Taking Stock: Vivus

Dear Mr. Berko:
My broker has recommended that I buy 1,500 shares of Vivus, a biopharmaceutical company that has the patent on a new obesity drug that actually works. I know that obesity is responsible for diabetes and heart problems, and cost our health system with 80 million obese citizens more than $150 billion last year. This looks like a good long-term growth opportunity, and I would like your analysis of the company. Ten thousand dollars is a lot of money to me, and I would like it to be as sure a thing is possible. So does Vivus really have a drug that works, and is it a solidly financed company?
W.P., Gainesville, Fla.
Dear W.P.:
The only sure thing is that there is no sure thing. Vivus (VVUS-$6.02) came public at $15 in l994. And a few years later, widows, orphans, trust funds and blue-collar workers mortgaged their homes to buy everything and anything with the prefix “bio” in its name. “Bio” was the rage in l996 and l997, and promises of exciting discoveries filled the air like visions of cotton candy, red caramel apples and sugarplums. By l997, VVUS was scorching hot, rocketing to $81, and a few months later, the shares went “splat” as the bubble of hope and dreams burst. 

VVUS develops drug therapies for sleep apnea, diabetes and, of course, obesity. Qnexa is VVUS’s obesity drug, and there is a recognizable body of evidence that says it works. Phase 3 clinical trials indicate Qnexa is responsible for “significant weight loss” and “significant improvements in cardiovascular, metabolic and inflammatory risk factors.” 

According to a source at the FDA, the stuff does work, but along with the weight loss, you also get fairly intense headaches, cottonmouth and a case of constipation from hell. Eliminate those side effects, and Qnexa could be a panacea for the 20 percent of Americans who are terribly obese.

The fo’c’sle gossip, according to a hedge fund manager, is that Qnexa won’t make it on the pharmacy shelves of Walgreen or CVS. In addition to the above-mentioned side effects, it also causes sleep deprivation, a high incidence of upper respiratory tract infections and makes you tense as an E string. I think I’d rather be obese.

Anyhow, this $18.5 million revenue company doesn’t butter my bagel, and its drug pipeline is nearly as empty as Mother Hubbard’s cupboard. VVUS has $20 million in debt, 80 million shares outstanding (a 20 million short position) and last made a profit 10 years ago when revenues were $27 million. 

I can recommend that you buy 1,500 shares of the stock, but I won’t. Its drug pipeline is underwhelming, the Street projects a loss this year of a buck per share and a loss in 2011 of slightly less. And while there are l5 analysts who follow VVUS, not one of them has a “buy” recommendation on the stock. And if $10,000 is a lot of money to you, I’d stay far, far away from the stock market. Tell this joker of a broker that JPMorgan has a good research report on VVUS, which basically parrots what I told you.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com.
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