Is it Time to Buy Vivus on the Dip?

From an investing standpoint, Vivus, Inc. (NASDAQ:VVUS) appeared to get ahead of itself again earlier this year, as hype in the obesity market reached a fever pitch. The company saw its stock price rise to over $22 earlier this month, only to see it take a nosedive and fall 20% last week. Despite these short term losses, Vivus does show solid prospects since the introduction of its anti-obesity drug Qsymia.

VIVUS, Inc. (NASDAQ:VVUS)

For 3Q, Vivus reported EPS at a loss of $0.40, compared to the same quarter last year of $0.10. The loss was contributed to increased selling and administrative expenses on drug commercialization. Most notably were the results for Qsymia, which saw prescriptions up 30%, and over 700 physicians employing the drug in only its fifth week on the market.

In mid-September, the company announced it was launching its drug Qsymia and that it would be eligible for home delivery through CVS Caremark Corporation (NYSE:CVS) and Walgreen Company (NYSE:WAG), two of the nation’s top pharmacies. Both trade in line on various metrics, including P/E and profit margins. The recent fallout over the Express Scripts contract is now being felt by all three companies, with each down over 3% during the last month. CVS has taken the least amount of damage, and is actually seeing positive gains thanks to Walgreen’s mishap. Express is down the most over the last three months at 15%, and will likely continue to feel most of the pain going forward. Walgreen is still attracting shareholder interest thanks to its +3% dividend yield.

Other notable biopharma company and top Vivus competitor Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is also making a name for itself in the anti-obesity market. This drug maker was down 5% after its 3Q results, but its obesity drug Belviq is not expected to hit the market until 1Q 2013. The EPS results showed Arena had lost $0.07 per share, compared to $0.16 for the same quarter last year.

Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR) is another widely popular biopharma company that has traded in wide swings this year. The pharma company took a hit when concerns arose over marketing practices of its drug hit the newswire, and coupled with that were limitations of insurance reimbursement for only specific uses of the drug. The ramifications have been that the company tumbled 40% year to date, but it recently begin paying a dividend that yields over 3%, signaling that management is a strong believer in its earnings stability. This biopharma company has seen several funds dump their 1Q stakes during 2Q, including Palo Alto Investors and Adage Capital, both selling off over 40% of their holdings.

Hedge funds made some big bets in pharma during 2Q, with those investing in Questcor and Vivus losing out big. Both anti-obesity companies continue to be speculative plays. While we see Questcor as being less speculative than the other two, given the company’s positive earnings, the long term growth is likely not as robust for its drug as that of Vivus and Arena. Valuation at this point is virtually useless with both anti-obesity companies still running negative earnings and hemorrhaging cash to commercialize their drugs. Thus, we look to the companies’ long-term growth rates for guidance.

Currently, Arena is up a ridiculous amount year to date at 340%, with Vivus up only 10%. Meanwhile the expected five-year growth rate for Vivus blows Arena’s away. Sell-side analysts expect Vivus to grow EPS at a 5-year CAGR of 50%, compared to Arena’s 25%.

The fund interest in Vivus has also dominated that of Arena. The top fund owners in Arena were small firms with moderate stakes, while Vivus saw both Passport Capital and QVT Financial owning over eight million shares each. QVT’s position made up almost 20% of the firm’s 2Q 13F, while Passport’s made up over 7.5%; check out all the funds owning Vivus. As another vote of confidence for Vivus, Passport announced in a 13G filing last month that it had increased its share ownership by 5%, from 8.1 million shares to 8.5 million shares. Now may not be a bad time to “monkey” Passport into Vivus if you haven’t already.

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