For Vivus, there may be life after Viagra

Vivus shifts focus from sex dysfunction drugs to anti-obesity; future uncertain for company's experimental diet drug.

By Aaron Smith, staff writer

NEW YORK ( -- Vivus, Inc., a company specializing in drugs for sexual dysfunction and obesity, is proving that there is life after Viagra.

Vivus (up $0.02 to $5.25, Charts), a Mountain View, Calif.-based company with a market cap of $300 million, took a big hit in 1998 when Pfizer introduced the blockbuster Viagra. Pfizer's sexual dysfunction pill for men became one of the world's most recognizable names in pharma. Viagra's sales are still growing, albeit slightly, with $816 million sales for the first half of this year.

But not so many people have heard of Muse, Vivus' once-promising flagship drug for sexual dysfunction. Muse was off to a good start, with sales totaling $129 million during its first year on the market, shortly before Viagra's appearance.

But Muse's mode of delivery is uncomfortable for many men, and Vivus' sales evaporated with the introduction of Pfizer's little blue pill, which is considered more convenient. In the first quarter of 2007, Muse sales were a paltry $1.6 million.

"Muse was the first revolutionary product for erectile dysfunction, but Viagra basically trumped it," said Ken Trbovich, analyst for RBC Capital Markets. "Viagra almost destroyed this company."

But now, investors are saying "Vive Vivus!" The stock has shot up more than 40 percent this year, and some analysts believe it will go up another third in the next 12 months. This is largely in anticipation of a $140 million milestone cash injection from KV Pharmaceuticals (up $0.20 to $28.61, Charts). KV agreed to buy Vivus' Evamist, an experimental drug that women spray onto their skin to reduce post-menopause symptoms like hot flashes.

"Here's a company with a $300 million market cap, and they could get a $140 million cash payment within a month," said Trbovich.

Vivus chief financial officer Timothy Morris said the milestone payment could come in as early as July 29, the Food and Drug Administration's target date to complete its review of Evamist. KV has already paid Vivus $10 million, but isn't handing over $140 million unless the FDA approves the drug. Following a positive FDA decision, Vivus would eligible for an additional $30 million, if Evamist achieves certain sales targets for KV. But Morris emphasized that the FDA does not always complete its decisions on its target dates.

"Our plan initially was to take [Evamist] to the market ourselves," said Morris, who believes that Vivus will garner more sales from another experimental drug: Qnexa. "This came down to economics."

Morris said his company will use the money to fund late-stage trials for its anti-obesity drug Qnexa. Earlier-stage tests showed that patients lost an average of 20 pounds over six months, said Morris.

"Right now, investors are focusing primarily on their obesity program, and that's what this cash is going to fund," said Ian Sanderson, analyst for Cowen & Co. "I think they're feeling that they could get a better return investing that money into their obesity program."

But potential sales for Qnexa are years away. Sanderson projects that Qnexa will enter the market in 2010, reaching $125 million in sales by 2011 and peaking between $300 million and $400 million by 2013.

Sanderson said that Qnexa's success depends on whether the drug has any serious side effects. So far, patients in early-stage tests have experienced a tingling sensation in the extremities. The analyst said that more advanced trials are needed to gauge the seriousness of this side effect.

If Qnexa's late-stage tests are successful and the drug passes muster with the FDA, Vivus would compete with the following diet drugs: Xenical from Roche of Switzerland, Meridia from Illinois-based Abbott Labs (up $0.14 to $53.84, Charts, Fortune 500), and the over-the-counter Alli from the British drugmaker GlaxoSmithKline (up $0.62 to $52.91, Charts). Altogether, the market for anti-obesity drugs comprises less than $1 billion in annual sales.

The analysts quoted here do not own stock in Vivus, but Cowen has acted as underwriter for the company and RBC makes a market in Vivus. Top of page