Biopharma company Vivus Inc. (VVUS) reported a loss of 28 cents in the second quarter of 2010, wider than the year-ago loss of 19 cents. The second quarter loss was also wider than the Zacks Consensus Estimate for a loss of 23 cents. Lower revenues and higher SG&A costs led to the wider loss in the second quarter.
Revenues came in at $3.9 million, just shy of the Zacks Consensus Estimate of $4 million and down significantly from the year-ago quarter.
Quarter in Detail
Product sales, consisting of sales of Muse, totaled $3.8 million, down from the year-ago product sales of $4.1 million. The decline was due to lower US shipments.
The significant decline in total revenues in the reported quarter was mainly due to lower licensing revenues. Licensing revenues came in at $115,000, significantly below the year-ago licensing revenues of $10.6 million. We note that licensing revenues in the year-ago quarter were positively impacted due to the recognition of all of the deferred revenue related to the sale of Evamist.
While R&D expenses declined 30% to $14.2 million, SG&A expenses increased a whopping 81% to $8.2 million. The significant increase in SG&A expenses was due to expenses incurred by the company in anticipation of the approval and launch of lead pipeline candidate, Qnexa, for the treatment of obesity. Meanwhile, the decline in R&D spending was due to the completion of pivotal phase III studies with Qnexa.
Pipeline Update
Qnexa, a once-daily pill, is Vivus’ lead pipeline candidate that is currently under US Food and Drug Administration (FDA) review. Unfortunately, the candidate received an unfavorable recommendation from the FDA’s advisory panel in July 2010.
The FDA’s Endocrinologic and Metabolic Drugs Advisory Committee voted 10-6 against Qnexa’s approval. The FDA panel’s vote was based on one-year data on Qnexa. The panel voted that the risks of taking the drug outweighed its benefits. Although Qnexa was found to be effective for weight loss, several side effects were associated with the use of the drug, such as memory loss, depression/suicidal thoughts, birth defects, higher heart rates and other cognitive problems.
The panelists said that they would prefer data from a longer period of study in order to pass a favorable judgment on the drug. Two year data from an extension study of Qnexa should be out in the third quarter of 2010.
Vivus said that it is working closely with the FDA on the issues raised by the advisory committee. A final response from the FDA is due by Oct 28, 2010.
Qnexa is also being developed for the treatment of type II diabetes and obstructive sleep apnea. Besides Qnexa, Vivus has another late-stage candidate in its pipeline, avanafil (phase III), which is being developed for the treatment of erectile dysfunction.
Our Take
We currently have a Zacks #4 Rank (‘Sell’) on Vivus. Our short-term “Sell” recommendation is based on concerns regarding the approval of Qnexa. The FDA panel’s negative recommendation is a major disappointment for Vivus’ shareholders, who were banking on the approval of Qnexa. We believe that the FDA will most likely require Vivus to conduct additional studies before granting final approval.
Longer-term, we remain Neutral on Vivus. We believe that Qnexa will ultimately gain approval, albeit at a later date. The obesity market holds immense commercial potential and the approval of Qnexa would be a major boost for Vivus. The Centers for Disease Control and Prevention estimates that over 112,000 deaths each year are attributed to obesity. Moreover, Americans spend more than $30 billion annually on weight-loss products and services.
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