 day supply without insurance and $62 with a co-pay.

However, the health insurer Aetna (NYSE:AET), which previously did not cover Qsymia, has revised the criteria it uses to determine whether weight reduction medications are “medically necessary” for the treatment of obesity. In a Clinical Policy Bulletin released on Tuesday, the company announced that drug treatments will be covered when weight reduction medications and clinician supervised weight reduction programs are already in place. Under the new criteria, Vivus’ Qsymia, Arena Pharmaceuticals’ (NASDAQ:ARNA) Belviq, Pfizer’s (NYSE:PFE) Didrex, Roche’s Xenical (RHHBY.PK) and GlaxoSmithKline’s (NYSE:GSK) Alli.

With the Vivus’ stock price hovering a few dollars above its 52-day low of $8.60, the news pushed the stock up 13 percent, reaching $12.59 per share.

However, it is soon to tell whether investors will be placated by this pronouncement; so far, weak Qsymia sales have risen concerns. One of Vivus’ largest shareholders, QVT Financial has called for the company to be sold. On November 15, Reuters reported the firm had meet with the company’s chief executive Leland Wilson, who agreed to facilitate the discussion with the Vivus board…

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T = Technicals on the Stock Chart are Weak:

As of November 21, the stock price is 3.8 percent above its 20 Day Simple Moving Average; 9.5 percent above the 50 Day SMA; and 10 percent below the 200 Day SMA. Since July of this year, the stock price has been in a generally downward trend.

Conclusion:

While Qsymia sales have had a very obvious and significant impact on the Vivus’ stock price, it is important to remember that the drug was only released shortly before the third quarter came to an end. Despite dropping from just below $30 per share in early July to $10.24 per share after the company reported that weak Qsymia sales had pulled down its third-quarter results, the technicals on the stock are improving. With Aetna announcing it will cover the treatment, Vivus is quite well-positioned: it released its weight-loss pill ahead of competitors Arena and Orexigen Therapeutics (NASDAQ:OREX) and obesity in the United States is on the rise.

However, we need to see the stock price show some more strength in order to get comfortable purchasing shares. Therefore, Vivus looks like a WAIT AND SEE based on the key metrics above.

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