Vivus’ Qnexa Impresses at ADA

Vivus, Inc. (VVUS - Analyst Report) was very active at this year’s American Diabetes Association (ADA) meeting held in early June 2009. The company presented impressive data on Qnexa that demonstrates both the significant weight loss and glycemic control benefits of the drug.

Glycemic analysis of the phase III 28-week EQUATE (OB-301) data, which was originally released in December 2008, demonstrated that patients on the full dose of Qnexa (15mg phentermine / 92 mg topiramate controlled release) showed a reduction in HbA1c by a placebo-adjusted amount of 0.11%, while losing approximately 9.2% (19.8 lbs) of their body weight. Patients on the mid-dose of Qnexa (7.5mg phentermine / 46 mg topiramate controlled release) showed a reduction in HbA1c by a placebo-adjusted amount of 0.10%, while losing approximately 8.5% (18.2 lbs) of their body weight.

Long-term data from the phase II 56-week DM-230 trial demonstrated that patients on the full dose of Qnexa had a mean reduction in HbA1c by 1.6% (8.8% to 7.2%) vs. 1.1% (8.5% to 7.4%) for patients taking the placebo and stand anti-diabetic medication. The trial also demonstrated significant improvement in fasting plasma glucose, from 176mg/dL to 133mg/dL for the Qnexa group vs. 171mg/dL to 145mg/dL for the placebo.

Additionally, patients taking Qnexa for the 56-week program lost 9.5% (20.5 lbs) vs. only 2.7% (6.1 lbs) for the placebo control.  Approximately 65% of the patients taking Qnexa lost >5% of their body weight vs. only 24% for the placebo. The results for the >10% category were also impressive, with 37% for Qnexa vs. only 10% for placebo. 53% of the patients in the Qnexa group achieve ADA HbA1c goal of below <7% vs. only 40% for the placebo. Patients taking Qnexa also showed improvement in blood pressure and triglycerides.

Vivus currently trades with a market capitalization of only $380 million. Management exited the first quarter with $165.2 million in cash, positive initial phase III data on a potential blockbuster multi-billion dollar drug, and two additional niche multi-hundred million dollar phase III drugs in sexual dysfunction. By almost all calculations, the stock looks significantly undervalued. However, the risks of clinical development are high, and getting drugs past the U.S. FDA, specifically in the area of behavior modification, such as smoking and alcohol cessation and obesity, has been extremely difficult to predict.

Given the risk of phentermine and topiramate, we do not believe the stock will significantly out-perform the market until the FDA decision.  However, with improved visibility, Vivus stock could be worth far above its current value.

The key wildcard events over the next few quarters include the 56-week phase III data on Qnexa from the EQUIP and CONQUER clinical trials -- expected in the third quarter 2009 -- and the initial phase III data on avanafil -- expected in the fourth quarter of 2009. Additionally, management is likely to start entertaining partnership discussions on Qnexa, and potentially even avanafil and Luramist, later in 2009.

Vivus would be an extremely attractive acquisition target for a larger pharmaceutical company. Obesity is a highly coveted and wide open market. Big pharma managements are clearly interested in obesity, as well as sexual dysfunction. The acquisition of Vivus brings in three phase III candidates -- something most big pharma companies are in desperate need of. As visibility on Qnexa and avanafil improve, we would not be surprised to see interest from potential suitors soar.