(FORTUNE Magazine) – Treatment for impotence used to be almost as uncomfortable and embarrassing as the ailment itself. But then Vivus arrived on the scene. This upstart Menlo Park, California, company recently introduced Muse, a new, simpler, and less intrusive remedy for the disorder--one that has done wonders for Vivus's share price (see chart, next page). The company, which went public just two years ago, now has a market capitalization that tops $1 billion, even though it started selling product only in January.

Is this just another hot medical technology stock with more promise than punch? Wall Street analysts don't think so. They're convinced that growing demand for Muse will soon translate into strong bottom-line results for Vivus. But investors who want to leap onto this bandwagon should take a careful look at the marketplace, because Vivus has some serious competition on the horizon.

Impotence affects as many as 30 million men in the United States. It can be caused by diabetes, emotional problems, prostate surgery, or the side effects of blood pressure medication. Until Muse appeared, the most common treatment required a man to jab himself with a needle at the base of his penis each time he wanted to have sex. Or he could have a balloonlike device surgically implanted, which he would then activate by a pump before intercourse.

Muse, by contrast, works like this: A patient slips an ultrathin applicator into the tip of his penis and then gently pushes a plunger that releases a small, rice-size pellet containing a medication called alprostadil. The genius of Muse isn't in the drug (alprostadil has been used for years to treat various male and female hormonal problems) but in the delivery system, which allows the medication to take effect in as little as ten minutes.

Sales of Muse have been brisk. Wole Fayemi, an analyst at Genesis Merchant Group Securities in San Francisco, recently boosted his full-year earnings forecast for Vivus to $1.21 per share, compared with a loss of $1.11 in 1996. He expects revenues to reach $75 million this year and to hit $250 million in 1998. Bryan Anderson, an analyst at the New USA Growth fund, figures that if just one million impotent men in the U.S. use Muse, on average, 1.5 times per week, Vivus's earnings could reach $15 per share in the year 2000: "And that gets you to a $450 stock."

That is, if everything goes according to plan. Vivus faces three challenges--price, pain, and competition. At roughly $20 per application, Muse is expensive, and the treatment can cause some temporary discomfort while the drug takes effect.

Vivus's chief rival is Pharmacia & Upjohn, which recently began marketing Caverject, an easily injectable and more effective version of alprostadil. But Vivus's biggest worry may be a drug that isn't even on the market yet. It's called Viagra, an impotence treatment researchers at Pfizer discovered by accident when they noticed that many patients taking part in a study of a new heart drug developed erections. "This pill is fabulous," says J. Francois Eid, a professor of urology at New York Hospital/Cornell University Medical Center. Pfizer doesn't expect to file for FDA approval of Viagra until late this year. It could be 1999 before the medication hits the market--but there's reason enough now for Vivus investors to be concerned. --Herb Greenberg

HERB GREENBERG is a columnist with the San Francisco Chronicle.