Vivus 2Q15 – Qsymia (phentermine/topiramate extended-release) revenues grow 28% YOY and 11% sequentially to $14 million; Corporate restructuring plans announced to cut costs across company - July 30, 2015

Earlier this afternoon, Vivus provided its 2Q15 financial update in a call led by CEO Mr. Seth Fischer. Qsymia (phentermine/topiramate extended-release) sales totaled $14 million in 2Q15, up 28% year-over-year (YOY) from 2Q14's $11 million and grew 11% sequentially from 1Q15's $12.6 million; prescription volume saw 10% growth with 152,000 prescriptions dispensed in 2Q15 vs. 138,000 dispensed in 2Q14. Importantly, management provided big news, announcing a corporate restructuring plan that will reduce headcount and expenses, effective immediately, with the goal of achieving neutral or positive operating cash flows by the end of 2016. Specifically, management stated that the Qsymia sales force will be reduced to fifty territories and that the headquarters staff will be “streamlined.” The cuts sound fairly significant. The company also noted that it is working with the FDA and CVOT experts to make “substantial revisions” to the Qsymia CVOT, AQCLAIM, to try to reduce costs of the trial while fulfilling the safety requirements needed. Vivus is working with experts on the issue to identify alternative approaches to trial design. On the matter of CV data, management also shared plans to conduct a heart rate variability trial for Qsymia that will help the company further understand the safety perspective of this effect. This study may also help guide and inform any CVOT design modifications. In addition, Vivus highlighted that it has recently initiated a specialty sales force co-promotion pilot program with Kadmon Corporation aimed at introducing Qsymia to liver disease specialists, which will be evaluated at the end of 2015. We are interested to see if a targeted approach to liver disease specialists will increase the sales of Qsymia, seeing how uptake by physicians, while growing, has been low to date – it may well be better with more highly trained specialists as opposed to fairly risk averse PCPs (many of whom do not like to address obesity, period).

Overall, we felt that the tone of the call was less optimistic than usual, as management opened by pointing to the obesity pharmacotherapy market’s many challenges and acknowledged that the “current reality” made the corporate restructuring a necessary move. However, moving forward, management stressed continued efforts to emphasize Qsymia’s efficacy and safety message, especially through digital media efforts (see our 1Q15 call for more on this work) and a “more focused” sales force.  Vivus’ moves exemplify the challenges of the obesity pharmacotherapy market as revenues have long been lackluster relative to early expectations, and we will wait to see how this slow movement impacts the other obesity companies as Arena, Orexigen, and Novo Nordisk report next week on August 5 and 6.

Questions and Answers

Q: In the light of the restructuring, where do you see the US branded obesity market peaking out in terms of revenue with these new four therapies? Do you think this is a $500 million market peak or potentially higher based on all of the headwinds you discussed in your prepared remarks?

A: That’s difficult to estimate. One of the guiding posts that we’re watching is what phentermine currently has in the market, in terms of prescription volume. There are many different factors that will gauge where this market can go. The payer market is a critical piece. We’ve seen at least some adoption within that market. I think the Treat and Reduce Obesity Act is an important addition to that market. Unfortunately, we all know that 2016 will be dedicated to an election of a new President so I don’t really see that gathering speed until 2017. But I still see the market as holding a great deal of promise. I think it’d be very difficult right now to suggest where the total market will be.

Q: On the CVOT, in your meeting with the FDA, did they express preference on how to satisfy the PMR?

A: That’s a great question. The FDA, as you know, has required CVOTs, for many of the metabolic products. We’ve discussed with them if there can be different potential constructs to do so such a trial. They’re open to listening to other alternatives. That’s why we’re bringing together experts to suggest additional potential alternatives and they have agreed to stay very involved in this as we work through this process.

Q: Do you have an idea of when you’d go back to the Agency with your list of proposals?

A: Right now, we’re gathering experts for discussion. I can’t really say when we’ll go back but I can tell you that it’s a top priority within the company.

Q: Is it reasonable to assume that if you do the CVOT, you won’t start it this year?

A: Yes, that is reasonable.

Q: Where do things stand with ongoing litigations with Qsymia with generics? What gives you confidence on your long-term IP protection of the product?

A: We believe strongly in our IP state for Qsymia. We have not set any litigation dates as of yet. We are working diligently on our case and we believe that we have a strong case. We don’t know with the acquisitions – what that will do since both parties are involved so results of that merger remain to be seen – but we are preparing diligently for what we think will be successful defense of our patents. But only the federal courts will decide that.

Q: I was wondering if you could remind us that you’re going down to 50 sales reps from originally 100. Do these include Kadmon reps or are they additional?

A: No, those don’t include Kadmon. Kadmon reps are additional. We do not duplicate any physicians with this initiative.

Q: I believe that the 2016 Express Scripts formulary list came out today and Qsymia was on the exclusion list. Could you comment on that and what led to the loss of that formulary?

A: I’m not in a position to comment on that. I wasn’t aware that that came out today. We believe that with Express Scripts, we have good coverage. Only certain payers use that exclusion list so I don’t think there will be a big impact from that.

Q: On the PMR with the FDA and this heart rate variability trial, is that something that you hope to use as a substitute or is that a trial that you’d like to run to show data to the FDA and then run something after that? Could you elaborate on the strategy?

A: The heart rate variability study was always a subset of what we were doing as part of the CVOT. We feel that it’s important to Vivus and not necessarily the FDA to look at the effect on heart rate variability because we believe that there is no safety impact but there is an increase in heart rate in some patients. So this will let us take a look from what that means from a safety standpoint and we will certainly show it to the FDA but this was part of the ongoing CVOT anyways.

Q: Can you clarify on the sequential changes in the reductions to the sales force?

A: In the first quarter, we had 150 reps. We’ve reduced that to approximately 100 reps and now we’re going to about 50 territories. We also have vacancy rates going on, etc.

Q: As a bigger picture strategy question, what are your thoughts on what has worked? With the remaining reps, who will you target and how can you optimize that?

A: We will focus on those doctors who know Qsymia. Within each territory, we will also go after physicians who have patients who have used other obesity therapies and who have failed on those therapies. The data is very clear on what physicians are prescribing. And when we see opportunistic situations, we will deploy reps accordingly. We will understand how to deploy based on how the market changes in the future.

Q: Can you comment on the length of the duration of patients staying on Qsymia? Have you seen any changes on this?

A: Based on the tracking we’re able to do, which is not as precise as on mail order, we see patients staying on the drug somewhere between four and a half to five months.

-- by Melissa An, Sarah Odeh, and Kelly Close